The benefits of employee share schemes

MOTIVATING STAFF It offers employees the opportunity to own a piece of the company they work for.

Last week I spoke of stakeholders and the need for entrepreneurs and corporations alike to recognise and acknowledge the crucial role that they play. One way of recognising a key stakeholder is an employee share scheme (ESS), also known as an employee share purchase plan.

Employees play a massive role and as an entrepreneur you must understand that your success or lack thereof rides considerably on their performance.

Essentially an ESS offers employees the opportunity to own a piece of the company they work for. This is done through a process where employees can either outright purchase shares, or a loan arrangement where the employer deducts an amount off their salaries to cover the cost of purchasing the shares. Other methods include withholding bonuses as share purchase payments, or remuneration packages that are share based and, last but not least, some companies simply outright give deserving employees shares as a thank you for their service.

The question is why would you as an entrepreneur have an ESS and is it mandatory? Mandatory, no, but it does have its benefits. If you are interested in such a scheme, the first step you must take is to decide what you want to achieve and benefit from the process.

One benefit is attracting top talent. Top talent is not cheap and they want to work at a place where they are rewarded handsomely for their efforts. There is no better way to offer the upside of a growing company than equity in the business.

Secondly, it allows you to retain top talent. How often have the bright apples left for greener pastures? Well one way to keep them is by making them part owners, that way their loyalty is with you and their business. How about motivation? Nothing motivates anyone in business more than being a co-owner, with all the riches that can come from success.

Another benefit is your broad-based black economic empowerment score card. An ESS can do wonders for your rating, which allows you to tender for more contracts and government tenders, with a better chance of winning based on your efforts in transformation. Or maybe your desire is to help enrich your employees and to see them live better lives? In that case an ESS can assist by paying out dividends to your employees on top of their regular salaries.

The benefits are many and it is a good initiative to pursue, but there are a lot of legal and tax issues that surround ESSs, of which I shall unpack in the next issue.

Munya Duvera is CEO at Duvera Elgroup