What options do you have to incentivise employees?

As an owner-manager, you know the goals, drivers and long-term objectives that you’ve set for your business. But how do you incentivise your employees and get them fully engaged with your business plan?

Share incentive schemes can be an excellent way to increase buy-in and motivation within your workforce – but it’s crucial that the schemes, benefits and end value that you offer is tailored to the exact needs of your employees.

In this post we explain the importance of excellent communication skills when setting up an incentive scheme, and the need to deliver incentives that match your employees’ life goals.

Why is incentivising your team such an important part of good management?

There are several answers to this question. If you don’t incentivise your team there will be other people in the market who will. There was research a while back that showed that 85% of the workers surveyed felt more motivated to do their best when they had an incentive. If your competitors are offering these incentive schemes and you’re not, it puts your business at a big disadvantage.

Enterprise Management Incentive (EMI) share schemes are such a key part of giving SMEs an advantage when looking to recruit and hire employees. But for the scheme to work, you and your executive team need to comprehend the value of an incentive scheme.

There are three levels when it comes to awareness of EMIs:

1. Some companies have their heads in the sand re EMI and other incentives. The prevailing thought process is ‘I’m paying people, so why do I need to do anything else?’. But the salaries might not be at the going rate and there could be a feeling that employees could be better off elsewhere. That’s Team Ostrich – burying their head in the sand.

2. Some companies realise EMIs are important but bring in a scheme too late. That’s Team Sloth. They might eventually end up creating a scheme, but by this point their employees are already de-incentivised, disengaged and starting to leave. So it’s shutting the stable door after the horse has bolted.

3. Then there’s Team magpie. These owners will have heard from someone that incentive schemes are a good thing to have. So, the conversation will usually be ‘Thing X works really well, I’m told. How do I get Thing X?’. In these instances, you need to find out what the commercial drivers are for the owner and the business.

Whichever team you fall into, it’s vital to work closely with your employer solutions adviser and to start pinning down the ‘why’ around your desire to start an incentive program.

How important is it for owners to be transparent about their business goals?

Every conversation I have with an owner is about their long-term goals and the business cycle. If the incentives don’t tally with the goal, they can’t succeed.

Some owners want to build up a company to a certain level of profitability and then sell and the incentives they’re offering just didn’t sit well with that goal.

The law in this area can be very complex, the legislation isn’t straightforward and the processes are confusing. So, installing a scheme successfully means getting the communication right between the adviser, the owner and their employees.

Poor communication and positioning of the value of the scheme from the board and HR can kill it stone dead. If you go to the hassle of setting up a scheme and then your employees say, ‘so what?’, you’ve wasted your time.

Why is the communication of value so crucial to a scheme’s success?

In my experience, some employees will need more communication to get them to understand the full value of an incentive scheme. You need to make it relevant.

I can remember a case for a steel-making company, where the take up for the scheme was about 75% from the shop-floor workers, and only 25% with the office workers. This disparity came down to how the value was communicated to each group – with the shop-floor workers getting a more upbeat and positive script and the office workers the plain, unnengageing version.

It all comes back to the communications. You have to bring people into your strategic thinking. You are going on the journey together and giving them a sense of control over their destiny. Many studies show that people become less motivated if they feel that they’re not in command of their long-term future.

In tech businesses, for example, there is far more openness around the direction of the business and more of a ‘we are all in this together’ feeling. Employees may get a bigger salary at an established business, but the higher-risk start-up scenario can result in employees being given shares and really feeling involved in the destiny of the business.

How important is it to have the right people on the team?

You need a team that shares a common sense of purpose. Having people in the team who share your core values and objectives for the business is vital. You also need to tailor your incentive scheme to fit the needs of both the business and your people.

To tailor the scheme, start with your commercial objectives:

• If you’re a tech business, you might want to get beyond the minimum viable product (MVP) stage as your goal, with a window of two or three years before you exit.

• You might be looking at a five to six year timescale to grow a small business, scale it up, add value and then sell it on.

• You might also want to build up the business organically, have an income for the rest of your life and be there for the rest of your life.

Once you know your goal you can have an open and honest conversation about the team and whether they’re the kinds of people who will be motivated by your key objectives – and what kind of incentives are needed.

For example, if you’re a bicycle courier business with a high attrition rate, it’s pointless to have a share scheme. No one will stick around long enough to see the value.

What are the key options when setting up an incentive scheme?

As a private company, if you’re not already considering an EMI scheme then the question has to be ‘why not!?’. EMI gives your employees a route to share ownership a share in the proceeds of selling a business, so it’s the most flexible and tax advantageous scheme there is, at present.

If you don’t qualify for EMI, or you exceed the limits of the scheme, you could try a growth share plan (GSP). In an EMI, you give people the right to buy shares in the company. With a GSP you can carve out shares that will grow in value as the company grows. So, you get a low initial value but will increase that value as the business expands and becomes more valuable.

A good adviser will find out the fundamental things you’re interested in as an owner and will help you to realise those goals and choose the best way of creating an incentive scheme.

What are the main ways that Haines Watts can help with an incentive scheme?

As advisers, the main thing we bring to the table is challenge. Incentive schemes are not a ‘fire and forget’ kind of implementation. As the owner, you want this scheme to work and to incentivise your employees. So, we need to understand your business, your goals and how your employee mix can best be incentivised.

The timeframes can vary immensely. I’ve implemented EMI schemes within 6 weeks, but 8-10 is more usual. The positive impact of the scheme will take time to bed-in too. With some businesses it has an immediate effect, because the employees wanted an equity incentive. In others, it can be more of a slow burn where you get to the first-year anniversary of the scheme and employees start to see the rewards.

Ultimately, with the right consultation and planning, you can achieve great things with an EMI. If you’re entitled to set up an EMI scheme, it’s a no-brainer to do it.

Read our guide to find out more about the options available to incentivise your people.