MT EXPERT: The bonus is dead, long live the alternative incentive scheme

What with 'clawback' clauses and 10-year delays, bonuses are losing their attractiveness. Grant Thornton's Amanda Flint lists three bonus alternatives.

by Amanda Flint
Last Updated: 18 Nov 2013

There’s no question about it: bonuses are going out of fashion faster than you can say ‘10 year deferral’. And with the deadline for the government’s pension auto-enrolment scheme approaching, it’s a good time for businesses to review the benefits packages they offer. If you can’t afford to shell out for bonuses, flexible and creative employee remuneration packages can provide a genuine incentive. Here are our three favourites:
Salary sacrifice

Admittedly, the words ‘salary sacrifice’ will sound scary to most employees - but because of auto-enrolment, employers may be facing a bigger total pension bill, as may the employee, who also needs to contribute to the scheme.

But rather than the employee making the pension contributions directly, salary sacrifice schemes can provide a cost-effective way to help employees build up their pension fund, and also support additional benefits packages. Employers don’t pay National Insurance (NI) on the salary that is sacrificed and these savings can then be used to offset other benefits schemes.
The attraction to employees is that they can be given the opportunity to sacrifice salary for additional holiday. On a tangible, cost-saving level, this is a great chance to cut your wage bill, as well as benefit from the associated NI savings. This type of scheme can also have intangible benefits, improving employee satisfaction and even boosting productivity. However it is important to canvas opinion among employees to ensure you’ve got buy-in before rolling a scheme like this out - or you could have a mutiny on your hands...
Staff suggestion scheme

Under the staff suggestion scheme employers can pay up to £25, tax-free, for any employee suggestions on improving the way the business is run.

Where employee ideas deliver a financial benefit for the company, you can pay the greater of 50% of the financial benefit expected in the first year following adoption or 10% of the financial benefit from the first five years, subject to a maximum of £5,000.

This can also help people at all levels feel part of the business. In order to implement this in your business, it needs to be approved by HMRC, but it isn’t expensive or difficult process. The key is being able to show a distinct and measurable financial saving for the ideas that have been rewarded. Bear in mind that this scheme will only be truly effective if it’s clearly explained.
Share incentives

The share incentive plan allows an employer to award employees free shares in the company, up to £3,000 per person per year, if they hit performance targets.

These awards are tax-free, subject to certain restrictions, making it a useful tax-free share bonus scheme. The clever part is that if the targets are, for example, linked to profit, the scheme effectively becomes self-funding.

The share incentive plan can also help support employee retention, by making it a condition that the employees can’t keep the shares if they leave within three years. If they subsequently sell the shares, they are subject to capital gains tax - but if they have an unused capital gains tax exemption for that year which fully covers the taxable gain, it means employees shouldn't pay any tax on the sale.

It’s a wise alternative to a standard all-employee bonus scheme, but it can be tricky to set up without the right professional advice.
Ultimately, taking a flexible and creative approach to employee remuneration means you can provide schemes over and above what your employees usually expect. By differentiating your business in the reward packages you offer to employees, you’ll be able to retain and attract the very best talent, while also cutting tax and NI bills.
- Amanda Flint is a reward and incentive partner at Grant Thornton UK

- Image credit: Flickr/bthomson

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