CSOPs as shadow shields: how to fix the one-dimensional share plan

Too many incentive plans are binary: jackpot or nothing. That might work for a founder with a decade-long horizon. It’s less fair for the new CFO who’s just walked through the door.

Growth shares are the classic culprit. Leveraged, tax-efficient and exciting, but if the company misses its hurdle, they’re worthless. Fine for entrepreneurs, not so great for professional hires.

The fix? Pair a high-beta, hurdle-driven equity instrument (like growth shares) with a low-volatility, tax-efficient instrument (like CSOP) to convert a binary payoff into a balanced incentive stack. Think of it as a shadow shield. It doesn’t carry the fight, but it takes the hit when things don’t quite go according to plan (pun intended).

A structured example

Scenario: New CFO joins at £20m enterprise value

She’s offered:

• 1% growth shares over value above £30m PLUS
• £60,000 CSOP over ordinary shares at £5/share

Two exit outcomes (net of 24% CGT rate)

At £50m, the growth shares dominate with £152k net, while the CSOP adds a useful ~£68k top-up.

At £25m, the growth shares are worthless but the CSOP cushions the blow with ~£11k net.

At £20m, both fall away: no magic floor.

The CSOP doesn't eliminate volatility, it simply starts delivering value at a lower threshold than growth shares.

The message: the CSOP is protective at middling outcomes, not transformative at stellar ones. It’s a cushion, not a jackpot.

Why this works

• Growth shares = binary, leveraged upside
• CSOP = hedge against modest growth, cushions downside
• Together = armour and ammunition

I think good incentive design is really all about risk design. Behavioural economics tells us people are more motivated by avoiding losses than chasing jackpots. A CSOP taps into that: it keeps people engaged even when the big number feels far away. In portfolio construction terms, you wouldn't hold just one stock, so why build equity incentives with just one instrument?

But does the £60k CSOP limit even matter?

It’s a fair challenge. On its own, £60k isn’t transformative when, for example, growth shares might deliver six-figure sums. But that’s the point. The CSOP isn’t there to replace the upside. It’s there to:

• Reward modest success
• De-risk
• Keep people engaged when the jackpot feels distant
• Deliver clean CGT treatment with no NICs and full HMRC blessing

Not transformative but quietly invaluable.

When to use this structure

CSOPs aren't universal, they rarely work in private equity structures. But they do have clear niches where they earn their keep:

• Mid-cycle hires in qualifying companies: helps de-risk entry where executives join after the value inflection point or where they have a low risk appetite.
• PLCs: a natural complement to LTIPs, balancing out risk profiles.
• Carve-outs and spin-offs: offers a quick, approved incentive while the long-term equity model is still being designed.
• Family and mid-market businesses: owner-managed companies sometimes prefer the relative simplicity of a CSOP.
• Cross-border employees: a compliant UK overlay where the group runs a global RSU or option scheme.

Final thought: incentive design is risk design

Good plans don’t just chase the upside. They manage the downside and build resilience. Incentives need armour as well as ammunition. That’s the role of the CSOP. And in today’s volatile market? That’s not optional. That’s essential.

At Burges Salmon, we design incentive plans that work in practice, not just on paper. That means understanding the trade-offs between different types of share plans and reward structures, making sure each instrument is used where it genuinely adds value.