Rethinking Talent Retention; Can an Employee Share Plan Provide a Competitive Advantage?

September 2021

Paul Twist, Associate Director, Global Employer Services 

Record levels of open job vacancies coupled with, what some commentators have dubbed ‘the great resignation’, is placing pressure on businesses across the UK.

The Office for National Statistics (ONS) has estimated the number of vacancies between June and August 2021 at 1,034,000*. This is the highest level since records began in 2001, with vacancies across all industries growing in the quarter.

Regionally, more than a quarter of mid-sized businesses in the Midlands cite recruitment issues as their biggest barrier to growth, with 52% struggling to fill open roles according to our recent Rethinking the Regions survey. With the number of external pressures facing businesses, some are looking for new and innovative ways to retain key employees. For some, an employee share plan could be the key to employee retention.

Employee share plans have long been used as a tool to recruit, retain and incentivise employees.  They are commonly used as a long-term incentive where an employee only receives a reward under the arrangement after 3 to 5 years or if certain events occur.  For example, companies working towards a company sale may use a share-based reward to ensure their key employees are engaged and participate in the exit event in a way that their interests are aligned with those of shareholders. 

Over recent years the Government has looked to support wider share ownership including increased tax reliefs and simplifying the legislation in this area.  The UK tax legislation provides for a number of tax advantaged share schemes where the gains received by employees are taxed as a capital gain rather than employment income and subject to lower rates of tax (based on current tax rates). For example, Enterprise Management Incentive (EMI) share options, which are focussed at smaller companies (less than 250 employees), can allow the employee to benefit from a 10% tax rate on gains with the employer benefiting from a corresponding corporation tax deduction. 

Retention is only one side of the coin; many businesses are keen to invest in their people and are looking for creative ways to ensure they can attract the right people to grow their business over the long term.  Using an employee share plan can provide smaller companies a competitive advantage to recruit the employees they need to grow and who they might not otherwise be able to recruit through salary alone.

Statistics from our Rethinking the Regions survey show that 44% of mid-sized businesses in the Midlands have said they will focus their effort in upskilling their employees to support them to do different roles going forward, with 35% saying they’ll utilise experience hires for senior positions within the next 6months. As the economy continues to recover and workplaces reopen, share plans and incentives are being utilised by new and established businesses to retain and incentivise employees as well as differentiate themselves from competitors when looking to recruit talented individuals.  

Whilst careful consideration of what will work best for your company’s objectives is crucial, utilising an employee share plan could provide an opportunity for your business to stand-out in a candidate-friendly hiring environment. To find out which share plan is right for your business you can access our free diagnostic tool here: Share plans and Incentives | Tax - BDO

For more information on share plans and incentives please contact Paul Twist, Associate Director, Global Employer Services [email protected].

*Statistics correct at time of publishing


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