Need to know
- Financial gain aligned to the success and growth of an organisation supports medium- and long-term motivation and retention.
- Employers should keep communications clear, but simple. Employees will need to understand the personal monetary value of a share scheme before making the decision to sign up.
- Share schemes should be part of the overall financial wellbeing benefits offering, to strengthen employees’ long-term financial security.
As the Great Resignation movement gathers pace, employers are facing huge challenges in attracting and retaining staff. However, a classic employee benefit, the employee share scheme, could come into its own as a valuable tool in the battle for talent.
Figures from Vestd’s Employee benefits 2021 report, published in January 2021, reveal that when choosing one identical job over another, a share scheme would tip the balance for a third of respondents.
Tried and true
There are different types of share scheme, with the four HMRC-approved schemes including share incentive plans (Sips), sharesave, enterprise management incentives (EMIs) and company share option plans (Csops).
Unlike pensions and other benefits that have undergone numerous changes over recent years, the core features of Sips and sharesave schemes have remained in stasis, which has its benefits.
Graham Bull, managing director of employee share plans at EQ, explains: “People are familiar with how they work. With [sharesave] there is a choice of saving for three or five years, with 85% of employees opting for a three-year plan."
However, there might be room for an update, adds Bull: "The tax-free period for Sips has remained at five years since its inception. Reducing the period to three years would certainly increase the plan’s popularity and align to the trend of people changing jobs more regularly.”
Differentiating factor
When employees decide to switch jobs, benefits packages can be a key factor. A May 2021 Social Market Foundation report, A stake in success, shows that employees who do participate, even those in the lowest income quartile (the poorest 25%), are on average £10,900 wealthier than those who are not employee shareholders.
Financial gain aligned to the success of the company can be a considerable motivator. As the company grows, the employee also benefits due to an increased share price, often resulting in financial gain upon maturity. With share schemes launching annually, this could be a tool to generate both medium and long-term motivation and retention, as people want to stay to realise their gains.
“Admittedly, if share prices drop, then [sharesave schemes] in particular may no longer provide the positive engagement they were intended for, as they act more like a savings account if the share price drops below the discounted option price," says Bull.
“This is where Sips come in. With the benefit of investing from gross pay, tax and national insurance contributions savings providing a cushion when share prices fall, and with continued regular saving, employees can buy shares at the lower price, meaning they can capitalise as share prices recover.”
Ensuring success
Key to success for all employee benefits, including share schemes, is good communication. The shift to online methods, driven by the pandemic, has resulted in greater use of online portals, supported by tools such as microsites, interactive PDFs and webinars to help drive awareness and increase knowledge around share schemes.
Even so, many employers still fail to communicate clearly on what can be a complex subject, offering share schemes to employees without a detailed explanation of their personal monetary value.
Karen Bolan, director of retirement communications at Gallagher, says: “In all communications that explain a financial cost or benefit, it is essential to answer the employee's obvious question: ‘what is in it for me?’ Giving worked examples, or better still, a modelling tool where employees can model a share scheme with their own specific circumstances, is vital for transparency and to help with understanding. Any factors that may affect the end outcome must be clearly explained.”
Simplicity of language is essential for all communications, and all complex terms need to be explained clearly, without completely relying on words.
“Illustrations and infographics are perfect tools that provide clarity while also meeting the different communication preferences of the audience," adds Bolan.
Part of a wider programme
Given the impact that financial stress can have on employee wellbeing and performance, incorporating share schemes into a comprehensive financial wellbeing programme, says Kate Whitley, client services director at Caburn Hope.
“[Employers] should aim to clearly communicate all financial and employee assistance programme support they offer as one holistic reward proposition, covering all angles of an employee’s lifecycle,” she says.
“Share schemes can serve as a natural investment for an employee’s financial security in years to come. Individually, bonuses, share schemes, pensions, and wellbeing support are not always a silver bullet, but given collectively they can make a massive and tangible difference to an employee’s life and financial wellbeing.”
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