Need to know:
- Organisations need to find the right share scheme that suits their business needs.
- Offering employee share schemes in place of bonuses or alongside pay reductions can soften the blow and may avoid the need for redundancies in some instances.
- Employee share schemes can be confusing. Offering financial education will make them more appealing.
Share schemes are an effective initiative to engage employees with business success and encourage loyalty to the organisation. But in the current climate with job insecurity and pay cuts, are they still an attractive proposition?
Employee share schemes have an important role to play during the Covid-19 (Coronavirus) pandemic, says David Craddock, member of the Employee Stock Ownership Plan (Esop) Centre and chief executive officer (CEO) at DC Consultancy Services: "There are constructive ways to respond to the current climate, it’s a question of microeconomics of the [organisation] and recognising the best way to respond. Employee share schemes could have an integral part in this."
Employee education
Employee share schemes may be an attractive offering but they can be confusing to understand. If an organisation wants to maximise participation, it needs to explain to employees both the benefits and potential downfalls of the scheme. Employers can do this effectively by providing financial education and communicating clearly what is on offer to them.
Charles Cotton, senior adviser for performance and reward at the Chartered Institute of Personnel and Development (CIPD), says: "[Employers] just need to educate [their] employees that shares go up in value as well as down. Employers and CEOs can plan for certain things but they can’t predict stock market fluctuations or, for example, uncontrollable events like the Coronavirus pandemic that is impacting share prices right now.
"Organisations need to acknowledge there's an element of risk but with every bit of risk there is a bit of reward as well. Employee share schemes are a good way for employers to share their success. Traditionally it has just been CEOs that have enjoyed share schemes and quite considerable bonuses and incentives, on the back of that you could argue that employees should share the success of something similar to the executive share plans."
Sharesave schemes in the current climate
Employees may be feeling nervous at actually handing over their hard-earned cash with the fear of a recession looming, however, sharesave schemes are a low-risk option that an organisation could consider.
Darren Smith, corporate relations manager at Yorkshire Building Society Share Plans, says: "[Sharesave] schemes are still a great way of saving. There's a safety net there, it does its job. Even if the share prices plummet, you get your money back. An analogy I found perfect was when we were launching a sharesave [scheme] to 100 builders, one guy said 'it’s just like betting on a horse, if it loses you get your money back so why not join?' That really summed it up for me."
Share incentive plans in the current climate
Although no matter how much of a good deal it seems, not everyone will feel confident at handing over money in the current climate, and a viable option is the share incentive plan (Sip).
"[Sharesave] requires a contribution which might not help with the current predicament. The share incentive plan, which is another approved scheme, has a number of different modules," explains Craddock. "In the current climate, free shares can often be used as a bonus mechanism rather than physical cash. It’s a question of offering a plan that incentivises employees. Every organisation is different, [so employers] need to work with advisors to structure what is specific and tailored to their business needs."
Share schemes post Covid-19
An organisation may have never thought about offering an employee share scheme in the past, however, some employers have been forced to furlough staff or introduce mandatory sabbaticals, and the cost-cutting measures do not stop there. With the government's Job Retention Scheme slowly coming to a close, and still no end in sight to the pandemic, some organisations may have to think of long-term measures to keep afloat.
"If an organisation can’t give employees a pay rise, [it] might be able to give shares in the company and if [the organisation] is able to come out of this successfully, then the value of those shares will be worth quite a lot," concludes Cotton. "I think it’s going to be interesting to see what develops over the next 18 months over the consequence of Covid-19."
