Financial education for share schemes

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Timing, accessibility and presentation. These are the watchwords to providing financial advice for a successful share scheme, although getting the mix right to ensure a high take-up is far from easy. While staff at the top will know they are on to a good thing, those on lower incomes may be put off by the perceived risk, or might simply be baffled by the information supplied. Sharesave schemes and share incentive plans (Sips) must be made available to all staff, so financial advice must hit the right notes for everyone.

According to Jill Evans, head of corporate business for share scheme provider Yorkshire Building Society: "Some years ago, the emphasis was very much on terms and conditions. Now, it is more on the benefits, and companies will try and tap into what is likely to turn their staff on before any launch." And, if it’s presented in a technical manner, financial advice tends to be a turn off. Some employers choose to cover the cost of professional financial advice, which is available from corporate independent financial advisers (IFAs).

But, younger staff in particular may not want detailed advice. Those most likely to benefit will have larger sums available to reinvest, but, in most cases, the aim is to attract interest and provide employees with information and support when completing forms. A share scheme consultant will be able to recommend an IFA. It is also about inventing snappy taglines and ideas. Punch Taverns (see box below) won the communications category in last year’s ProShare Awards. When its share incentive plan was launched last year, the advice to staff was to Bogof – or ‘buy one get one free’. This marketing hook helped to reel staff in. Claire Richardson, managing director of share plan managers Halliwell Integra, which manages Punch Tavern’s share plan, says: "It wanted vibrancy in its launch campaign and for staff to feel excited about the opportunity." The way information is provided is clearly the make-or-break factor.

Helplines, the internet and articles in staff newsletters are all vehicles for transmitting details, although consultants tend to insist that face-to-face presentations are crucial, particularly for a scheme’s initial launch. And organisations are increasingly using their own employees to convey basic information. Geoffrey Bond, director of share scheme consultants the RM2 Partnership, believes this can have a hugely positive influence. "There has to be enthusiasm in the barrack room and that means bringing in champion employees who are well regarded by peers and who can be coached on the key facts surrounding a plan." It also means bringing line managers on board and making sure they understand the benefits.

"Unions have generally been very supportive of sharesave and Sips because they bring share ownership to all employees. Where there is union membership, they may well assist with explaining benefits and promoting the scheme at meetings," he adds. Chris Parkhouse, director, Abbey at Work, says: "Staff need accurate information. The common things they want to know is why they should join [a scheme], how to join and information on past performance. This works best if you avoid a bland presentation." Balancing the risk versus reward message can be tricky. Regulations require staff to be told of the risks involved, although employers can use the "money for nothing" message for sharesave schemes.

Share incentive plans carry a greater risk, but RM2’s Bond explains employees need to realise that when the company is awarding matching shares, this risk is lessened. "For there to be a loss, the shares need to fall considerably. Gifting shares limits exposure to employees and they need to understand how this creates a type of safety net." Yorkshire Building Society’s Evans agrees most employees want straightforward information. "If it’s a sharesave plan, then they’ll want to be made aware of the window when they can join.

With a Sip there will be more flexibility, but this will too often be based on how much and for how long they can save." While some employees will only save a small amount each month, those who have been involved in schemes for a number of years – and have gained confidence as a result – often see the advantage of putting more aside. But, as schemes roll over, there is a cap of £250 that can be saved each month. Employees who reach this limit may then seek advice, although, for the moment, this figure is unlikely to change. Advice must also centre on the need to hold shares longer term.

Halliwell Integra’s Richardson says: "It’s important with a share incentive plan that staff know there is some risk, but also [understand] the potential gains they could make and the tax breaks. If they keep the plan going for the full five years, they are not subject to income tax or national insurance." Regular communication and provision of share price information after [a scheme’s] launch also have strong benefits. She concludes: "Staff who previously had no interest in shares will start wanting to check the price on their intranet and discuss it with colleagues. The right scheme can boost loyalty and bring employees together."


Punch Taverns

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launched its share incentive plan (Sip) last year, which has gone down a storm. Claire Richardson, managing director of share plan managers Halliwell Integra, which manages Punch Tavern’s share plan, says it is noticeable that new staff also tend to waste no time in signing up. "The share price has already gone up £1." Halliwell Integra ran in-house presentations and also held two regional seminars to reach the company’s mobile staff that spend much of their time visiting their pubs. She adds it was important to let employees know they could talk to a member of her team privately and facilities were set up at meetings. The confidentiality of the helpline and email were also emphasised. The ‘buy one get one free’ message was used in all communication material and since the scheme’s launch in June 2004 over half the workforce has taken a stake in Punch compared with an average of 30% for similar company schemes. Punch Taverns customer services director Francis Patton, explains: "Our primary concern was to ensure that everyone within the organisation not only knew about the Sip but understood the benefits of taking a stake in the company." Richardson adds that the scheme also helped make staff feel valued. This is important because Punch is an acquisitive firm, and takeover deals can make some staff feel unstable.

Case Study: Asda

When it comes to financial advice, simply telling employees to think about their retirement or the need to save for a rainy day is unlikely to go down well. Asda Wal-Mart’s staff have spent their sharesave gains on racehorses, holidays and boob jobs. And, no one is criticising them. In fact, HR directors welcome the diversity of goals held by their employees. Jill Evans, head of corporate business at Yorkshire Building Society, which manages Asda Wal-Mart’s scheme, explains: "We assisted in holding a series of regional focus groups, with our people acting as facilitators and looked to tie-in the messages about benefits to people’s lifestyles, rather than just telling them to be saving." She says Asda Wal-Mart wanted practicalities emphasised: "It was about telling staff they could use the money to pay for a wedding and running through potential costs of this and how much they might need to save. "Many people want cars, holidays or maybe a deposit for a house and share plans are often one of the most effective ways of achieving this. Rather than telling people what to do, it’s a good idea to inject genuine case studies and some humour into meetings." But, there are times when employees want heavyweight advice. While share schemes have traditionally been seen as short-term methods of building capital, they can be used for longer-term issues such as pension planning. Peter Cooley, director of Nelson Money Managers, explains: "Simplification of the pension tax regime will give employees further opportunities to become long-term savers. Some of their gains should be spent on frivolous pursuits, but employees should also simply be empowered to understand their choices."