Considering offering employee shares of the business

Altbiz

Hi all,
We're a small company and have had an employee with us for a few years now. This person has been an absolute work horse and has been growing in their ability and their contributions to the business.

We faced a difficult period 1.5 years ago but have worked our way out of it and they stayed with us through this. We recently gave them a decent salary increase, but this opened up a conversation about them having received a better offer from elsewhere after being headhunted, which they turned down because they didn't want to leave us high and dry. We don't have the resources to match that salary at the moment, but also due to the nature of our work we don't have as diverse experience as what other companies might be able to offer, so the person is in ways consciously turning down their career progression because they want to stick with us. So they do feel a bit underpaid and that the work they're doing isn't as interesting as it might be in other companies (no way to change the latter at the moment).

The person has a specific role that wouldn't be too difficult to refill if necessary, but getting someone this committed and hard working is rare, I think we've been very lucky in that regard overall. They know the ins and outs of the business, they can work autonomously, they're super reliable and honest etc etc. We feel that they would make a great manager one day and would really be able to help run the business should things ever change in our own situations.

The company has some unique aspects to it which are showing a lot of potential in our space. We want to expand the business over the coming years and if this is done well it could be quite lucrative, but it's obviously going to take good solid work to get there.

So the main thing that's coming to mind here is to offer them a % of the business, it would hopefully compensate for the other shortcomings as above and officially bring them in closer as a part of the company, which in all other aspects they already are.

Would appreciate any advice.

pedroeibar1

There are two issues here – staff retention and staff progression. The answer very much depends on the mind-set of the employee and only you have that knowledge. It appears you have a high opinion of that employee (work output, honesty, loyalty, potential, etc.). If s/he is motivated s/he will leave for pastures new unless they are better paid in one form or another or obtain more experience. I wonder how driven/ambitious the employee is if s/he has not yet moved, particularly in this employment market.

That calibre of employee is, as you correctly state, rare; approaches will continue to be made. You need to work on the loyalty and career progression aspects e.g. get him/her more involved in decision-making over time. Be aware that the more they learn the bigger the threat to your business should they leave and set up in opposition/ gp to a competitor, so in any process you need to have non-compete/non-solicitation clauses. To me the obvious solution is a share option scheme linked to performance – company makes profits and employee meets defined targets, s/he gets shares; best would be a new type of share without voting rights. You need professional help in setting this up. For some basic info Google ‘ESOPs’.

Be aware that all this might not be enough; I have seen people who did more than the above get a right kick in the teeth.

boring accountant

You need to look into KEEP (Key Employee Engagement Programme). It's specifically designed for situations like this. If you issue shares to them as a form of compensation they'll have to pay income tax on them and they won't like you for that.

KEEP allows them to receive shares and pay no tax on them until they sell. If you go down that route I recommend getting professional help because if you get it wrong your employee could get hit with a big tax bill.