BEST PRACTICE
Recruiting and Retaining Skilled Employees
by Maybeth Shaw, BDO Northern Ireland
n our last Quarterly Economic Survey in conjunction with the Northern Ireland
IChamber of Commerce, we reported that recruitment difficulties were a major concern for local businesses, with a staggering 81 per cent of manufacturers and 71 per cent of services businesses saying they had difficulty recruiting for positions in the second quarter of this year.
We reported that recruitment difficulties particularly in professional and managerial staff and skilled trades for manufacturers placed a burden on other employees and lowered productivity. Recruiting and Retaining skilled staff are seen as one of the main factors restricting business growth and lowering productivity. There is an apparent lack of appropriate skills, and not enough applicants with the required attitude / motivation.
Similar results were seen in the Future of Family Business survey, with recruiting and retaining employees becoming increasingly difficult. An apparent shortage of appropriate skills, together with an uncertain future for EU nationals working in Northern Ireland and the potential impact of the National Living Wage, mean that some businesses are struggling to attract the right employees and retain the employees they have.
Employers are having to be more inventive and generous in the benefits they offer employees to retain their key employees and attract the skilled workforce they require.
Key considerations in incentivising employees
There are some basic considerations when looking at which benefits you offer employees: 1 The benefit needs to be a real incentive( something the employee will be able to realise in due course), 2 The benefit must not be a disincentive for other staff, 3 It should be capable of being withdrawn in the event of nonperformance( e. g., if the employee leaves the business), 4 Ideally the incentive will provide some tax advantage for the employee and / or the company, 5 The Implementation costs and administration must be proportional to the incentive provided. Many Family Businesses in Northern Ireland reported that retaining Family Control of the business was important, however they are not adverse to giving shares / share options to key non family
employees, in fact many realise that they may need to offer this type of incentive to attract the key nonfamily employees.
There are numerous ways that shares / share options can be used to incentivise employees, for example:
Tax advantaged Shares Scheme such as an EMI Scheme
An EMI scheme would typically be used to incentivise key management employees( although all qualifying employees can participate if the company so wishes).
With an EMI scheme, employees acquire options to purchase a set number of shares in the company at a later date. Typically an EMI scheme would be used to incentivise key employees if it was anticipated that an exit event was likely in the future.
On a sale the employee would exercise their options to acquire the shares and immediately dispose of them, and provided they acquired the shares for the market value at the time the options were granted, the proceeds they receive on disposal should be liable to Capital Gains Tax rather than Income Tax.
Allowing employees to benefit from the growth in the company only ‐ Growth Shares
Growth shares are a separate class of shares and are typically used when a large number of staff want to participate in the growth of the company, with a relatively low entry cost.
Growth Shares only entitle the holder of the share to participate in the value of the company over a set hurdle,( being the value of the company on the day the shares are issued plus an agreed hurdle).
The growth shares have no entitlement to value on day one as they only participate in the value once the company has surpassed the hurdle, therefore a low valuation can normally be agreed with HMRC, allowing employees to subscribe for a number of shares at minimum cost. When the employees sell their shares in the future, the resulting gain should be subject to Capital Gains Tax.
Awarding bonuses based on the share value of the company, or by reference to personal targets and objectives
Employees can be rewarded by cash bonuses based on share valuations( Phantom Share Scheme) or by reference to specific targets and objectives set. The employee will be liable to PAYE / NIC on the bonus when it is paid.
It is important to have a share valuation mechanism in place if a bonus is to be paid based on the value of the company or a method of evaluating performance if the bonus is to be paid on performance targets. The benefit of this type of remuneration planning is that the employees can be rewarded whilst never actually owning shares / share options in the business.
If you would like to know more about incentivising key employees please contact Maybeth Shaw or Angela Keery on 028 90 439009.
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