UK government announces overhaul of employee share schemes​

By Jake Rickman​

What do you need to know this week?

The UK government announced its intentions to change the rules that govern employee share schemes. Specifically, it will reform two schemes:
  • Save as You Earn (SAYE); and
  • Share Incentive Plans (SIP).
Employee share schemes (ESSs) describe various tax and regulatory rules related to companies issuing their own shares to their employees. In effect, these schemes grant employees shares in the company or options to acquire shares now or in the future, usually at a discount relative to the market price.

Proponents of ESSs — which include both Labour and Conservative ministers, according to the FT — believe they incentivise employees because they directly benefit in the company’s fortunes as the value of their shares or options increasing in line with the market value. It also allows the company to recruit and retain more effectively, as ESSs form part of a company’s remuneration packages.

The purpose of the reforms is to encourage more companies to make use of SAYE and SIP, as well as to encourage lower-income employees to participate in the schemes.

This comes after the government published its Call for Evidence and HMRC published its own report related to the schemes.

Why is this important for your interviews?

ESSs form part of a suite of compensation packages many companies offer to certain employees. Understanding the commercial drivers behind ESSs can help you appreciate the dynamics of employment law matters like recruitment, retention, and remuneration. In particular, the concept of aligning performance incentives is at the heart of ESSs.

Accordingly, if you are interested in employment law, particularly from the employer’s perspective, this is a topic to familiarise yourself with.

How is this topic relevant to law firms?

Law firms are instrumental in structuring ESSs, which can often be quite complex from a legal and tax perspective. Clifford Chance, Freshfields, and Linklaters all have Band 1-rated Employee Share Schemes & Incentives practices.

These practices usually sit within wider employment law groups.