 SIPs – share incentive plans
SIPs were originally introduced in 2000, known at that time as All Employee Share Ownership Plans (AESOPs), as the original name suggests they must be made available to all employees on broadly similar terms. However, those who have only worked for the company for a short time can be excluded.
While SIPs can be attractive to larger companies and groups, the cost of setting up schemes and the complexity of operating them often make them much less attractive for companies that can also qualify to use EMI schemes.
The basics
A SIP trust must be created to hold shares on behalf employees, generally for a minimum of five years. There are four different types of share that can be offered to employees:
Free shares – up to a value of £3,000 a year per employee. The shares can be released from the trust after five years without any tax cost.
Partnership shares – up to a value of £1,500 a year per employee. The employee can buy shares from their monthly salary and they are again held in the trust for five years.
Matching shares – up to a value of £3,000 a year per employee. Employers can offer to match the partnership shares bought by employees – up to two for each share the employee buys.
Dividend shares – up to a value of £1,500 a year per employee Dividends received on the shares held in trust can be used to buy further shares by each employee.
Clearly, the mechanics of operating such a trust will be complex and the associated costs often deter all but the largest employers.
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