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How Share Schemes Can Help Employees in the Cost-of-living Crisis

Share schemes could play a vital role in helping employees struggling with the cost-of-living crisis.

The EQ Shareholder Voice survey shows 73% of all shareholders believe employers should offer them financial support to help cope with soaring prices; and 87% of employee shareholders believe this. The most popular option is a pay rise in line with inflation – 53% of those who want support feel employers should offer this. However, almost one in five want shares in the company.

Many organisations worldwide are facing the threat of industrial action as workers demand higher wage increases to keep up with soaring inflation. But the cost-of-living crisis could be short-term, so employers may not see large, permanent pay rises as appropriate – even if they could afford them.

A more affordable option could be to combine a modest pay rise with free shares, and a cash sum for hardest-hit employees. For example, rather than an 8% pay rise, companies could offer a 4% pay increase, 3% worth of free shares, plus say £500 cash for those on the lowest salaries. If the shares come from a new issue, that doesn’t come from the company’s cash, making it an easier option financially.

Many companies that were finding it hard to generate cash during the pandemic gave employees free shares to thank them for their hard work and loyalty and it worked well. Some even had to reduce salaries, so they gave free shares to compensate. They found this was better than laying people off, and the staff ended up being slightly better off too."

Graham Bull, Head of all Employee Share Plans, EQ

Helping those on lowest incomes

A vital part of making this combined support effective and affordable is using data to tailor and target employees’ needs. Organisations know how many employees they have on lower incomes. But where possible, they should target support for the hardest-hit by identifying staff who live in low-wealth areas.

“This indicates those living in genuine hardship,” says Bull. “If they are on a low income but living in an affluent area, that gives you some comfort that they have other means – for example, they’ve inherited some money or their partner is better off. EQ’s data team can help companies identify people who live in hardship areas, and use other data to refine that further, such as credit scores and sickness records. Combining these measures to identify vulnerable workers also helps you support them in other ways – such as through your employee assistance programme – and manage risk in your workforce.”

Ian Cox, head of share plan services at EQ, says better management information (MI) can help companies make this support highly tailored and efficient. “Many companies use the MI we supply to target demographics in their employee base. You can tailor to many factors, such as local dialects and different sections of your workforce such as depot workers versus office workers. By identifying communication styles that each segment prefers, we have seen engagement numbers go through the roof.”

Cox says those needing immediate financial help could take a break from share scheme payments or change their contribution levels – so schemes could target them with reminders about this. They can also offer an ever-growing range of tools to help them manage budgets, contribution levels, savings, and investments.

How Automatic Share Ownership Can Help Solve Economic Woes

One option for employers is to auto-enrol workers into employee share plans. It could help solve a range of critical business challenges and wider economic problems. Pensions auto-enrolment has worked extremely well in helping people save for retirement in countries such as New Zealand, the US, and the UK. Auto-enrolment into share plans could help them save more in the medium-term – and solve pressing economic challenges such as slow productivity growth, staff retention and soaring inflation. Legislation requiring share scheme auto-enrolment would be welcome but it’s not necessary for any company to start a scheme of its own. Bull says auto-enrolling share schemes could work by requiring companies to pay a small amount – say 0.5% of salary – a month into a share scheme for each staff member, unless the member opts out. Providing the accompanying communication is done well, this will engage them more in owning shares and saving.

Governments and businesses are desperate to avoid giving in to demands for large pay rises as this often forces them to increase prices for products and services, creating a vicious cycle that will make inflation last much longer. One way to alleviate this problem is to improve worker productivity because – other things being equal – this helps reduce costs, prices, and therefore inflation. Business bodies such as the Confederation of British Industry (CBI) have argued that wage rises will simply feed inflation unless they are driven by higher productivity.

How share ownership boosts productivity, retention and performance

A 2021 report by the Social Market Foundation (SMF) refers to a range of compelling evidence that employee share ownership translates into higher productivity – and better business performance, employee relations, innovation and economic growth. For example, a study by Oxera, commissioned by HMRC, found that tax-advantaged employee share plans increase long-term company productivity by 2.5%. Another analysis found companies with a relatively high proportion of employee shareholders outperformed stock market indices in the UK and US.

The SMF identified several current barriers to share plan participation. These include lack of awareness or scepticism about the benefits among companies and employees; implementation and administration costs; and the harsh accounting treatment share plans sometimes receive. The foundation also found subpar share scheme participation in low-wage industries such as hospitality and retail, suggesting that financial means are a barrier. Higher staff churn rates could also be an issue. The rise of gig work and job hopping also limits the number of individuals who are willing or able to participate in share plans. Evidence suggests that, on average, people now expect to stay in a job for less than five years, so are less likely to want to join share plans with a five-year term.

For share schemes to have significant long-term impact, companies need to devote substantial effort to them, including continuous access to high-quality advice, training and other support, says the SMF. Auto-enrolment would help solve many of these problems by automatically placing all employees in a share scheme.

Bull says one challenge to this idea in the UK is that share plans are not offered to all UK employees. “We don’t only want workers in PLCs to enjoy the benefits,” he says. “The public sector could provide an alternative by, for example, auto-enrolling workers in a portfolio of FTSE shares or a multi-asset fund.” Brook says it would also help if governments could allow employers to divert some of the money they put into employees’ pensions into a shorterterm vehicle, such as an ISA. “This would enable them to save for events such as university fees or helping children with house deposits. It could also help during a cost-of-living crisis, when employees need more short-term help,” he says. But Brook adds that share schemes only improve productivity and staff retention if you have an effective communication programme and continue communicating the benefits throughout the term. “If you launch and leave it, you are missing a trick,” he says.

Longer-term help

Tim Brook, business unit lead at EQ HR Solutions, says any share-based solutions to the cost-of-living crisis should come as part of a coordinated “total reward” strategy. This should include other benefits – such as discount schemes and individual savings accounts; an ongoing communication strategy; and a rewards hub to host all the solutions centrally.

“Some people need more immediate help, so practical savings such as retail vouchers and discount schemes can help,” he says. “If you can save 4% on all your shopping over the year, it’s enough to cover the cost of your whole Christmas day. A message like that switches people onto it. We help companies maximise engagement by putting everything in one place, and building a communication strategy around that, which is critical to success – plus education and support to promote financial well-being.

“You should also ensure struggling employees are in touch with their employee assistance programme – for example, if they need debt or legal counselling – and signpost them to other agencies such as Citizens Advice. So don’t just communicate about share plans; make it part of a bigger campaign starting with budgeting, saving tools, and education, then working through to benefits.”