ARE YOU AWARE OF THE PRACTICAL CONSIDERATIONS?
What happens when an employee leaves the company, for whatever reason, during the lifetime of the scheme? Do they forfeit options? If they have already been awarded shares, will there be a provision compelling them to sell? There is more than one way to handle this type of situation, but you need to have a clear policy in place from the outset. If the company grows over time and more employees receive shares, the value of the shares can become diluted, which can have the unintended consequence of leaving staff of longer standing feeling penalised, which, in turn, can generate active resentment. Again, the key point here is for you to be aware of this scenario at the outset and look to plan accordingly, rather than finding yourself looking to deal with the situation only as it occurs. Again, as stated earlier, there is no end to the number of questions you can ask yourself before proceeding. That doesn’t mean you should think yourself to a standstill and never make an actual decision. No, the point is to make clear that you do need to think about it and be clear on what is in your best interests before proceeding. Essentially, do your own research, talk to the specialists, and then make your choice and reap the benefits of employee share ownership.
There is no end to the questions we could highlight in this section. The more you think about share schemes in the context of your company, the more questions will come to mind. Some of the questions will relate to the idea of the plan and what you hope to achieve, like those asked above, but there is another category of question to be asked – those revolving around the more practical ‘nuts and bolts’ considerations. For example, you need to think about cost. Introducing a share scheme can be a complex undertaking and the costs associated with it don’t stop when you get it up and running. Ongoing maintenance over what will be a period of several years will also demand a substantial outlay. Some schemes will prove more costly to administer than others. That’s not to say cost should be the decisive factor when deciding what scheme to go with; more correctly, the point here is that you need to be aware of the cost implications when making that choice. If the awarding of shares is linked to individual performance, then you need to make sure that the criteria upon which that performance is measured are as objective as possible, otherwise you run the risk of creating resentment when the purpose is to incentivise and reward.
Powered by FlippingBook