In a recession, it’s hard to keep employees on staff, let alone on side. Employee share schemes make workers feel better appreciated by their employer and have a positive effect across the whole organisation, writes Clare Bettelley
A share plan is a great tool with which employers can help boost their employees’ commitment, integration and motivation at work.
Recent research by Dr David McConville, Alison Smith and Professor John Wood for the University of Loughborough – The Human and Organisational Impact of Employee Share Ownership – found that 30 per cent of the 1,500 employees surveyed said share ownership made them feel more integrated into their company. This helps to explain why a third of employees felt more motivated to work for their employer.
Of course, it is easy to communicate the value of share plans to employees who have had a positive experience of share plan participation. Sainsbury’s is a case in point. More than 11,000 of the UK supermarket chain’s employees will each net more than £2,000 of tax-free cash as two of the company’s sharesave schemes mature.
But persuading inexperienced share savers of the benefits of a company share plan may seem like every employer’s worst nightmare. This is particularly the case for businesses that have seen their share price plummet in recent months, as well as for those that have had a pay freeze in place during the economic downturn. After all, there will always be employees who feel their employer is fobbing them off with a poor substitute for a pay rise.
If we do well, we want you to do well, but we can’t afford to do this via salary increases at the moment
Bill Cohen, head of share plans at Deloitte, says: “I can understand why an employee might look at it in that way, but I don’t think most would. There has been increasing momentum towards all employee arrangements in the last few years and, while it is true they have often been offered in the context of low pay rises, there have also been examples of them delivering significant benefits.
“If you look at it from the employers’ perspective, they’re saying ‘look, we’ve only got a limited pot that we can play with in terms of remunerating our staff and we don’t want to be increasing our fixed cost more than we need to, but on the other hand we do want to have our people very aligned with us. If we do well, we want you to do well, but we can’t afford to do this via salary increases at the moment’.”
This seems to be a persuasive argument for some employees. Some 414,511 employees took up new three, five or seven-year Save As You Earn (SAYE), also known as sharesave, contracts in 2011, which is only slightly down from the 443,541 recorded in 2010, according to the SAYE (Sharesave) and Share Incentive Plan Survey 2011, published last June by share ownership trade body, ifs ProShare. Further, the average monthly savings for new schemes in 2011 was £102, up slightly from the £101 recorded in 2010.
However, share scheme administrator, Equiniti, claims that the average monthly contribution made to its clients’ schemes in 2011 totalled £99, which is up on the £80 it recorded in 2010.
By comparison, 908,905 employees participated in Share Incentive Plans (SIPs) in 2011, according to ifs ProShare’s survey, which compares with 911,346 in 2010. The average monthly investment has fallen only slightly from £73.44 in 2010 to £71.86 in 2011.
SAYE and SIPs are the two plans approved by HM Revenue & Customs which are most popular with employers. They are all-employee share plans, which means they are open to all employees, regardless of seniority.
Under SAYE, employees can save between £5 and a maximum of £250 per month out of net pay in return for options, which they can use to buy shares in their company when their scheme expires, known as its maturity date. SAYE plans offer three maturity dates – three, five and seven years – but employers tend to offer just the three and five-year plans to their workforces.
Employees do not have to convert their options into shares at maturity – they can simply take their savings out of the scheme – but they do have to hold them until this date to qualify for the tax breaks. SAYE investors do not pay income tax or national insurance (NI) on their investment. In addition, employers can offer options with a discount of 20 per cent off their current share price.
Comparatively, there are four types of shares under SIPs: partnership shares (employees can buy up to £1,500 worth per tax year out of pre-tax and pre-NI pay); free shares (employers can grant employees up to £3,000 worth each year); matching shares (employers can give up to two for each partnership share bought by an employee); and dividend shares (employees can invest up to £1,500-worth of dividends received from free, partnership or matching shares each tax year).
Clearly, this is a minefield of information for new savers, so what constitutes best practice when it comes to communicating the value of share plans to employees?
Employers must first gain a thorough understanding of their workforce – who is already saving into a plan, who isn’t and why, who are the lapsed savers and what is the preferred method of communication for each of these groups?
Communication strategy content should cover everything from what a share plan is to tax planning for shares at maturity.
A number of employers are already using a range of media through which to communicate these messages in the hope of engaging their employees. These include intranet and social media sites, text messaging, company literature and online modeling tools, which allow employees to project their future share-plan windfall.
But being informed about their employer’s share plan via text message is not everyone’s cup of tea, so communication campaigns must be targeted. “Our basic recommendation is to make it as easy and simple as possible, which means as few words as possible,” says Jill Evans, head of YBS share plans at Yorkshire Building Society, which also administers share plans. “We tend to find people don’t read much these days, so a booklet would really be a no-no. [Employers should] be realistic about what plans are going to do for people.”
Case studies are a perfect way in which employers can communicate the impact of share plans on their employees’ lives. From paying for their child’s university fees to buying a luxury holiday, there are myriad examples of what employees have done with the proceeds of their shares.
John Collison, head of employee share ownership at ifs ProShare, adds that consistency of communication is key. “It’s about getting that whole communication package right, not only at the launch [of a plan], but having all that information available all year round, so when people join the company they know what it’s all about,” he says.