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USING SHARE OWNERSHIP TO ATTRACT AND RETAIN THE BEST EMPLOYEES

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Will Cookson, Director, Harbour Key Ltd

Will Cookson, Director, Harbour Key Ltd

In the current market budgets for salaries can be limited and bonuses continue to attract a bad press, with the banking sector being a particular target for the media. This means that organisations need to find other ways to attract motivate and retain the best staff.

Both current and previous Governments have sought to remove certain perceived ‘tax planning vehicles’. The latest has been to curtail the use of limited liability partnerships, which have been in favour with asset managers and insurance brokers in particular.

Will Cookson, Director, Harbour Key Ltd

Will Cookson, Director, Harbour Key Ltd

One solution is to introduce shares and share options. Share plans can be utilised by both listed and private companies, regardless of size and how long they have been in business. These act as an incentive by encouraging employees to develop an interest in the growth and performance of their employer and make a contribution towards its future successes, for which they will be duly rewarded. Shares/options are also a means of attracting the best people where the business cannot afford to remunerate them at the market rate.

Employee shares can also provide a company with a means to finance. The business may be lucky enough to have key employees with access to personal finance who are willing to pay for their shares up-front, but that is not the norm. There are, however, other innovative ways to encourage employees to invest, for example using a combination of loans and matching growth shares.

Here we look at the pros and cons of different types of share schemes.

HMRC approved schemes

Share plans fall into two broad categories, depending on whether they are HMRC approved or not. Approved schemes offer certain tax advantages to both company and employees. They include the Share Incentive Plan (SIP), the Save-As-You-Earn option scheme (SAYE) and the Company Share Option Plan (CSOP), all of which are used more by listed companies (plcs).

Another approved plan is Enterprise Management Incentives (EMI), which was brought in by the Government to help small and medium-sized businesses compete with larger ones for the best talent. EMI plans are often based around a future sale of the company. On exit, the employee may be paying as little as 10% taxes from the sale of shares acquired under the EMI plan. The company may also be eligible to receive a corporate tax deduction on the gains the employee has made, which would be around 20%. This means that EMI actually generates a net tax repayment (10% paid by the employee, but 20% relief for the company).

Unapproved plans – shares or share options?

Unapproved share plans generally only provide tax benefits for either the company or the employee. Not surprisingly, they normally favour the employee. They may be based on share ownership or share options, and the choice between the two depends on the company’s growth strategy.

Share plans, which in essence mean share ownership, are considered a better way to tie in key individuals by making them a part-owner of the business. A share option is simply a right to buy a number of shares at a given price in the future, making options particularly good for incentive plans which are aimed at a future sale or floatation of the business.

There are many different unapproved share plans. ‘Growth shares’ and ‘deferred shares’ are examples of plans designed to minimise the up-front cost for the employee in terms of funding the share purchase and any taxation. The two plans mentioned favour the employee from a tax perspective.

The recently introduced ‘Employee Shareholder Status’ is a means of encouraging key individuals to become stakeholders. The scheme gives certain tax advantages for the employee in return for a removal of certain employment rights.

So-called ‘phantom share plans’ have also come back into fashion. These are effectively a deferred cash bonus, but look and operate like a real share plan, with the company gaining the tax efficiencies rather than the employee. They cut out a lot of the red tape associated with share ownership and enable private companies to produce a share price as easily and frequently as they produce management accounts. These plans can also be utilised by partnerships and LLPs as they do not rely on any existing share capital.

Business considerations

Introducing shares or share options presents the business owner(s) with a number of issues, including the need to allow for the scheme’s set-up and running costs and for valuations. Importantly, they need to consider how much to give away – for virtually unfettered control, the owner(s) generally needs to retain at least 80% – and also how to get shares into employees’ hands without an up-front tax charge. Other questions typically include:

  • Do the shares qualify for dividends?
  • With no market for shares in a private company, how do participants realise share growth?
  • What happens with ‘bad leavers’ and ‘good leavers’?

Some employees prefer cash to shares or share options, as they want the security of having the money in their bank rather than a ‘promissory note’ of potential future riches in the form of shares. However, one has to question whether employees who are primarily focused on cash in hand would really be drivers of business growth.

In my experience, shares and share options are an effective way of attracting and retaining both the best and those who can think as a business owner/employee.

Business

Audi aims to sell one million cars in China in 2023

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Audi aims to sell one million cars in China in 2023 1

BEIJING (Reuters) – German premium automaker Audi aims to sell 1 million vehicles in China in 2023, versus 726,000 vehicles in 2020, the brand’s China chief Werner Eichhorn said on Wednesday.

Audi, which is making cars in the world’s biggest auto market with FAW Group, will also add more products in China, Eichhorn said. Audi’s rivals include Daimler and BMW.

(Reporting by Yilei Sun and Brenda Goh; Editing by Himani Sarka

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Netflix forecasts an end to borrowing binge, shares surge

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Netflix forecasts an end to borrowing binge, shares surge 2

By Lisa Richwine and Eva Mathews

(Reuters) – Netflix Inc said on Tuesday its global subscriber rolls crossed 200 million at the end of 2020 and projected it will no longer need to borrow billions of dollars to finance its broad slate of TV shows and movies.

Shares of Netflix rose nearly 13% in extended trading as the financial milestone validated the company’s strategy of going into debt to take on big Hollywood studios with a flood of its own programming in multiple languages.

The world’s largest streaming service had raised $15 billion through debt in less than a decade. On Tuesday, the company said it expected free cash flow to break even in 2021, adding in a letter to shareholders, “We believe we no longer have a need to raise external financing for our day-to-day operations.”

Netflix said it will explore returning excess cash to shareholders via share buybacks. It plans to maintain $10 billion to $15 billion in gross debt.

“This is in sharp contrast to Disney and many other new entrants into the streaming market who expect to lose money on streaming for the next few years,” said eMarketer analyst Eric Haggstrom.

From October to December, Netflix signed up 8.5 million new paying streaming customers as it debuted widely praised series “The Queen’s Gambit” and “Bridgerton,” a new season of “The Crown” and the George Clooney film “The Midnight Sky.”

The additions topped Wall Street estimates of 6.1 million, according to Refinitiv data, despite increased competition and a U.S. price increase. Fourth-quarter earnings per share of $1.19 missed analyst expectations of $1.39.

With the new customers, Netflix’s worldwide membership reached 203.7 million. The company that pioneered streaming in 2007 added more subscribers in 2020 than in any other year, boosted by viewers who stayed home to fight the coronavirus pandemic.

COMPETITION HEATS UP

Now, Netflix is working to add customers around the globe as big media companies amp up competition. Walt Disney Co in December unveiled a hefty slate of new programming for Disney+, while AT&T Inc’s Warner Bros scrapped the traditional Hollywood playbook by announcing it would send all 2021 movies straight to HBO Max alongside theaters.

Disney said in December it had already signed up 86.8 million subscribers to Disney+ in just over a year.

“It’s super-impressive what Disney’s done,” Netflix Co-Chief Executive Reed Hastings said in a post-earnings analyst interview. Disney’s success, he added, “gets us fired up about increasing our membership, increasing our content budget.”

Netflix said most of its growth last year – 83% of new customers – came from outside the United States and Canada. Forty-one percent joined from Europe, the Middle East and Africa.

For January through March, Netflix projected it would sign up 6 million more global subscribers, behind analyst expectations of roughly 8 million.

Revenue for the fourth quarter rose to $6.64 billion compared with $5.47 billion a year ago, edging past estimates of $6.63 billion.

Net income fell to $542.2 million, or $1.19 per share, from $587 million, or $1.30 per share, a year earlier.

Netflix shares jumped 12.5% to $564.32 in extended trading on Tuesday.

(Reporting by Eva Mathews in Bengaluru and Lisa Richwine in Los Angeles; Editing by Sriraj Kalluvila and Matthew Lewis)

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MGM Resorts drops takeover plan for Ladbrokes-owner Entain

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MGM Resorts drops takeover plan for Ladbrokes-owner Entain 3

By Tanishaa Nadkar

(Reuters) – Casino operator MGM Resorts International on Tuesday ditched plans to buy Ladbrokes owner Entain after the British company rejected an $11 billion takeover approach this month, sending Entain’s shares down nearly 12%.

The United States is seen as the next big growth market for sports betting, spawning a series of transatlantic partnerships tapping in to European technology and expertise. These include Caesars Entertainment agreeing last September to buy William Hill in a 2.9 billion-pound deal.

MGM said it would not submit a revised proposal or make a firm offer for Entain, which had said the approach announced two weeks ago significantly undervalued its business.

Entain shares closed down 11.9% at around 12.44 pounds in London. MGM shares were up 2.5% at $30.54 in New York trading late on Tuesday afternoon.

“We look forward to continuing to work closely with MGM to drive further success in the United States through the BetMGM joint venture,” Entain said in a statement.

Online betting firms have benefited during the COVID-19 pandemic-led lockdowns, as customers took to playing from home when casinos and betting shops were off-limits.

MGM had previously said a merger with the British bookmaker would be compelling and believed a deal would help expand BetMGM, which the two have operated since 2018.

The proposal, on the basis of 0.6 MGM share for each Entain share, was also backed by billionaire Barry Diller’s IAC. It valued Entain shares at 13.83 pence each when it was first announced.

Complicating matters, Entain Chief Executive Officer Shay Segev decided to step down just seven months into the role and in the middle of negotiations with MGM to take a job with sports streaming service DAZN.

Segev’s departure, as well as limited engagement in talks shown by Entain and a difference in price expectations between the two sides, led MGM to decide to walk away from the deal, according to a person familiar with the matter.

Entain, previously known as GVC, has itself expanded rapidly through a series of acquisitions and owns the bwin, Coral and Eurobet brands, operating traditional British high street betting shops as well as offering online gambling.

“While we are genuinely surprised MGM didn’t up its consideration … we don’t think this changes MGM’s ability to secure equity value enhancing benefits from the attractively growing US sports betting and iGaming pie,” JP Morgan analysts said.

The brokerage said it would not rule out further discussions with Entain depending on how the company shareholders reacted, adding it would be tough for someone else to buy Entain given so much potential equity value coming from the 50/50 BetMGM joint venture.

(Reporting by Tanishaa Nadkar in Bengaluru; Additional reporting by Joshua Franklin in Miami; Editing by Keith Weir and Matthew Lewis)

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