There may be a number of reasons why an incentive arrangement is being considered. It is necessary to identify clearly from the outset the key purpose of such a plan, as it will then guide what type of plan is adopted (if any).
Reasons for considering an incentive arrangement include:
to align employees with the businesses/shareholders’ interests
to give employees an opportunity to accumulate wealth in a similar manner to shareholders
to encourage loyalty and retain staff
to reward employees
to remunerate employees in a cost-effective and tax-efficient manner
to relieve the pressure on cash for the company
to allow an owner to realise their investment/succession planning, and/or
to recruit and retain senior employees
Once it has been decided to operate a share plan, the planning process is essential. For an overview of the questions which need to be asked when planning a new incentive arrangement, see Practice Note: Planning new incentive arrangements. The outcome of these discussions will guide the type of plan(s) ultimately adopted and the terms of the plan(s). The main questions are:
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