Share Option Schemes – Top 10 Mistakes to Avoid

Management Buyouts

Share Option Schemes – Top 10 Mistakes to Avoid

Dear Reader,

It takes months to recruit key team members so it pays to keep them motivated by rewarding their loyalty. Replacing key members can be frustrating, costly and often absorbs much precious Management time. A well designed and implemented Share Option scheme can be a great way to motivate and incentivise key managers.

The Idea

How can you align the objectives of key managers with the Business Owners agenda?  Most Business Owners strive to build the value of his or her business or to develop ‘Shareholder Value’ in corporate speak.  Implementing a well designed Share Option scheme can help give the key manager a similar goal to the Owner Manager, without some of the downsides involved in full Share Ownership.

Game Plan

Here are our top 10 mistakes all of which can be avoided:

  1. Issuing Share Options at the incorrect value so triggering an unwanted Income Tax liability.
  2. Allowing Share Options to impact your Salary & Dividend planning (they do not need to).
  3. Losing control of company decisions
  4. Not distinguishing between a Good Leaver or a Bad leaver.
  5. Share Options issued subject to unrealistic objectives.
  6. Not issuing Options through a Revenue approved EMI Share Option scheme.
  7. Not establishing a plan for how the Option holder can turn his or her Shares into cash.
  8. Setting the wrong level of Share Options – too few won’t motivate and too many could exceed the Revenue limits.
  9. Issuing Share Options without experienced professional advice.
  10. Not negotiating the Value of your business with the Revenue prior to Share Option issue.  (see our earlier newsletter on Business Valuations)

The End Result

We have developed a streamlined process to design and implement cost effective Share Option Schemes, for less than a typical  recruitment cost; please contact us if you would like to discuss this.  Alternatively click on more information on Share Options