EMI schemes: The key to retaining your top talent

As many businesses battle the ‘great resignation’ in the current candidate led job market, our Client Services Director, Rebecca, shares her thoughts on what business owners can do to retain and motivate their key employees.


And Rebecca’s advice for retaining your top talent comes in the form of Enterprise Management Incentive (EMI) schemes – a tax beneficial incentive which grants share options to certain employees when set conditions are met. The schemes tie those key team members into the business with the promise of financial reward longer-term.

So, what is an EMI scheme?

Simply put, EMI schemes are an employment incentive designed to keep team members who are essential to your business motivated to achieve the business’ goals for growth, by giving them share options in the company that can be linked to the company’s financial performance or eventual sale.

If shares were simply given to employees outright, it wouldn’t drive the employee to meet certain targets and can also be expensive for tax purposes as the market value of the shares will be taxed as additional earnings. Instead, an EMI scheme grants share options which often don’t incur any tax liability until the shares are ultimately sold.

Rebecca says “An EMI scheme is only for very key employees – those people who you’d be lost without, such as high end managers or those with big responsibilities which are key to business operations and growth”.

The scheme gives these individuals an option to purchase shares at a later date – they don’t own the shares, until certain trigger points are reached. The trigger points are set out in the EMI scheme agreement, so everyone has a clear understanding of what needs to be achieved from the off. To get the best out of employees in terms of performance, Rebecca’s advice is to implement trigger points based on turnover reaching £X or achieving a profit of £Y. She also advises including a director’s discretion clause within the agreement, giving directors the power to override the set trigger points if the individual over performs and you want to reward them earlier than planned.

A great benefit of an EMI scheme is that the shares are locked in at today’s value, so as the business grows and increases in value, it will not cost your employees more to purchase the shares than if they were to buy them today. Plus Rebecca says “This means that when the employee sells their shares at a later date, they get a piece of a bigger pie as a reward for their hard work.”

Who is an EMI scheme suitable for?

There are some key conditions to think about relating to the company, the employees, the options and the right to exercise them before an EMI scheme is considered.

These include:

  • The company must have less than 250 employees and gross assets of no more than £30 million.
  • Employees must spend 25 hours or more per week or 75% of their working time, whichever is lowest, working for the company (or group).
  • The options must be granted for commercial reasons to recruit or retain an employee, and not for tax avoidance.
  • Each employee’s maximum entitlement is limited to a market value of £250,000, and the total market value of the un-exercised options does not exceed £3 million.
  • The options must be capable of being exercised within ten years of the date of granting them, but there does not have to be a fixed date.
  • You notify HM Revenue and Customs (HMRC) of the scheme within 92 days of the options being granted.

You can learn more about the details and conditions of EMI schemes in our Guide to Enterprise Management Incentives in your business.

Why reward your team with an EMI scheme?

Rebecca’s three key benefits of rewarding employees with an EMI scheme are…

It’s a journey for growth

An EMI scheme marks the beginning of a journey to grow the business with your key team members, whilst retaining your top talent and ensuring they get rewarded in the long run.

It’s a safe option for businesses too – if an employee terminates their employment, their options are terminated immediately as per the EMI agreement.

It’s mutually beneficial 

Research has shown a clear link between employee share ownership and increases in productivity, so an EMI scheme is mutually beneficial, giving both the employer and employee long-term incentives.

An EMI scheme incentivises employees to work hard to increase the value of the business, because they know that the greater the value, the more reward they’ll reap down the line.

It’s a tax free benefit

For employees, EMI schemes are initially a completely tax free benefit; no tax liability is incurred when options are granted. Employers also generally benefit from tax relief in the form of corporation tax reduction when the options are exercised.

Think an EMI scheme could benefit your business?

There are considerable benefits of introducing an EMI scheme, which include tax benefits for both the company and the employee, as well as retention, motivation and improved performance of key employees now with a stake in the company. For a business on a journey of growth, these benefits far outweigh the costs of setting up the scheme.

If you have ambitions to grow your business, talk to us to see if an EMI scheme could be right for you and your team. To arrange a private call or meeting, email your dedicated Client Services Director or confidential@djhmittenclarke.co.uk.

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