The success of any company relies on the recruitment and retention of key employees who help drive the business growth. In order to retain good employees it is vital they feel motivated, appreciated and rewarded. In many sectors there is a constant battle to hire the top talent and pay the salaries needed to attract the cream of the crop; this can be difficult, especially for start-ups.

However, there are other ways of retaining and motivating staff using low cost and tax efficient approaches.
There are many ways of looking at this; one which has been identified and proven to be successful is the use of an equity (or share) interest in the company they work for. In addition to the employee-relations benefits that a share interest can bring, the growth potential of games companies makes them ideal for using share incentives with significant employee upside on offer.

One way in which equity interests can be provided is through EMI or Enterprise Management Incentives.

How does EMI work?

EMI has the following key characteristics:-

•       employees are given an option with that right being triggered on certain future conditions being met (to match the desired business goals);
•       the employee can buy the shares on exercise for a price equal to their market value when the option is granted; with the incentive being for the employee to maximise the growth in value of the company;
•       the employee incurs no up-front cost on being granted the option and there is no downside risk to the employee;
•       on exercising the option, the employee becomes a shareholder and can then realise value from the shares on a liquidity event.

The benefits of EMI

EMI offers the following advantages:-

•       flexibility in design; with the ability to include retention and performance linked conditions;
•       relative ease of implementation with many EMIs being implemented within 5-6 weeks;
•       an opportunity to articulate business goals and align employee and shareholder interests; and
•       significant Government backed tax breaks both for employer and employee.

Key design issues

Due to its flexibility, EMI can be designed to meet the required business goals for the company in question. Some of the key decisions that a company implementing EMI will need to make include:-

•       who should participate?
•       what should the aggregate EMI pool be for all participating employees and what should individual allocations be to employees out of that pool?
•       when should the options become exercisable and the employee be capable of becoming a shareholder? Typically in games companies, exercise is based on achieving a liquidity event or on continued service for a set period of time; and
•       what should happen to employees who leave prior to the options becoming normally exercisable?

For more information please see: https://www.wrighthassall.co.uk/employee-incentives/emi-options/