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Blog - Published 6th December 2016

How to keep your key tech staff

How to keep your key tech staff

The impact of Brexit and the Trump presidency on the technology sector and wider economy are yet unknown, and this has led to a lot of uncertainty in the business community. A ‘wait and see’ approach appears to have been adopted, but despite this, activity has remained resilient and business has indeed ‘trucked along’, emphasised by the positive GDP forecast for the third quarter of the year.

For technology companies – especially those in the SME space – cash flow problems tend to be prevalent. This is because unlike traditional companies, a significant proportion of their resources are spent harnessing their specific technology. A simple review of the IPO markets will see that less value is placed on current profits for technology companies when compared to other companies.

How should tech companies compete?

Arinze Nwobodo_320X238First off, tech companies shouldn’t put their heads in the sand. On the face of it, one might think that the sector’s best talent could be lost to the finance and other sectors as ‘headline’ salary packages could be deemed better elsewhere.

Luckily there are a number of tax efficient government initiatives that specifically exclude some professions including the finance and legal sectors, but fit seamlessly into the technology sector.

One such scheme that can be used as part of a remuneration package in the technology sector is the Enterprise Management Incentive (EMI) Scheme.

What is the Enterprise Management Incentive (EMI) scheme and how does it help?

Ideal customer profiling for SME businesses by Menzies Consultancy team

EMI is a government approved scheme that allows key employees to be granted options in the company which would be exercisable when certain conditions are met. There are several benefits to this for both the employee and the company including:

    • The agreed exercise price can often be heavily discounted to take into account a minority shareholding for example.
    • It can be set up so that there are no tax implications on the individual at either grant or exercise of the options.
    • The company gets a business tax deduction based on the market value at the exercise date (regardless of the price paid by the employee).
    • It can be set up so as not to have negative cash flow implications on the employees.
    • It aligns the interests of the key employees with those of the shareholders which should only serve to benefit the company.

The entrepreneur’s relief (which sees 10% capital gains tax payable on a disposal) conditions are relaxed under the EMI scheme.

What if EMI is not right for you?

Aside from the EMI scheme, there are a number of other ways in which key staff members can be remunerated including:

  • Growth Shares
  • Enterprise Investment Scheme (EIS) in certain circumstances
  • Unapproved share options

The downside of some of these when compared to the EMI scheme is the immediate cash outlay for the relevant individual at the outset to purchase the shares. Although this may be a stumbling block, each of these options should always be considered before a firm decision is made.

How can Menzies help?

Business negotiationThere are a number of conditions to be met for each of the above, both initially and on an ongoing basis. There are also annual compliance requirements, where penalties for non-compliance could be as high as £5,000 in certain cases.

We have experience in all of the above, from the cradle of the initial set up including obtaining the relevant clearances from HM Revenue and Customs right through the eventual disposal of the shares.

Due to the number of potential pitfalls at every corner, professional advice should certainly be sought before embarking on such a journey.

For more information on how to keep your key tech staff contact Arinze Nwobodo by phone on 0207 465 1934 or email anwobodo@menzies.co.uk.

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