Talent Retention Schemes

For many startups, offering employee retention incentives are a critical way of keeping talent motivated to build a business from the ground up by giving them a stake in any future growth The UK provides several well-established mechanisms to allow them to do this.

The Enterprise Management Incentive (EMI) scheme is the most popular among startups. To qualify, companies must have gross assets under £30 million and fewer than 250 employees. EMI allows businesses to grant options over shares, typically at today’s market value, with significant tax benefits: no income tax or National Insurance on grant or exercise (if issued at market value), and gains on sale are usually taxed at capital gains rates (with Business Asset Disposal Relief). EMI is flexible — options can vest on exit, time or performance milestones — making it a powerful tool for securing top talent.

The Company Share Option Plan (CSOP) is open to a wider range of companies, with fewer restrictions on size or sector. Employers can grant up to £60,000 of options per employee. Gains are exempt from income tax and National Insurance if the option is held for at least three years, making it a useful option for more established businesses or those that outgrow EMI limits.

Growth shares are a private contractual arrangement, commonly used where approved schemes are unavailable. Employees are issued shares that only participate in value above an agreed threshold, aligning incentives with the creation of new shareholder value. For entrepreneurs, they offer flexibility in tailoring incentives without the statutory restrictions of approved plans.

Together, these schemes help entrepreneurs conserve cash, attract skilled employees, and share success fairly as the business scales.

Further reading

• Farringford Legal — Enterprise Management Incentive – EMI Schemes

• GOV.UK — Tax and Employee Share Schemes