The two widely used share plans in the UK are sharesave (SAYE) and the share incentive plan (Sip). They, like most employee benefits at the moment, are under real pressure from companies and their participants to show value for money, appeal and flexibility. After all, while employee share plans are about mirroring the shareholder experience, significant share price falls, cutting back on discretionary expenditure, furloughs and redundancies are not normally good news for them.
However, the plans have in-built flexibility, and so, with good investment in employee websites, they can react to current circumstances. Indeed, there are some features that organisations should consider publicising to their employees at the moment.
For example, if employees do not think it is the right time to buy shares or they cannot afford to do so, they can take a holiday under both schemes and re-join when it suits them. Those buying Sip partnership shares with monthly deductions from salary can stop or reduce their deductions for a period. Similarly, with sharesave options, thanks to a change introduced a few years ago, employees can now suspend savings for up to 12 months. In neither case are rights lost. HM Revenue and Customs (HMRC) has recently announced that months during which employees are unable to save due to Covid-19 (Coronavirus) reasons can be added on top.
Sharesave participants (who do not yet own shares) can also cancel their options and draw out their savings to date. The position of Sip participants is a little more complicated. They can sell shares bought with their own funds and, depending on timing, shares they have been awarded for free. As there can be tax consequences and the potential to lose some free matching shares, there are several factors to weigh up, although redundant employees are able to access shares early free of tax and national insurance contributions (NICs). Accessing cash or shares may be a welcome cushion for participants and proof, if any were needed, that employee share plans can have a wider part to play in employees’ financial protection.
On the employer side, many businesses are using the flexibility of the plans to delay launches of new awards or change the level or ratio at which they match employees’ investment. Good modelling is key, however, and there can be downsides for employers in terms of accounting costs. In particular, where there are significant share price falls, businesses need to be careful that the level of awards does not produce a commitment to supply more shares than the company can provide or is too costly a related cash commitment.
Good quality and timely communications are the foundations for informed employee choices. Both businesses and benefit providers have over the last few years built up comprehensive online tools for employees and the advantages of this are now becoming clear. Not only can employees quickly make decisions, but businesses are swiftly able to provide them with information to inform their choices. Providers have plenty of material that businesses can copy or brand or just link to the provider’s own pages.
In summary, it is important to be frank with employees and not shy away from discussing difficult circumstances. Employees will be well aware of their current position and what risks the future may hold. While they will be seeing the downside of awards being linked to share prices and while companies should never give investment recommendations, a parting thought is that for the brave and lucky, now could possibly be the best time in years to join a plan and for a business to make awards.
Nicholas Stretch is head of incentives in London at Ashurst.