An employee share scheme refers to that practice wherein employees are given shares in the company they work for, or the opportunity to purchase shares in that same company.
This is a form of added employee benefit that’s slowly becoming common practice in so many major companies.
This is so after companies are realizing how much greater the benefits are than the possible losses if they’re to implement this kind of scheme.
In the case of cooperatives, this employee share scheme is also achieved by giving the employees an equal vote, like as if they’re owners themselves.
If you’ve decided to set up an employee share scheme for your business, then good for you. You’ve got promising benefits to enjoy, like the following:
1. Motivates Your Employees To Be More Productive
Productive employees are always an asset for every business.
After all, it’s not just enough to have a strong employee base, if they aren’t working collectively for the benefit of the business. What matters most is the contribution that your employees bring to the table every single working day.
With an employee share scheme, employees tend to work harder.
Now that they own shares in the company, all the more that they’ll be motivated to make sure that the company succeeds.
They’ll be more inclined now to working so hard to make the company so valuable, such that each share price increases. That way, they earn significant profits, too.
Apart from this, productive employees result in the following output for the company:
- It reduces cost and results in more profit.
- It results in a better and more efficient work environment.
- It improves the reputation of the business.
- It results in more satisfied customers.
2. Increases Employee Retention Rate
Employee retention increases when the company starts to implement an employee share scheme.
Take note of the very feature of this plan—it’s not just something that’s automatically offered as a reward for employees.
To enjoy this, the employee also has standards to abide by.
For instance, this employee share scheme can only be offered to employees who’ve met certain performance standards and have stayed with the company for a certain number of years.
With the latter, this can encourage employee retention.
In effect, the company enjoys greater returns. Remember that it’s cheaper to retain old, trustworthy, and capable employees than it is to keep hiring new ones.
Apart from cost-savings, there are many other advantages to a high employee retention rate, such as:
- Employees are now consistent with their jobs, which makes them better key players for the company’s success.
- Employee retention enables you to keep company talent and ideas, which are assets for your business.
- Consistently training new employees is a big waste of company resources, as these would’ve otherwise been spent furthering other more productive expenses of the business.
- Employee retention also reduces the hassle of customer turnovers as the human resources team will have so much time wasted training new employees over and over again, when they could’ve been working on tasks that can improve the management of the current team.
- The productivity of the organization improves simply because the employees onboard the team already know what they’re doing from A to Z.
3. Helps Compensate For Low Salary
Benefits and bonuses are often given by companies to compensate for a lower fixed salary.
No matter how much the company may want to increase salaries regularly, this is often easier said than done as there are always so many considerations to make.
First, employees’ salaries are a fixed significant expense.
If it escalates too much, then the fixed expenses of the company will escalate. This may affect the company’s ability to cover for other expenses.
Hence, the need for other options to keep employees happy. One of these is having an employee share scheme.
A good thing about employee share schemes is that these can be applied in conjunction with other employee savings plans, including:
- Defined benefit pension plan. This is also referred to as the traditional pension plan. Here, the employee receives a fixed monthly benefit at retirement, with no responsibility whatsoever to contribute to this plan by themselves out of their salary.
- 401(k) plan. In this type, the employee simply chooses which investments to put their fund into as a form of trust, and will only have complete control over the money once they reach retirement.
- SIMPLE plan. This stands for simple incentive match plan for employees. This is offered by smaller companies to their employees while they don’t have the financial capacity yet to offer more complex retirement plans.
Note, however, that the employee savings plans enumerated above are only common examples. They may differ depending on the country you’re reading this from. So, it’s always best to check first with your HR department.
4. Leads To Many Tax Benefits
Employee share schemes have many promising tax benefits, with the most important being:
- The contributions of the stocks are tax-deductible. This results in a cash flow advantage to your company as cash flow increases when tax decreases.
- The cash contributions are also tax-deductible. Another form of employee share scheme is that your company distributes the shares in the form of cash to the corresponding employees, usually done annually. When the cash is distributed, your company can enjoy a tax deduction for it.
- The dividends are tax-deductible. In many instances, certain dividends may also be issued by the company, usually given to high-ranking employees. Once these are passed on to the employees’ accounts or reinvested by the employees in the company, these amounts become tax-deductible.
Along this line, however, it’s important to note that all these contribution limits and deductions may vary from state-to-state or where you’re from.
All these considered, it’s safe to say now that these tax benefits have so many benefits that the company and the employees alike can enjoy.
But, like any other benefit, these have their own caveats, too.
For instance, if you’re running a partnership or a practice of profession, then this scheme may not be possible.
The key is for you to weigh the pros and cons of an employee share scheme, depending on your company’s current situation.
If it works to be feasible, then it’s worth giving a try.