Research and analysis

Executive Summary: Research into access-to-talent issues faced by scale-up businesses

Published 26 September 2024

1. Executive summary 

1.1 Background 

A common barrier faced by businesses in accessing their growth potential is the recruitment and retention of key talent. The Enterprise Management Incentives (EMI) scheme is a key channel for addressing this challenge. The scheme was launched to allow smaller, higher-risk companies to offer tax-advantaged share purchase schemes and to aid recruitment and retention of employees. Firms in qualifying industries, with total assets under £30 million and fewer than 250 employees are eligible.  

HM Revenue and Customs (HMRC) commissioned research to:  

• understand whether there was also a challenge for scale-up businesses compared to the wider business population, which manifests itself through scale-up businesses being unable to recruit or retain key skills because of cash constraints and competition from larger businesses for the same skills  

• to understand whether an extension of Enterprise Management Incentives (EMI) to scale-up businesses would support these businesses to grow and develop 

1.2 Methodology 

The research consisted of:  

• a random probability telephone survey comprising of 1,460 interviews with businesses 

• a qualitative follow-up phase comprising 30 in-depth interviews with businesses who had taken part in the survey 

1.3 Reporting note 

Where the phrase ‘more likely’ is used in the report it denotes that the group in question is significantly more likely (at the 95% level of confidence) to give the answer being discussed than the general business population excluding EMI claimants.  

1.4 Key findings 

To what extent are scale-ups different to larger firms and similar to smaller firms? 

In general, the attitudes and experiences of scale-ups were in line with those of large businesses, both groups were more likely to be finding it difficult to recruit and retain key staff. However, there was some evidence that scale-ups fell behind large businesses in terms of being able to offer some of the more financial benefits to potential employees, such as signing bonuses. 

In addition, whilst scale-ups were typically out of step with smaller non-EMI businesses on most measures, an area of similarity was in their experience of major growth events. Where large firms and EMI claimants reported high levels of growth activity in the 12 months preceding the survey (for example capital investment, substantial increase in turnover, expanding into new markets), scale-ups reported lower levels of these activities, in line with small and micro firms.  

1.5 What are businesses doing to improve recruitment and retention? 

The leading incentives used by businesses to recruit staff included flexible working (58%) and benefits in kind (21%). To retain staff, businesses reported offering bonuses (64%) and additional leave for long service (34%). Among those planning to grow their headcount in the next 12 months, 46% planned to raise salaries to recruit the talent they need. In addition, 80% of those planning to adjust their benefit schemes to improve their recruitment and retention were planning to do the same. 

To this point, the qualitative interviews found that despite a number of businesses being in the process of changing their employee packages, salaries were seen as the number one factor in determining recruitment and retention success. Businesses felt they were currently in a candidate-driven market where ‘cash is king’, particularly among the younger generation who mentioned cost of living increases and a culture of ‘job hopping’ as prevalent. Businesses across all sectors agreed that high salaries or cash incentives were becoming a pre-requisite for signing and keeping the necessary staff. 

1.6 How effective is EMI at addressing recruitment or retention problems? 

EMI was viewed positively among those who used it, with leading reasons for offering it including helping with retention and recruitment of employees. The qualitative interviews supported this, but also found that there were some doubts as to the scheme’s effectiveness at recruiting some younger people. In addition, whilst EMI claimants were more likely to recruit employees from outside the UK the qualitative interviews found little impact in terms of EMI specifically helping with the recruitment of international employees. 

Whilst more than half (53%) of firms who offered EMI felt it was more impactful than other incentives in achieving recruitment and retention of key staff, half (52%) of EMI businesses were nevertheless finding it harder to recruit than 2 years ago (although this was lower than large (78%), scale-up (61%) and medium (67%) businesses). 

Within our sample awareness of the EMI scheme was low; only 11% of businesses (and in particular, 14% of scale-ups) were aware of the scheme. Furthermore, around half of businesses that were sampled as ‘EMI businesses’ said they were not aware their business was claiming EMI, suggesting that even among claimant businesses there was not full awareness of the scheme. 

The qualitative interviews found that potential barriers to joining the scheme among some non-claimants included concerns about giving away ownership of the business and a belief that it would not help in recruiting their target employees.  

1.7 To what extent are firms who use EMI different to those who are eligible, but don’t use it? 

EMI claimants were more likely to view their company as high risk (32%) compared to small or micro businesses (15%) and medium businesses (10%). Eight in ten EMI businesses (81%) were planning to grow their headcount in the next 12 months, compared to around half of medium businesses (48%) and less than 4 in 10 small or micro businesses (36%).  

Alongside this, a significantly higher share of EMI claimants reported experiencing all types of business growth activity relative to medium, small, and micro businesses (for example expanding into new markets; developing new products and capital investments), suggesting they were typically higher growth, higher risk businesses. 

They were also more likely to offer a number of benefits as a recruitment tool, and, perhaps because they were more likely to consider retention to be difficult, they were more likely than small and micro businesses to have separate incentives specifically to retain staff (40% versus 26% for small or micro businesses).  

Their difference to the rest of the business population marks EMI businesses as a unique high risk and high growth group.