The future may be bright for employee share schemes

This article is brought to you by Yorkshire Building Society.

The fate of employee share scheme has met with much debate, but they may have a bright future ahead, says Jill Evans, head of Yorkshire Building Society Share Plan Services

Today, millions of employees participate in a variety of share plans. With 2.2 million participants, sharesave still has a good slice of the action. Understandably so when you consider it has been around for 27 years. But the share incentive plan (Sip) follows closely on its heels. Despite being a younger and more complicated plan, it is now making significant gains.

All employee share plans continue to remain attractive to employers and employees alike. They are excellent value in engaging employees in the business and rewarding them tangibly for their performance.

In an increasingly competitive world, organisations have to get the best out of their teams and continuously improve business performance. The critical source of competitive advantage in an organisation is people. Share plans are seen as a way to help achieve this by engaging employees in company performance. So they are featuring more heavily in HR business plans.

Despite fervent regulatory activity, companies seem not to be deterred. They are coping with IFRS2 (which requires that the option price discount normally offered at the start of a sharesave plan should be accounted for) and with the more controversial D11, which will mean that cancelled options, even though they never vest, need to be accounted for in that year as a cost. Most organisations have remained steadfast in their continued support of this no nonsense, easy to communicate, share plan that delivers good, sometimes fantastic, returns with no risk.

While HM Revenue & Customs reports a drop in new sharesave plan approvals, this can largely be attributed to the fact that sharesave has been around for 27 years. The market is mature, with annual repeat offers on the up. Sip, on the other hand, could be said to be the antithesis of sharesave, complicated with numerous components, difficult to communicate and with associated risks of buying shares not options. Yet Sip too is cantering along, often complementing sharesave, and sometimes replacing it. With enterprise management incentives it presents a viable alternative for new share plan companies against other more traditional plans.

The share plan market rarely stands still despite its ageing years. It must continually develop to meet changing business needs. These changes have recently resulted in a rationalisation of share plan providers with both Mourant’s and Abbey’s business being bought by competitors. This inevitable activity seemed to be a fight for the survival of the fittest where providers who had not continually invested in systems and talent were unable to maintain momentum within their own organisations and the market.

Marketing and communications plans are continually being reshaped to incorporate new technology to expand their reach. Employers are using the Web, IVR and SMS text application processes to achieve employee segmentation and targeting, with "webinars" and iPod downloads to follow.

New outcomes for share plans are also being identified, with the ability to "Sip to SIPP", with a 90-day opportunity to transfer the proceeds from either a sharesave or Sip into a pension plan on a tax-free basis having definite attractions.

Will the all employee share plan story end? Some have foretold the "death knell of sharesave". At Yorkshire Building Society we disagree, because we see the evidence from our clients of the overriding benefits.

The views and opinions in this article are those of our sponsor, Yorkshire Building Society, and do not necessarily reflect those of