Employee Share Plans: Think Long-Term

14 May 2019

Jeremy Couper-Crane

More businesses than ever before are now operating employee share schemes. When Equiniti analysed data from HMRC for 2016/17 it found 11,850 companies offering such schemes, and the numbers continue to grow. During that period the initial value of shares and options granted totalled £3.68bn, providing an estimated £410m of Income Tax and National Insurance savings to companies and their employees. So, there can be no doubt about the value share schemes offer to the UK workforce as a whole.

There are financial incentives for employees across all share schemes, especially the dominant two – Save As You Earn (or Sharesave) and Share Incentive Plans, known as SIPs – but there are also notable benefits for the employer too. Employee share schemes have the power to motivate the workforce to be more productive as well as align the employees’ interests with that of all shareholders. It is proven to increase staff loyalty and reduce employee turnover and has its own financial benefits for the company as it allows them to remunerate their staff in a tax efficient way.

Overall it seems that employees are aware of what share incentives are on offer to them and most understand how they work. In the 2018 Attitudes to Employee Share Ownership survey run by Proshare, research revealed that close to half of employees still would not participate in a Sharesave scheme as they feel they cannot afford to and a similar number say they would be more likely to participate if a shorter savings term or variable monthly payment options were on offer.

Younger people tend to change jobs more often than in the past, on average now every 2.2 years. This renders the benefits of some savings plans redundant, as the employee will lose the option to reap the rewards of their investment before they leave their employer. Of course, employee retention is often the reason an employer will introduce a share scheme, but it’s a fine balance between making a savings plan seem an attractive way to invest in your future and making it seem like a financial burden.

Our good friend Gabbi Stopp, Executive Director of Proshare, has been campaigning hard for change to the design of SIPs in particular “By reducing the SIP holding period from five to three years we’d make these schemes significantly more attractive to many employees, especially millennials, who tend to be put off by the long commitment required,” she says.

Whilst it’s understandable that companies would prioritise selling the idea of short-term financial gain, it is just as important that the benefits of being a long-term shareholder are broadcast to employees. The longer staff are part owners of a business the longer they will be interested in ensuring the business performs well. As shareholders they will be able to have a say in the direction their company is taking through involvement in AGMs and of course they will have the opportunity to benefit further from continued share price growth and dividend awards, as long as the business remains profitable.

Here at Stitch we’ve worked with several major companies to effectively engage with their existing employee shareholders, encouraging a continued stake-holding in their employer. We’ve turned a weighty annual report into an eye catching one page summary that cherry-picked the important headlines making it easily consumable for all, as well as inspiring a sense of pride in being a shareholder in a successful business. Refreshing shareholder communications for another big client led to a 17% increase in employees voting at the AGM.

The onus is also on the employer to keep the financial interests of their employee shareholders in mind at all times. The fact the disastrous Lloyds Bank takeover of HBOS in 2008 was still making headlines 10 years later, as 6,000 Lloyds Bank shareholders sued the company and five of its directors over the decision to acquire the failing business at the height of the banking crisis, demonstrates the need to remember that having shareholders in your business brings with it a need to act in a responsible and transparent manner. If you want to foster a loyal workforce of employee shareholders, you need to keep in mind that their long-term engagement in the organisation is perhaps the most important factor in maintaining a successful business.

Talk to us if you’d like to discuss ways to connect with your employees, whether you’re thinking about starting a share scheme or, just as importantly, want to engage with your existing shareholders.