Shared vision for a profitable future

Current low share prices could result in significant gains for staff when schemes mature, says Ifs ProShare’s Julie Richardson

Despite the onset of the credit crunch in 2007, increasing numbers of companies recognised the benefits of giving their staff the chance to take part in all-employee share plans, and dozens offered share plans for the first time.

†Similarly, 2008 saw several household names enter the share plans industry. For example, food wholesaler Booker introduced its first all-employee plan, a sharesave scheme (also known as a save-as-you-earn (SAYE)) and travel agent Thomas Cook began to offer its employees both a share incentive plan (Sip) and a sharesave plan.

Pleasingly, 2008 also saw a marked increase in the number of small and medium-sized enterprises offering share plans.

The long-term future for employee share ownership remains promising. For staff, all-employee share plans remain a simple but effective method of saving over the medium-to-long term. For employers, the benefits of increased employee productivity and retention, as well as better financial performance compared with companies that do not offer an employee share plan, continue to prove attractive and will doubtless do so throughout 2009.

In years to come, employees taking part in sharesave plans are likely to benefit from the current round of low option prices, at which they will be able to buy shares in three, five or seven years’ time.

Assuming the stock market recovers over the next three-to-seven years – and there is no reason to suggest it won’t – then hundreds of thousands of UK employees could stand to make sizeable financial gains. Given this likely scenario, employers would be well advised to consider providing financial education for their staff.

Employees who are given better financial skills, knowledge and confidence can make informed decisions about what to do with their savings on maturity. For example, whether to transfer some or all of the funds to an individual savings account (Isa) or a self-invested personal pension (Sipp), to reinvest in another share plan, or to undertake a combination of these.

Better financial awareness helps employees to value and appreciate their employer’s benefits spend and has a positive impact on staff retention and engagement levels. This is obviously not just true of staff participating in sharesave schemes, but also Sips, company share option plans (CSOPs) and other types of share plan.

Other trends to be aware of in the future relate to executive share plans, especially in the financial services industry, where events of the past 12-18 months mean many companies are likely to switch to offering executive share plans instead of purely cash bonuses. The Financial Services Authority has already called on banks to adopt longer-term reward strategies and other sectors of the economy are likely to react similarly in the future.

Last, but not least, there is a good chance of a change in government taking place within the next 18 months. Although this has the potential to change the share ownership landscape, employee share ownership is, fortunately, one of the few concepts to have received support from each of the three main political parties.

The environment for employee share ownership would be less demanding if there was new legislation to address some of the barriers to companies offering share plans and employees participating in such plans. For example, steps could be taken to reduce the holding period for Sips from five years to three; to ensure that private equity-backed companies are able to offer all-employee share plans; and to increase the monthly maximum savings that employees can invest via sharesave plans from £250 to £400.

Given the fact that employee share ownership has a proven track record in promoting saving and increasing productivity, future governments may be persuaded to go even further in encouraging participation.

Julie Richardson is head of employee share ownership at Ifs ProShare

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Key Points

  • The long-term future for employee share ownership looks set to be promising.
  • Participants in sharesave schemes could benefit from the current low option prices at maturity, assuming the stock market recovers over the next three-to-seven years.
  • Offering financial education for staff can help employees to make informed decisions about what to do with their savings when a scheme matures.
  • Legislative changes are needed to remove the barriers to staff participation, for example, by reducing the holding period for share incentive plans.