It is as easy for private firms as it is for public to reward staff with equity, writes Una McCaffrey

If you had to paint a picture of utopia in the workplace, there would be little space for disgruntled employees. Most of us are familiar with the type: they feel they work too hard for too little pay and, for whatever reason, see their complaints as the responsibility of their boss.

From the perspective of the employer, such unrest is far from desirable and would, ideally, be stemmed before it starts. But the trick is to find a way to do this without breaking the bank.

For public companies, an obvious solution to problems of motivation and satisfaction is to offer key staff the opportunity to participate in the performance of the business through share ownership. For private firms, which do not have access to a stock-exchange listing, the situation is a little less clear cut. Or is it?

Not necessarily, say the experts. In fact, according to the experience of the dedicated employee share scheme unit at Dublin law firm A&L Goodbody it is easy for private firms to incentivise their staff through shares in just the same way as their glitzy public cousins.

More crucially, they say, such arrangements can be made without creating a major hole in the company balance sheet, since costs can be deducted for the purposes of corporation tax.

Share schemes can offer important benefits to both employers and employees in privately-owned firms, according to Ms Sheena Doggett, the partner who leads the A&L Goodbody unit.

For both parties, the main advantage comes in cost savings, since many schemes can be structured to be exempt from an obligation to make PAYE deductions and to minimise PRSI payments. Employees, on the other hand, can benefit from lower tax bills.

When an employer is thinking of an employee share scheme, it has two broad options: a revenue-approved scheme or an unapproved scheme.

An unapproved scheme will offer most adaptability for the employer while an approved scheme will probably be preferable for their staff. Revenue-approved schemes work in much the same way as comparable schemes for public firms in that they allow for tax exemptions in relation to both PAYE and PRSI. But Doggett warns that the benefits such arrangements will bring for an employer will often be cancelled out by a lack of flexibility.

She says an employer's uppermost concern when establishing a share scheme will often be what happens to the shares if an employee leaves the company.

In an approved share scheme, it would be normal for a staff member to take the shares with him when he leaves but, as Ms Doggett acknowledges, this is something most privately-owned companies will consider to be unappealing. "If you have a revenue-approved scheme, there is very little scope for getting them back," Ms Doggett says.

This has been repeatedly highlighted by the Irish Profit Sharing Association, which wants a relaxation of the rules that apply to the area. In the experience of the experts at A&L Goodbody, unapproved schemes have proved most popular in recent years, despite the lack of tax benefits they carry. Ms Doggett suggests this may be because they "tend to be more suited to the newer kind of company".

In the case of approved schemes, for example, each employee in a firm must be given the opportunity to avail of the share benefit on the same terms, while this obligation does not exist for unapproved schemes.

Ms Doggett says it would not be unusual for a larger company to offer both types of scheme at the same time, saving the unapproved scheme for their "special" employees who do not see tax advantages as a primary motivator.

Unapproved schemes can be designed to fit exactly the needs of an employer, allowing them to impose restrictions on share transfer and oblige departing employees to relinquish their shares before they leave.

"Private companies have, in many ways, greater flexibility than listed companies in the way their design share schemes to accommodate their own unique business and shareholder issues," says Ms Doggett.