Hospitality insight: Equity incentives for employees

7th March 2023

With high inflation, possible recession and continued rail strikes, hospitality is feeling the squeeze for cash. In contrast to previous downturns however, the job market is still buoyant, with talent being increasingly difficult to attract and retain.

Use of equity incentives
Equity incentives are commonly used to attract and retain employees as an alternative to cash-based bonus schemes. The main reasons equity plans are often favoured are as follows:

  1. The lack up up-front cash layout for the business is appealing, where cash is generally squeezed
  2. The interests of the employees are better aligned with those of the owners
  3. Employees have a higher potential upside compared to cash-based incentives
  4. Equity incentives can be more tax efficient compared to cash-based incentives

Positive changes for CSOP options as an alternative to EMI
Whilst Enterprise Management Incentive (‘EMI’) schemes are popular for smaller businesses, the 250-employee limit prevents many hospitality businesses with multiple sites from using this.

For businesses at 250 or more employees, a Company Share Option Plan (‘CSOP’) should be considered as an alternative way to award tax-advantaged employee options.

Advantages of CSOP include:

  • Growth in value can be free from income tax and NIC
  • Exercise of options generates a corporation tax deduction for the employer company (even where no corresponding income tax charge arises for the employee)
  • Ability to agree a share valuation with HMRC in advance to help set the exercise price
  • Flexibility regarding vesting and performance conditions (beyond needing exercise within 3 and 10 years of grant to secure tax advantages)

From 6 April 2023, CSOP options will become even more attractive due to the following:

  • Doubling the limit of value of shares under CSOP option from £30k to £60k per participant
  • Abolishing restrictions on the class of share that can be used

How haysmacintyre can help
haysmacintyre has extensive experience designing and implementing CSOP and other employee option schemes and can provide a full, ‘one-stop-shop’ service for CSOP. For more information, contact David Bareham, Share Schemes Director, or Emma Bernardez, Partner and Head of Hospitality.

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