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Retaining your best talent in a recovering economy
According to most commercial bellwethers, the dark days of the recession are thankfully behind us and the economy is showing stable and promising signs of recovery across the Thames Valley region, writes Stephen Baker, associate director, Baker Tilly
A report by The Work Foundation, a government think tank, entitled No City Left Behind?1, which focused on the economic recovery on a geographical basis, included a top 10 list of places which are most likely to do well in the recovery.
Encouragingly several towns from the Thames Valley region made it into the top 10, with first place awarded jointly to Reading and Bracknell. With the market presence of a number of large blue-chip firms, improving transport infrastructure (Crossrail), and the proximity of several of the UK’s leading universities that are providing quality graduates, the Thames Valley is emerging as an employment powerhouse to rival London.
Certainly we at Baker Tilly have noted that a significant number of the businesses we are speaking to have stepped up their recruitment activity. However, this is bringing with it the inevitable challenge of how best to incentivise and retain their existing key talent in a recovering economy. There are alternatives to cash bonuses and pay rises to reward staff, and recent research from the Confederation of British industry (CBI) and Pearson2 suggests that staff can be equally interested in additional skills training and the reality of a good work/ life balance.
In our experience, taking a holistic approach to reward and linking into life choices and performance can be very effective.
The use of flexible benefits arrangements has long been recognised as a useful recruitment tool, and a comprehensive flex arrangement allows both recruits and existing employees to shape their remuneration to suit their family and lifestyle choices. In addition, as their personal commitments change and develop, employees can flex their package annually to keep abreast of their needs.
As well as the advantage gained from your corporate buying power, many flexible benefits arrangements also utilise available tax breaks, so delivering more value to your employees than cash alone. This can include items ranging from qualifying employee learning and development, to workplace parking, additional annual leave, life insurance, etc. as well as the government-backed cycle to work scheme.
THE BUSINESS MAGAZINE – THAMES VALLEY – FEBRUARY 2015
Salary exchange for pensions is now so common place that it is practically a requisite of many candidates but we are still finding many businesses that have still to implement this national insurance contributions (NICs) saving idea.
One of the most effective, and potentially tax efficient, ways to retain and motivate a company’s key talent is to implement a share plan or equity arrangement which is linked to performance, whether that is the performance of the overall business or specific performance objectives for the individual.
There are various tax-favoured arrangements available, some suitable for all employees, others designed more for the key talent who are expected to make a real difference to the growth and performance of the business. These arrangements really do help companies to engage employees and meet objectives, whether that is growth towards an exit/initial public offering (IPO), or the strategic transfer of ownership to those who are working in the business.
Baker Tilly’s employer solutions team is currently experiencing significant interest and activity from businesses keen to link the interests of individuals more closely with the business as part of their longer-term incentive strategy. In our experience, using equity-based arrangements to achieve these goals is very effective.
Although there are several tax-favoured arrangements available, we are finding that the most popular plan is still the Enterprise Management Incentive (EMI) which allows qualifying businesses and employees to benefit from tax/NI-free growth in the value of options between award and exercise with, if structured properly, only a 10% capital gains tax rate when the shares are eventually sold.
However, gaining momentum in the popularity stakes are Employee Shareholder Shares (ESS). This is a relatively new HMRC approved arrangement whereby tax/NI relief is given on the first £2,000 of share value received by an employee shareholder in exchange for their acquiring employee shareholder status which affords them different employment rights to a ‘normal’ employee. This arrangement also
has the potential benefit of a capital gains tax exemption on the sale of qualifying shares of up to £50,000. A popular spin on the vanilla ESS is a bespoke arrangement linking it in with specific performance conditions.
For any owners reading this article, we would stress that in many cases, although there may be some dilution, with the correct advice and planning it is possible to welcome your key talent to the ranks of ‘shareholder’ and to still protect the founder shareholder’s position of control and flexibility over dividend planning.
As the recovery continues to grow, what is clear to us is that the traditional remuneration structure of “salary-plus-pension” is a thing of the past. Businesses who wish to recruit, retain and motivate the very best talent really do need to think holistically about their reward offering.
For more advice or a discussion around effective strategies for rewarding and retaining key talent speak to Steph Wilson or Stephen Baker, details below.
Details: Steph Wilson 07581-569696
Stephen Baker 01483-307079
www.bakertilly.co.uk
1
www.theworkfoundation.com/Assets/Docs/ no_city_FINAL.pdf
2 “What Employers and Employees Want” – The Confederation of British Industry.
www.cbi.org.uk/business-issues/education-and- skills/education-and-skills-survey/charts-from- the-education-and-skills-survey/
www.businessmag.co.uk
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