Quick Insights: Non-Approved Schemes

Non-approved share schemes offer startups a flexible way to incentivise employees without the need for strict adherence to government regulations that apply to approved schemes like EMI or CSOP. In this Quick Insight, we’ll explore what non-approved schemes are, their benefits, and how they can be effectively utilised by startups.

What are Non-Approved Schemes?

Overview of Non-Approved Schemes

Non-approved share schemes, also known as unapproved or unqualified schemes, do not need to comply with specific statutory requirements. This flexibility allows startups to design a scheme that best fits their unique needs and goals. These schemes can be tailored to offer share options, restricted shares, or other equity-based incentives.

Types of Non-Approved Schemes

Non-approved schemes can take various forms, including:

• Share Options: Employees are granted the option to purchase shares at a future date at a predetermined price.
• Restricted Shares: Employees receive shares with certain restrictions, such as holding periods or performance conditions.
• Growth Shares: These are a special class of shares that only benefit from the increase in value above a certain threshold.

Benefits of Non-Approved Schemes for Startups

Flexibility

Non-approved schemes offer greater flexibility compared to approved schemes. Startups can customise the scheme to fit their specific needs, whether that involves setting unique performance conditions, choosing vesting periods, or targeting specific employee groups.

Attracting and Retaining Talent

Offering equity through non-approved schemes can be a powerful tool for attracting and retaining top talent. By giving employees a stake in the company’s future success, startups can foster loyalty and motivation, which are crucial for growth and stability.

Simplicity

Non-approved schemes can be simpler to set up and manage since they are not subject to the stringent rules and reporting requirements of approved schemes. This can save time and resources, allowing startups to focus more on their core business activities.

Implementing a Non-Approved Scheme

Designing the Scheme

When designing a non-approved scheme, consider your startup’s objectives and the key behaviours you want to incentivise. Decide on the type of equity to offer, the vesting schedule, and any performance conditions. Customising these elements can help align the scheme with your business goals.

Communicating the Scheme

Clearly communicate the details and benefits of the scheme to your employees. Ensure they understand how it works, the potential financial rewards, and any conditions attached to the equity. Effective communication can enhance participation and employee buy-in.

Compliance and Reporting

While non-approved schemes are less regulated, it’s still important to maintain good governance and compliance. Keep accurate records of the options or shares granted, the terms of the scheme, and the performance of your employees. Consider seeking professional advice to ensure that your scheme is fair and transparent.

Enhancing Employee Engagement

Incentivising Performance

Use non-approved schemes to directly link employee rewards to their performance and the company’s success. By setting specific performance conditions, you can drive behaviours that contribute to your startup’s growth and profitability.

Aligning Interests

Non-approved schemes align the interests of employees with those of the company and its shareholders. When employees have a financial stake in the company’s success, they are more likely to be engaged and committed to achieving its goals.

Long-Term Motivation

Offering long-term incentives through non-approved schemes can help retain key talent by providing a clear path to financial reward based on the company’s success. This long-term perspective can be particularly valuable for startups looking to build a stable and motivated team.

By leveraging non-approved schemes, your startup can offer flexible and tailored incentives that align with your unique business needs, driving engagement and growth.

This concludes our series on “Choosing the Right Scheme for You.” We hope these insights have provided you with the knowledge to select and implement the most suitable employee share schemes to foster growth and success in your startup.