Sharesave may effectively be an employee risk-free savings plan with the opportunity to benefit from any increase in share price, but with recent changes in accounting standards a number of employers have reviewed their participation, says Ken Lawrie, group remuneration manager, EasyJet.
There is a demonstrable correlation between employee share ownership and company performance. When employees have a stake in their organisation's success they will take a greater interest in how well the organisation is doing and what they can do to influence results. This, in turn, aids retention and improves performance.
Committing to an all-employee plan is a big step and organisations need to be clear about what they expect to get out of such a plan. For many organisations, share plans can be a tax-effective means of delivering reward.
There are three main HM Revenue & Customs approved share plans for larger organisations that allow for corporate tax deductions and employee tax advantages.
Sharesave, or save as you earn (SAYE), is still the most popular all-employee plan. Individuals save up to £250 each month for three, five or seven years. At the end of the period participants have the option to buy shares at a price agreed at the beginning of the period. Employers can also give a discount of up to 20% of the price at launch.
The main advantage for participants is that this is a no risk savings plan with the opportunity to benefit from any increase in share price. However, with recent changes in accounting standards, a number of employers have reviewed their participation, as the cost of the scheme is now included in a company's profit and loss accounts, rather than being "free" new issue shares. Nevertheless, a sizeable majority of large companies still operate an SAYE scheme.
The share incentive plan (Sip) is also widely used and has three means of delivery. Companies can give up to £3,000 of shares per annum free of tax and national insurance (NI). They can also match the number of shares that the employee has purchased each month at any ratio up to two company shares for each employee share. Employees can also purchase up to £125 of what are known as partnership shares per month from their gross income.
Sip schemes offer flexibility and a beneficial tax treatment for both employee and company contributions. The drawback is that participants have to remain in the scheme for five years to get the full tax advantages.
Approved company share option plans or CSOP can also be used as all employee vehicles. The first £30,000 of options can be given without UK tax on grant or exercise. Options can give a great benefit in rising stock markets, but have little perceived value if underwater - despite the length of the vesting period to come.
These are UK plans and there is no need to include international staff, but it sends a very positive message if you can. At easyJet, we have established mirror international plans that offer the same benefits as the UK plans, but without the UK tax advantages. However, it is worth taking local advice as the tax treatment of these plans varies from country to country.
Employee profile, size of company, availability of stock and the volatility of the share price are all factors that need to be considered when deciding which schemes would best suit the organisation.
You may want to consider whether to outsource the administration. We have found it a real benefit to put applications, payments and the like through a third party.
Over the longer term you also need to think about the information you will provide on share performance and how it will affect plan values. For instance, what would you communicate to staff if your share price fell?You always hear it, but good communication really is the key if you are to get value from the plan.
I would recommend engaging staff at the earliest opportunity through employee forums and then through a variety of media, including posters, email, brochures and the internet.
Spreading the message through line managers, employee briefings and local champions pays real dividends.
• Ken Lawrie, group remuneration manager, easyJet