Employees: a business owner's greatest asset…..and sometimes his greatest headache. Keeping your employees motivated and performing at their peak should be easy? I mean, you jump out of bed every day firing on all cylinders, so why can't they? Sharing a little of the upside with them might help focus minds and galvanise your staff. Here are some tips on how you might go about it.

Cash is king

For some employees (often sales staff), a cash bonus is the only way to keep them truly interested and can be a very effective way of getting the best out of them. But cash bonuses can create a culture of expectation and, because they are based on short term performance, do not foster much loyalty. As if that were not enough, they do no favours to a company's cash flow and they attract PAYE and national insurance contributions.

Sometimes it's the little things that count…

Bonuses or share options might not be the right way to incentivise all employees, like back office or support staff, but that doesn't mean they have to miss out. Vouchers, movie tickets and small gifts can do a lot make employees feel valued and add to a positive working environment. The cost of these incentives is relatively low and, although they may technically attract PAYE and NICs, in practice HMRC often ignores them if they don't amount to much in monetary terms.

Give me a break

For some employees, time is more valuable than cash. For them, rewarding performance with an extra day or two's holiday can be immensely valuable and just what they need to recharge.

Share the love

Share option schemes have got a reputation for being complicated, expensive to set up and not particularly valued by employees. It is true that they are not always the best way to incentivise employees. But if your business is on a growth trajectory and the game plan is the exit by way of sale or IPO, then share options can be a really useful, cost-effective tool.

EMI…. not such a swindle

The Enterprise Management Incentive scheme (otherwise known as EMI) is a government-sanctioned, tax-efficient way of giving employee's a stake in a business. They work like this: the employee is granted some share options. The employee pays nothing for the options and the option exercise price is pegged to the value of the business at the date the options are granted. At a future date, when performance conditions have been met or when the business is about to be sold, the options can be exercised and, hopefully, the employee sells the resulting shares at a profit. The employee is taxed on the profit she makes at the lower capital gains rate (28% or even 10% in certain circumstances) rather than at the income tax rate (40%). If the employee leaves before the business is sold, they lose their options. Simple.

Okay, there are qualifying restrictions and various limits but the vast majority of small businesses will qualify for EMI. Moreover, the documentation to set up the scheme has become standardised, meaning that lawyers and accountants cannot charge too much for putting an EMI scheme in place for you. Oh, and by the way, the set up costs are tax deductible.

Smart incentives

Inspired to consider what you could do to give your team a boost? Ask yourself these questions:

  • When did you last give a member of staff a cash bonus and was it worthwhile?
  • Have you got a small gift scheme to reward bright ideas and good pieces of work?
  • Have your key employees been offered a share option and do they understand it?
  • Do you know how much it would cost to award a high-performer a couple of extra days leave?
  • Do your employees know about all the incentives you currently have available?
  • Could you drop some incentives and replace them with others to produce better results?
  • Do you tell potential recruits about the full range of benefits available to them or just concentrate on their salary?
  • Who in your business is responsible for developing a retention and attraction strategy?

FACT

The Enterprise Management Incentive scheme provides a tax-efficient share option for employees.

This article first appeared in flyBe Business Uncovered in its May/June 2012 edition.