Startups made easy. Sorted.

Share options are a powerful long-term incentive for employees
Option Schemes 4 min read
Expert reviewed

Explore your options: why share options could work better than a cash bonus

Published: 
Dec 9, 2019
Updated: Nov 24, 2023
Kirsty Macsween
Writer
Kirsty MacSween

Copywriter

Mo Saed
Expert contributor
Mo Saed

Head of Investor Sales

Before you start any conversations about cash bonuses, consider whether share options could be a better long-term and cash-smart way to reward and incentivise your team – both for you and your employees.

In this post, we explore why so many businesses are choosing to use option schemes as a win-win alternative to cash bonuses.

In this post

Share option schemes

1 in 5 UK option schemes are set up on SeedLegals

Build and run your option scheme the easy way - all with unlimited support from our 5-star team

Make options easy
Options Share Option

The number of UK companies that are giving equity to their employees has dramatically increased over the last ten years. The most recent statistics from HMRC show that over 16,000 companies ran ‘tax-advantaged’ (ie, HMRC-approved) share schemes in the 2021 tax year. That was up 6% from the previous year and a whopping 88% from 2010.

By far, the most popular way for small companies to give equity to their team is through the EMI share option scheme. That’s because it’s the most tax-efficient way to reward your team with equity, both for your team members and for your company.

Not eligible for EMI?
Not every company or every team member qualifies for EMI. Not a problem - Unapproved option schemes are a more flexible way to reward your team with equity.

Equity empowers employees
Options are a more tangible, long-term way to reward value

A cash bonus is an excellent incentive and/or reward – no doubt about that. But, once given, it’s gone. With share options, your employee gets the promise of a literal stake in the business they’re helping to build.

Why granting share options is often better than granting shares
- Your employee doesn’t get taxed on the grant
- You protect your current shareholders by deferring the actual share grant
- Extra tax benefits for your employee and your company under the EMI scheme
Read more: Shares vs share options

When someone owns even a small piece of equity in a business, their relationship with that business changes: they bring more to the table, emotionally, psychologically and demonstrate enhanced commitment – a commitment far beyond what money can achieve.

Unlike cold hard cash, share options help keep your team aligned. As a future shareholder in the company, they’ll know that building the company’s valuation is just as much in their interests as it is yours.

And when they come to exercise their options and sell their shares, those options will (hopefully) pay out many times over what they’d receive as a cash bonus today.

With SeedLegals, your team has access to their own options portal, complete with a handy calculator that shows what their options are worth. When they put in hypothetical valuations, they can see how much their options could be worth in the future. It's a great tool to keep your employees invested in continuing to build your company's valuation.

As you think about the best way to reward and motivate your team’s hard work, it’s worth considering whether options could be a more tangible and ultimately more lucrative way to show how you value their contribution.

Option Scheme Ebook Cover

Get your free options ebook

Keen to share equity with your team but don’t know where to start? Download our free ebook to learn how to set up an employee share option scheme with the right terms for your team.

Preserve your cashflow
Pay once to set up your scheme, reward multiple employees

Now that we’ve covered why share options can often be a better deal for the team, let’s explore why it makes sense for the business.

Beyond the supercharged employee motivation and retention benefits, giving options as a performance bonus helps you manage your cash flow.

Instead of parcelling out lump sums that take much-needed cash out of the business, you can invest in your business and your team by setting up an option scheme.

Mo Saed

Offering options is crucial for aligning everyone in the company with our common mission and goals. It’s an effective strategy to attract and retain top talent. At SeedLegals, all team members are option holders and it’s now the norm for all startup and scale-ups.

Although the valuation approval may take 4-6 weeks, you are still able to set the scheme rules up and send out draft agreements before the EOY.

Mo Saed

Share options expert,

SeedLegals

    So, how much do options cost?

    To set up an options scheme on SeedLegals, you need an Options Subscription. The subscription costs £2,490 per year. This includes:

    ✅Unlimited EMI share option schemes for UK-based, PAYE employees
    ✅Unlimited EMI valuations to get the best possible price for your team
    ✅Unlimited Unapproved option schemes for advisers, contractors and anyone based outside the UK
    ✅All the legal documents you need to ratify your scheme (including board and shareholder resolutions, option agreements and SH01s)
    ✅Option holder dashboard for your team to view and manage their options

    Compare this combined cost to the tens of thousands you’d award in year-end bonuses, and you’ll see why we think options as a bonus is a no-brainer.

    Watch the video

    For more insights on how to use options to motivate your team, catch up with this webinar, hosted by equity expert Hugo Hiley.

    Can’t watch the video? Click below for the auto-generated transcript.

    • Read the transcript

    Next steps: talk to the options experts

    Ready to get started? Or need to get some questions answered first? Book a free call with our team of experts.


    Start your journey with us

    • Beulah
    • Brolly
    • Oddbox Transparent
    • Index Ventures
    • Seedcamp
    • Qured