Times are changing for international employee share schemes, the Global Equity Organisation’s executive director, Michael Bendorf, tells Jennifer Paterson
Changes are afoot in the international employee share scheme market. The range of employers that offer the benefit is stretching beyond conventional sectors and countries. In addition, new European regulatory guidelines will affect the industry.
For example, French construction firm Lafarge, which operates in a sector where share schemes are not common, was awarded ‘Most innovative and creative design’ at the Global Equity Organisation’s (GEO) annual awards in 2010. “It had introduced a broad-based share plan for all its employees worldwide,” says Michael Bendorf, executive director of GEO.
Share plans tend to be dominant in societies that value the contribution of the individual over that of the collective, says Bendorf. Employee share schemes are increasingly popular in Europe, North America and Australia, although each takes on a local flavour because of variations in tax rules and legislation. But now, share plans are also cropping up in many countries that have not traditionally offered them, he says.
The South African government, for instance, introduced the Broad-Based Black Economic Empowerment (BEE) Act and the Employment Equity Act to address the inequalities of apartheid by giving previously disadvantaged groups economic opportunities, including equity ownership. So although some employee share schemes had previously been in offer in the country, the BEE Act prompted more employers to introduce share plans. For instance, in 2009, brewery SABMiller introduced a BEE programme that included a share incentive plan (Sip) for all its black permanent staff.
Bendorf says: “South Africa does not have a rich tradition of employee share plans, so I think this is almost a way of dipping its toe in the water and testing it to see if it is going to work. It is a way of helping the country move forward a little more quickly than with a cash-based plan.”
Regulatory changes
Upcoming regulatory changes in Europe will also affect the international employee share scheme industry. The Guidelines on Remuneration Policies and Practices, published by the Committee of European Banking Supervisors (Cebs) on 10 December 2010, will be issued in the UK by the Financial Services Authority (FSA).
The guidelines have changed a number of key principles used by financial services firms to pay their staff. This includes the requirement to pay at least 50% of variable remuneration bonuses and incentives in shares or equivalent non-cash means and for at least 50% of the payments to be deferred for a minimum set period.
Bendorf says: “The general consensus on the new Cebs guidelines – and the way British authorities will interpret them – is that they represent an unprecedented degree of scrutiny of remuneration practices of financial services firms in Europe. Although directed initially at the financial services industry, a key question is how much of a harbinger this is for the future, with a common belief that much of the current scrutiny is going to extend beyond financial services and be applied to other industries in due course.”
The International Financial Reporting Standards (IFRS), which were adopted by 120 countries in 2005 but are not required to come into effect in the US until 2014, also have implications for employee international share schemes.
Bendorf explains: “The concern is not so much the technical details of the new practices, but of the cost and complexity of managing a switch of accounting standards. However, IFRS brings US accounting treatment in line with international standards for the first time, so this should allow for better integration of multinational activities and greater comparability of results between US and international firms.”
Information-sharing
All these regulatory changes can also be seen as a way for governments to find new sources of revenue in difficult economic times, says Bendorf. “There is much more information-sharing between governments. They are not necessarily changing the rules, but are finding they can enforce the rules better. We are seeing a real impact on that with expatriates, globally mobile employees that go on assignment for three years here and there. Some organisations are finding they have some pretty hefty liabilities around these staff because there is a tendency not to do anything unless they are being watched, and governments are starting to watch.”
Employee share schemes can vary dramatically across the globe. For instance, in France, employers operate a free share scheme that is similar to restricted shares in the US or the UK. And while share options are popular in North America, they are less so in other continents. Bendorf adds: “There are a lot of different cultural applications to equity, which makes it interesting, but also complicated, to look at.”
Historically, there has been a tendency to give employees of equal job responsibility or length of service the same number of shares. For example, one company with operations in the US and India gave its engineers doing the same job in each country a grant of 15,000 shares. But the value of the shares was very different in the local market. For a US engineer, 15,000 shares might equal the value of a deposit on a new home, a holiday or university education for the kids, whereas the value of 15,000 shares in India might fund the employee’s retirement.
By trying to be egalitarian across a global business, organisations appeared to be working against one of the stated goals of employee share plans – retention, says Bendorf. Many employers now create scheme guidelines at a corporate level before rolling them out internationally, he adds.
“Organisations are looking at what local remuneration levels are and adjusting grant guidelines appropriately. Over the last 10 years, for multinationals, grants have become much more attuned to the local market.”
Effective communication
When offering international share schemes, employers must communicate the benefit effectively to all staff. Bendorf says: “The key to improving take-up is in financial education and communication. Organisations are devoting more to communication and to simplifying the information, because at its heart it is not a complicated issue.”
For example, global technology firm Intel created YouTube-like videos to explain the benefit received by employees worldwide. Bendorf adds: “It did this last year, so it is a little early for it to track what the responses are, but it senses staff are getting behind this more than they have in the past.”
Employers should not look at share schemes as standalone plans, but should ensure they are woven into strategic thinking about compensation, says Bendorf. “It is a component of an overall compensation or remuneration programme. If an employer treats it as an add-on just because competitors have it, it is not going to be as effective.
“It needs to be thought-out and looked at as one component of a total remuneration programme.”
Read more about global share plans
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Career history: Michael Bendorf
- Michael Bendorf has been GEO’s executive director since 2008 when he stepped down from the association’s board of directors to take the role.
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Global Equity Organisation at a glance
The Global Equity Organisation (GEO) is an international not-forprofit association. Its members are compensation professionals and senior managers who deal with the challenges of creating, managing and administrating share schemes for one country or across multiple locations.
Founded in 1999, GEO has more than 3,600 members representing 1,500 organisations in 65 countries. The US and the UK provide most of its members.
The association was created to engage employee share scheme professionals between countries, providing an international connection and bringing these professionals together with their peers from around the world to discuss the issues.
GEO’s mission statement is to provide a forum for an open exchange between members about the latest information concerning the strategic, financial, cultural, legal, tax, communication and administrative issues involving the use of equity-based employee compensation in the global community.
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