9 Common Pitfalls in Implementing Share Schemes & How to Avoid Them

Implementing an employee share scheme can be one of the most powerful tools in aligning your team with the long-term success of the business. Done well, it can motivate performance, retain top talent, and create a culture of shared ownership. But in practice, many businesses run into common pitfalls that limit the effectiveness of their schemes. In this article, we outline 9 frequent pitfalls businesses make when setting up and running share schemes, and more importantly, how to avoid them.

Poor scheme design that doesn’t align with business goals

The design of a scheme is crucial for its effectiveness, and often many schemes fail because they aren't tailored to the company's specific growth strategy, exit plans, or culture; it is key to remember that one size doesn’t fit all. Designing the scheme around your clear business goals ensures it supports long-term strategy.

Overcomplicating the structure

Technical or overly complex schemes can confuse employees, limit engagement, and can lead to potential unnecessary increased costs. If participants don’t understand how they benefit, the motivational value is lost. A simpler, well-communicated scheme is usually far more effective than a technically clever but opaque one.

A share scheme can only motivate employees if they understand how it works and what it offers. Without clear communication, employees may undervalue the benefit or misunderstand key terms like vesting or tax treatment. Providing clear, accessible explanations, and revisiting them regularly helps to maximise engagement and ensures the scheme delivers its intended impact. We recommend investing in onboarding and communication, not just at launch, but on an ongoing basis.

Without clear provisions for what happens when employees leave, especially early or on bad terms, companies risk losing control of equity or creating legal disputes. Defining “good” and “bad” leaver scenarios upfront, with appropriate buyback or lapse mechanisms, helps protect the business and ensures the scheme remains fair and aligned with performance and retention goals. It is important to make the distinguishment between good and bad leavers. Typically, a ‘good’ leaver is one who leaves through no fault of their own, and ‘bad’ leaver scenarios involve those in which an employee is asked to leave as a result of their behaviour.

Ignoring tax and legal compliance

Share schemes are heavily regulated, they come with strict tax rules and legal requirements, and failing to meet them, such as missing EMI notifications or misvaluing shares, can result in lost tax reliefs or unexpected liabilities for both the company and employees. Ensuring proper documentation, valuations, and filings are in place from the outset is essential to protect the scheme’s benefits and avoid costly mistakes. To ensure compliance we recommend working with experienced advisers and getting HMRC clearance where appropriate.

As businesses grow, the vision, goals, structure, and team will evolve, but it is concerning that despite these changes, many share schemes are left unchanged. What worked at one stage may no longer suit, and without regular reviews, schemes can become misaligned, ineffective, or even counterproductive. Frequent reassessment, we recommend every 12-24 months, ensures the scheme continues to support current business priorities and employee expectations.

Share schemes can involve a lot of administrative work, from tracking vesting schedules and managing valuations to handling leavers and ensuring ongoing compliance. Without the right systems and internal ownership, important details can be missed, leading to errors or even legal issues. It’s vital to plan for the admin from the start and, where appropriate, use dedicated tools or expert support to manage the process effectively. At Oldfield we provide ongoing support and maintenance schemes for share schemes that we set up.

Granting equity too early or to individuals who may not be long-term contributors can create problems down the line, particularly as the business grows and the team evolves. Equity should be carefully allocated to those whose impact and commitment align with the company’s long-term vision and goals. Using structured vesting and clear eligibility criteria helps ensure the scheme remains fair, motivating, and strategically aligned.

One of the key reasons employee share schemes lose their impact is when employees don’t understand how or when they’ll be able to realise value from their shares. Without a clear exit route, schemes can feel meaningless to employees. This is why it is essential to set realistic expectations early on and keep communication open as the business evolves.

Final Thought

Share schemes have the potential to be transformational, but only when they're thoughtfully designed, clearly communicated, and carefully maintained. Avoiding the pitfalls above doesn't just protect your business, it also ensures that your employees see real value in their participation, and stay aligned with your long-term vision.

As always, we recommend speaking to your advisors about the best steps before making any changes. If you would like to discuss employee share schemes, please get in touch.

Our tax advisors are skilled in such transactions and can navigate the process smoothly. For more information on how we can help you and your business, please get in touch. Let’s work together to grow and strengthen your business.

Please note: This article is provided for information only and was correct as at the time of writing (14/08/25). Any lists and details provided above are not exhaustive and are not intended to be full and complete guidance. No action should be taken without consulting detailed legislation or seeking independent professional advice. Therefore, no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this article can be accepted.