EMI Case Study 3

For An Employee-Controlled Company In Perpetuity

  • Private company currently worth £5 million with no plans for sale in either the short-term, the medium-term or the long-term.
  • Very fast growth company in the business of software testing and recognises the opportunities in the U.K. and throughout the world for its continuing growth.
  • Belief in the employee share ownership ethic for growth and development and wishes to see its shares recycled in perpetuity between its employees.
  • Sets option prices equal to the market value of the shares at the date of grant with employees buying their shares primarily through bonus monies.

The Solution

  • Exercises are made on an all-employee basis with all employees offered shares on the basis of a tiered structure prepared on the basis of objective and fair criteria linked to seniority.
  • Encourages early share purchase by restricting the opportunity for exercise to the period of three years from the date of grant.
  • Encourages some retention by not allowing sale of the shares until two years after purchase.
  • Exercises are satisfied through the employee share trust purchasing shares from the existing shareholders and then dispensing them to employees on exercise.

Interesting Scheme Features

  • The employee share trust operates as a surrogate market for the shares in the absence of a recognised stock exchange.
  • Recognised share valuation methodologies are used to establish a surrogate value for the shares on a six-monthly basis.
  • The same 20% of the share capital is recycled through the employee share trust adopting a commercial persona and acting as both provider and purchaser of the shares.