Employee share schemes: What are they, and could they work for your business?
Employee share schemes — or ESSs — are a legal arrangement set up by businesses to allow their employees to own equity in the business. They are also known as employee share ownership plans, employee equity plans, employee options plans and phantom share plans.
They are suitable for small businesses through to the big end of town. In fact, many privately-owned businesses are surprised to learn they don’t have to be listed on the Australian Securities Exchange to offer shares to their employees. There are different types of employee share scheme plans to consider depending on the size and structure of the business and what the owner hopes to achieve from offering one.
Why use an employee share scheme?
Simply, businesses offer ESSs to encourage their employees to think and act like owners. By offering an employee a stake in the business’ success, they can serve to align the employee’s personal financial goals with that of the business.
Unlike bonus schemes, incentives and commissions, which have a place in business but are short-term solutions, ESSs aim to maximise the value of the business over the longer term by creating a team that is single-minded about working towards and sharing the benefits of a successful and profitable business.