Is an Employee Share Scheme (ESS) a good fit for your workplace? In a tight labour market, Australian businesses are looking for more ways to attract and retain the top talent in their industry. On the other hand, employees are faced with more options for companies to work for, so extra perks and incentives often make the difference between one job offer and another. That prompts some business owners to roll out an ESS. But as always, it may not be appropriate for all companies, and there are some key considerations to be made before embarking on this journey. Let’s look at what an ESS is, which types of companies often consider one, and the potential benefits for employee and employers.
What is an Employee Share Scheme (ESS)?
An Employee Share Scheme is a program that allows employees to acquire shares or options to buy shares in the company they work for, often at a discounted price. This can include various forms such as share options, performance rights, or employee share purchase plans. Typically, the primary goal of an ESS is to align the interests of employees with those of shareholders by giving employees a financial stake in the company’s success. If the company thrives and increases its overall value, the employee’s shares share those wins.
Positive Impact for Employers
For employers, an ESS can be a game-changer. Offering shares or share options can attract top talent, as employees see the potential for financial gain tied to the company’s success. Retention rates often improve, as employees with an ownership stake are more likely to stay long-term, reducing recruitment and training costs. Performance incentives are another significant benefit; employees motivated by the potential for financial rewards are more likely to innovate, work harder, and strive for the company’s success. Additionally, an ESS can enhance employee engagement, leading to a more committed and productive workforce.
Positive Impact for Employees
From an employee perspective, an ESS can be highly rewarding. Financially, it provides an opportunity to build wealth as the company grows. Employees often receive shares or options at a discounted rate, and under certain conditions, they may benefit from tax concessions. Beyond financial incentives, ESS can increase job satisfaction and a sense of belonging. When employees own a piece of the company, they are more likely to be engaged and invested in their work, which typically lends itself to a more fulfilling career experience. The alignment of employee and company success creates a win-win situation.
Ideal Workplaces for ESS
Typically, fast-growing companies, particularly startups and tech firms, consider developing an ESS. These workplaces often have limited cash flow but high growth potential, making share schemes an attractive option for compensating employees. Additionally, companies in highly competitive industries where attracting and retaining top talent is crucial may find an ESS particularly beneficial. Such workplaces can leverage an ESS to create a compelling employment package that stands out in the market.
Workplaces Where an ESS May Not Be Appropriate
It is worth noting that an ESS may not be suitable for every business. Small businesses with limited growth potential might find it challenging to offer significant financial rewards through shares. Additionally, companies with complex ownership structures or those in heavily regulated industries may face administrative and compliance challenges that outweigh the benefits. In such cases, alternative incentive schemes like performance bonuses or profit-sharing plans might be more appropriate and easier to manage. Talk to our Workplace Financial Advice team for more information on other options to attract and retain great staff – it’s something we help clients with every day!
Conclusion
Employee Share Schemes can offer substantial benefits for both employers and employees, fostering a culture of ownership and aligning interests for mutual success. However, it’s crucial to assess whether an ESS fits your workplace’s specific needs and circumstances. Fast-growing companies in competitive industries are ideal candidates for an ESS, while smaller or highly regulated businesses might need to consider other incentive options. By carefully evaluating the potential impact and administrative requirements, you can determine whether an ESS is the right strategy for your business.
If you’d like more information, please reach out to the Priority Advisory Group team at 1300 349 188, or via our website.