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60428EQG EQ Client Newsletters Jan 2021 Eqboardroom 900X330

Reward Strategy And Planning For 2021

Thursday, 7 January 2021

As we enter 2021, we continue to weather the COVID-19 storm. The focus for many businesses remains the resilience of operations and the welfare of employees.

Towards the end of 2020, we saw markets begin a journey to recovery and some businesses giving back to both their employees and the public, issuing bonuses, offering extra holiday and returning Government funding. However, we remain in a period of uncertainty, and we expect to see organisations continue to remain cautious with spend to protect the long-term health of their company.

We’re sure your reward strategy will be no different, and with this in mind, we look into how you can give your employees more within your existing plan framework whilst keeping cost to the business at a minimum.

Wider Workforce: More for Less

We know that significant changes to your existing plans cost time and money. This year, we expect many businesses to leverage their current framework to bring more to employees.

Sharesave (SAYE) Schemes

If you are planning on launching a Sharesave scheme in 2021, there are some trends that we have seen over the last 12 months that could help maximise take-up within your organisation.

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Our recent research suggests that a lack of confidence and understanding in the stock market is the main contributor in people deciding not to invest in stocks and shares. However, with interest rates at rock-bottom, we know that many people are not maximising their returns by saving in cash.

Communicating that Sharesave schemes present a low-risk gateway into investing in equities will be critical in 2021. As employees begin to see their company’s share price recover, it should provide welcome reassurance and encourage participation.


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When looking at your next Sharesave launch, keep in mind that three-year schemes are more popular than five-years, partly because workers expect to move jobs more frequently than before. Also with your Sharesave scheme, being made redundant is classified as being a ‘good leaver’, so redundancy worries don’t need to put people off joining.


Share Incentive Plans (SIPs)

When looking over your Share Incentive Plans for 2021, it may be an excellent opportunity to review SIP matching ratios to see if this can be introduced or increased to offer more of an incentive to new joiners as well as rewarding those already in the plan.

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Given that SIP has tax advantages for both participants and the company, you could look to introduce a small matching ratio, equivalent to the value of the company’s Employer National Insurance Contribution saving. This would reward employees currently enrolled in the SIP scheme as well as incentivise new joiners.

You can find out more about how this might work by contacting your Relationship Manager, and we'll model scenarios for you.

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Not quite as cost-effective as a net-free match, but still a great alternative to cash bonuses. At EQ, we have seen a considerable surge in companies offering a free share award to employees, either as part of their annual remuneration strategy or as recognition for work through the extraordinary period of the ongoing COVID-19 pandemic. In 2020 across EQ’s share plan clients over 280,000 employees benefited from free shares awards worth a total of £335 million.

The shares were either awarded through a Share Incentive Plan whereby the employee received shares with a minimum three-year holding period, or through a Conditional Share Award where the company determined the length of the vesting period.


Executive Remuneration and Discretionary Share Plans

Whilst organisations continue to remain cautious with spend; stakeholders want long-term stability and growth. To achieve this, companies need to hold on to their top talent, both at an executive level and further down the line and the use of discretionary share plans have an essential part to play.

In 2020, the immediate impacts of the pandemic meant companies had to look at inflight bonuses, how to preserve cash, as well as consider the right balance of performance conditions for awards and whether to delay these to give time to assess ongoing COVID-19 impacts.

Through 2021, companies impacted most by the pandemic will have a fine balancing act providing reward for outstanding performance and leadership, with investors examining the approach to discretionary plan remuneration over a period when many companies have cancelled dividend payments.

The approach should be appropriate to the specific impacts of COVID-19 on the business. The Investment Association expects remuneration committees to take into account the effect of the pandemic on the general market, the company's share price, dividend payments, and the company itself when considering bonus payments and awards. The company’s use of the furlough scheme, any planned redundancy programmes and decisions around reduced hours and pay cuts also need to be taken into account.

Six Factors to Consider

From market dilution to sourcing your shares, here are six areas of consideration when making awards in 2021:

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The impact on 2020/2021 year-end bonus outcomes, taking into account the share price and specific implications of COVID-19, especially if these have been significant, with consideration about whether a higher proportion of bonus payments should be deferred into shares.

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Grant sizes and ongoing performance conditions should be appropriate to the current market environment and shareholder alignment.

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Discretionary powers available to the company if windfall gains are received.

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Whether to diversify the population of employees receiving an award by granting a Conditional Share Award to reward specific groups of employees. This type of award allows flexibility on both award quantum and the duration of the vesting period.

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Ongoing strategies to both sourcing shares for awards and dilution, to help with efficient and orderly trading.

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Engaging with stakeholders to explain the rationale for the company’s approach, with detailed disclosure where there have been changes to previous years.


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