Tania Tonkin (left) and Craig West

Employee share schemes (ESSs) have become an important tool to recruit and retain talent, but there are complexities to the system potentially holding back wider spread use.

Early last year, national accounting, business and financial advice dmca introduced an ESS in an attempt to retain key staff members in the business in case directors retire or leave.

The firm now offers a percentage of shares owned by current or exiting shareholders to key employees at their calculated market value, which removes any adverse tax consequences for them. There is also a shareholder’s agreement in place to document things like how shares are valued in future, and what happens if an employee leaves.

It meant that dmca had to be restructured from a partnership to a corporate entity, with shareholder’s agreements created to document how shares are valued in the future and what happens if an employee leaves.

Currently, three senior employees have recently signed up to the share scheme, taking home a benefit from receiving dividends on top of their usual salary as profitability targets are met.

Director Tania Tonkin explains that the value of their shares is then a real investment in the business, increasing in value as the business grows.

Tonkin believes the schemes are a no brainer to turbo charge a business and help employees build wealth, but simpler government regulations and tax structures could help more small businesses adopt them.

“Any employee at dmca can become a shareholder in future. It means we can create an environment which makes it more meaningful to come to work every day and that translates to better engagement and buy-in.

“Having a scheme for employee buy-in makes for a more equitable environment – one where both workers, the C-suite, and all shareholders have aligned interests,” she says.

Rare as hen’s teeth

Despite the perceived benefits, Tonkin’s approach is extremely rare in corporate Australia.

Fewer than one per cent of Australian firms have any kind of employee options scheme in place, compared to around 22 per cent in the US according to the National Centre of Employee Ownership.

But as the skills shortage continues and high demand for all skill levels increases, offering higher salaries and other benefits may not be feasible to keep people for long periods of time.

Research from the Department of Innovation found that businesses with an ESS in place show better productivity and retain top talent for longer. These companies had lower employee churn, increased sales, delivered higher value and better productivity, and small businesses benefitted the most.