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How to use employee share schemes to attract staff in a skills shortage

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RSM Perth
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// // Employee share schemes can help attract and retain quality staff, writes RSM's Andrew Ravenscroft...

As a startup founder, you no doubt know how important it is to find the right people at the right time to help you grow your business.

People who have the skills to do great work, and who also share in your vision and values.

In whatever way you come across these people – be it a chance meeting or a formal recruitment process – enticing them to work with you can be a feat in itself. Particularly in the current skills shortage, high-performing individuals are being tempted by more lucrative offers than perhaps ever before.

Convincing them to join you (or stay with you) when you don’t have the funds to compete with the big end of town can often seem impossible.

However, there are ways to make a compelling employment offer outside of an annual salary. In addition to flexible work, paid well-being days, and other employee benefits, employee share schemes can go a long way towards enticing quality staff.

An employee share scheme typically involves giving shares in the employing company, or the right to purchase shares at a reduced rate, to employees. They’re often tied to individual performance, so the employee is rewarded for their efforts while helping the company achieve its goals – and thereby aligning the employees’ interests with that of the shareholders.

Employee share schemes are certainly not new, and many employees are highly familiar with how they work. This can present challenges for startup founders who put little thought into creating an employee share scheme that actually delivers value and entices employees.  

How to create a compelling employee share scheme

Employers want to attract and engage talented people who are great at strategic and critical thinking. These are the employees who can solve tough problems and come up with innovative ideas that drive the business forward and create shareholder value.

It shouldn’t be a surprise then that these same employees will be quick to spot a dud offer when they see it. If presented with an employee share scheme proposition that promises the world but has almost no chance of delivering, they’re unlikely to see any value in it. Similarly, if it isn’t priced or valued at a concession, they probably won’t see it as something that supplements their salary so it’s unlikely to achieve the company’s goal of rewarding and retaining employees.

There are many ways to set up an employee share scheme, and to do it in such a way that financial success is genuinely shared with those who really deserve it. An experienced tax advisor can work with you to understand what this might look like and how to document it effectively.

Most importantly, they will be able to help you understand how tax applies to your share scheme structure – for both the company and the employees. Tax obligations are often overlooked when it comes to employee share schemes, and this can result in big issues for you and your employees.  

For example, employers who fail to disclose (to the Australian Taxation Office) share scheme interests that are due for tax assessment can be fined. Employees who agree to a poorly thought-out share scheme can get caught having to pay tax immediately on shares they won’t see value from for years to come. In the unfortunate event that the business doesn’t survive, the employee will have paid the tax for nothing. 

Ideally, you want to establish your scheme in such a way that allows you to use the government’s startup concessions which often deliver the most value to employees, while minimising their tax obligations. Depending on the nature of your business, this is often achievable with some planning – and could be the key to creating an employee share scheme that entices, retains, and motivates skilled staff to perform at their best.

Share schemes for long-term success

As the ability to secure high-performing employees gets increasingly competitive, every step you can take to attract and retain them could make all the difference.

Try not to neglect existing staff either; particularly those who may have been working for some time off the back of a loose handshake agreement. Perhaps you promised them equity in the company over coffee and have been operating under the assumption that this will tide them over forever.

If they are important to you, put it in writing. If you fail to do so, you might end up losing them or limiting your options in structuring a share scheme when the time comes to formalise the arrangement. Ultimately, it isn’t just good commercial practice, but a demonstration of your commitment to them – and it is actions such as these that empower you to build the type of business that has what it takes to make it.

Designing an effective employee share scheme is part art and part science. You should speak to a suitably qualified and experienced tax advisor who is able to assist you in navigating the complexities of the employee share scheme provisions, and who can advise you on how to structure a scheme that works for both you and your employees. Please feel free to reach out to the author for assistance, or contact your nearest RSM office.


andrw ravenscroft

This article was written by Andrew Ravenscroft, a tax advisor at RSM who provides specialist tax consulting services to pre-seed startups through to large listed companies.

Andrew’s primary focus is advising business owners and investors on the tax structuring of their affairs and on the tax outcomes of mergers, acquisitions and exit events.

Andrew is the former treasurer of eGroup, and a former co-founder and CFO of a Perth-based tech startup that has raised seed investment and sold products to over 30,000 customers across 60 countries.

RSM is a sponsor of Startup News.

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RSM Perth

Having grown into one of Australia’s leading professional services firms over the last 100 years, RSM Australia is committed to enabling clients through a greater understanding of what matters most to their business. Providing ready access to expert corporate financial and advisory accounting services, RSM Australia’s one-firm structure underscores a client-focused culture. This culture nurtures strong collaborative client partnerships across growth-focused entrepreneurial businesses backed by industry expertise and longstanding relationships with the SME and startup community.
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