Vince Cable, business secretary, confirmed that Royal Mail staff would be given 10% of the organisation’s shares after its flotation on the London Stock Exchange, planned for later this year.
The government has hailed the move as the second biggest employee share scheme in 30 years in terms of the number of workers who will benefit, second only to the privatisation of British Telecom in 1984.
The percentage of shares being allocated to staff is also the highest for an employer with more than 100,000 employees.
Rolls-Royce, which was privatised in 1987, gave 10% of its shares to employees and British Airways, which went private in 1987, awarded 9.5% of its shares to employees, but both had fewer than 50,000 staff.
Iain Hasdell, chief executive of the Employee Ownership Association (EOA), said: “This creates an opportunity to develop a more inclusive and engaged working environment.”
The government intends to award the free shares under a tax-advantaged share incentive plan (Sip) and Royal Mail will communicate more details to its employees in the coming months.
Eligible Royal Mail staff will automatically receive an equal number of shares, irrespective of their grade, and there will be a pro-rata allocation for part-time employees.
Employees will also be able to opt out of the scheme if they wish and have the option to buy extra shares through the retail offer, as well as be given priority when shares are allocated.
Cable said the scheme, which will see employees’ shares locked in for at least three years, will ensure Royal Mail staff have a stake in the organisation.
Moya Greene, chief executive of the Royal Mail Group, said: “Our employees will have a meaningful stake in the company and its future success.
“As we move into the private sector, the current legal position is that all terms and conditions that apply to Royal Mail employees would remain in place, on the same basis.
“To provide further reassurance, we will create a legally-binding and enforceable contract with theCWU [Communications Workers Union]. Pay and protections could not be changed for the period of the contract without CWU agreement.”
Phil Hall, special adviser at IFS ProShare, said the government had made a sensible decision in introducing a Sip. “It’s great news for employees because there’s a great wealth of UK and international evidence that shows employee share ownership is good for employers and employees alike,” he said.
“The fact that the shares are free means employees won’t lose anything if they fall.
“However, it’s more than likely the share price will increase and we will see a significant nest-egg built up for Royal Mail employees.”