Recipe for success

Food and beverage (F&B) companies are easy to get passionate about. They produce delicious products that we love to consume. But it is notoriously difficult for new F&B companies to break into the already very crowded marketplace, the result of which means many excellent companies fail to succeed.  

So, what is the secret ingredient?  

Perhaps not surprisingly, there is not one key ingredient to making a F&B company a success but many. What is clear is that the role of the company’s employees is material. Having the right people on board can be the difference between an F&B company surviving and thriving.   

Often the front line of the F&B business, employees help both to make and sell the product. As such they are best placed to promote the business and help make efficiencies both of which can drive up profit margins. So, it is critical for a business to have a motivated and engaged workforce who are invested in the company’s success. One way to do this is to add some form of employee incentive to their remuneration package.  

Employee incentives deployed correctly can offer many advantages:  

• They provide an alternative reward to salary (especially when cash is short in the initial stages of a business). 

• They can be used to drive performance (rewards can be conditional upon certain performance criteria being met). 

• They can align employees’ interests with those of shareholders, promoting longer term behaviours for the growth and success of the business.  

• They offer a plan for succession for the ownership of the business.  

• They can be used in some circumstances to achieve and pass on tax efficiency.  

What employee incentives are available, and which one is right for you? 

There are many different employee incentive arrangements available. Picking the right option for you and your business is crucial and will depend on what behaviour or outcomes you are specifically targeting, along with your motivation for wanting to incentivise employees.   

Birketts’ top picks  

Whilst there are many different arrangements available, the most commonly used by Birketts clients are summarised below.   

EMI (Enterprise Management Incentive Scheme)  

EMI is a tax-advantaged scheme where an employee is granted an option to acquire shares in the employing company (or its parent company) for a set ‘exercise price’. The exercise of the option is commonly subject to the future sale of the company, with the shares then being sold and the proceeds shared amongst shareholders and option holders. However, they are increasingly used to enable employees to acquire shares after meeting performance conditions enabling the option holder to become a shareholder and enjoy the associated benefits attached to the shares. The qualifying conditions which must be met for a company and an employee to utilise EMI are such that EMI is best suited to independent companies with fewer than 250 employees. EMI options offer tax efficiency in relation to the growth in value of shares subject to option.  

Growth share plans 

As the name suggests, this arrangement is designed to reward future growth in the relevant company by the creation of a special class of share. Typically, the structure of a growth share provides that the holder only benefits from the growth in value of the company from the time the share is issued to the participant. There is flexibility in how a growth scheme is structured, but most commonly, the aim is to ensure that the existing value of the company is preserved, perhaps for founder shareholders, but the growth thereafter is shared equally amongst all shareholders, including the growth shareholders. Growth share arrangements can be used to achieve tax efficiency in relation to the growth in value of the shares.   

Long Term Incentive Plan (LTIP) 

LTIPs reward key employees in relation to the long-term growth of the relevant company by the making of awards which typically vest over a three-year period.   

The rewards delivered by the LTIP, could be in the form of deferred cash bonuses, shares or share options. LTIP schemes will often build in provisions which protect the company in relation to material adverse events. For example, to reduce or recover a bonus if something adverse occurs.  

LTIPs are very flexible and can incorporate bespoke metrics to calculate the rewards, such as financial, strategic, personal performance, or even non-financial metrics such as ESG achievements. LTIPs typically would not be tax efficient unless incorporated alongside another tax efficient scheme.   

Factors to consider 

When determining which incentive arrangement is right for you and the company you might ask yourself:  

• Are you willing to have your ownership of your F&B company diluted?  

• Are you looking to reward an employee’s past performance or are you seeking to incentivise their future performance?  

• What the tax advantages or consequences of your chosen arrangement? 

• Are you looking to reward all or just some of the employees?  

• Do you meet any eligibility criteria of the desired scheme?    

Food for thought 

There is a whole buffet of options to pick from! Birketts can help you:  

• to identify the most appropriate incentive model to implement   

• with the best way to communicate your incentive to the relevant participants (therefore maximising the incentive value) 

• by drafting the necessary documentation  

• with the administration and compliance steps with HMRC.  

To continue the conversation, please contact a member of our Employment Incentives Team.