Reducing staff costs through Virtual employee share schemes in the age of Covid-19
The novel coronavirus, „SARS-CoV-2“, is causing long-term disruption to our economy. Turnover is plummeting, salaries are not being paid – the costs
However, they carry on undeterred. Liquidity is becoming an even more precious commodity. Staff costs, in particular, account for a large proportion of the monthly outflow of liquidity.
Short-time working is often not an option if the workload remains constant or, for example, even increases to compensate for staff on sick leave or in quarantine
increase. So how can we retain our valuable, skilled staff or motivate them to take on additional tasks? Creativity is key.
One approach that offers considerable flexibility in terms of both content and timing could be to pay part of the remuneration (at least temporarily) by issuing virtual shares
to replace. Instead of receiving immediate financial remuneration, the employee shares in the growth and success of the company, without
however, to hold a legal interest in the company. Depending on the structure of the Virtual Employee Share Ownership Plan (VSOP) The employee receives a share of the proceeds from an exit and/or of any distributed profits.
Virtual shares are allocated through one or more allocation agreements. A notary is not required for this. Fractional shares can also be allocated, allowing for the implementation of highly nuanced remuneration models. For example, an employee could be allocated 0.08 virtual shares each month.
Of course, virtual shares are not a panacea. As the name suggests, the shares are virtual. In these turbulent times, the employee does not receive the remuneration straight away, but only if and when an exit takes place or a profit is distributed at a later date. Virtual shareholdings should therefore be viewed as a supplement to the (possibly currently reduced) salary. However, they are certainly an effective means of offering employees flexible remuneration for their work, whilst at the same time preserving the company’s liquidity reserves.
Summary of the advantages of virtual shares:
- no outflow of cash from the company
- quick and straightforward implementation
- no notary required
- highly flexible arrangements for the allocation of virtual shares
- Monthly allocation of virtual shares is possible
- Allocation of „odd“ shares is possible
- no tax liability on allocation
- Virtual participants do not have the right to vote
- The cap table remains „clean“