Previously, the limit was the greater of four times salary and pounds 100,000. Limiting any incentives to key managers in a targeted group of smaller companies could avoid problems of earlier executive share option schemes which were indiscriminate in the tax advantages they provided and were often unrelated to the risks taken by managers benefiting from the options."This last part is a reference to Revenue-approved "executive" option schemes. But in Britain, too, the idea has won support, with FI Group, the information technology support company founded by Steve Shirley, long owned by its largely female workforce.The Treasury paper also asks whether tax incentives "might tilt the risk- reward balance to encourage entrepreneurial ambition and focus the incentives where they can be most effective. So, on to the second objective: attracting entrepreneurs to small and medium enterprises.In its paper, the Treasury says it wants to "encourage more high calibre managers to join and stay with smaller companies, particularly early stage, high-technology companies".Microsoft is perhaps the most obvious example of a company using equity to retain key employees, having created thousands of dollar millionaires among its workers. This may not make very much difference, however, because for many people, the annual exemption, which is currently pounds 6,800, is sufficient to avoid any tax liability on the gain.Once again, the Chancellor's hands are somewhat tied if he wants to achieve anything meaningful.

The shares would then qualify for the higher rate of taper, and after one year rather than three. The context of this statement is that only one-third of SAYE scheme participants hold onto their shares.So how could the Chancellor encourage people to hold onto their shares longer? One way is that he could treat the shares as being business assets for taper relief, even though the holding is below the 5 per cent threshold. Once again, it would seem that tinkering with the rules wouldn't make the scheme more widely adopted. As an additional objective, the Treasury says that both this scheme and the SAYE scheme "might be redesigned to provide stronger incentives for longer-term shareholding by all employees".

Providing the shares are held for at least three years, there is no income tax charge on either appropriation to the employee or sale by the employee, and the cost for calculating the capital gain on sale is the initial value of the shares, even though the employee originally got them for free. We do not expect any further improvement in the tax rules to make more than a marginal difference to these schemes.Then there are profit-sharing schemes. Under these, the company pays money to trustees who acquire shares and appropriate them to individual employees to a limit of the greater of 10 per cent of salary and pounds 3,000, subject to a maximum of pounds 8,000. After the savings period has elapsed, the employee either takes the cash or uses it to acquire shares in the company by exercising the option.