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Share Plans And Long-term Financial Wellbeing: Why Now Is The Time To Promote Share Plans

Wednesday, 5 August 2020

By Andrew Woolnough, Director, EQ HR Solutions, who spoke with Jennifer Rudman, Industry Director, EQ Employee Share Plans.

There has been a renewed interest by companies in all-employee share plans over recent months, with a view to ensuring employees – particularly key workers, from the health service to retail, transportation and beyond – have a stake in the business to which they contribute.
Jennifer Rudman Photo New Jennifer Rudman Industry Director, Employee Share Plans, EQ

“If you have confidence in your company and believe that share prices could increase, access to share plans can prove rewarding and motivating,” says Jennifer Rudman, industry director, employee share plans at EQ.

Workplace savings and financial resilience is one of the key themes at this years’ virtual Employee Wellbeing Congress. View the full agenda and opportunities to join discussion groups with your peers or register here to attend.

There’s long been a big disconnect between the economic value of some workers’ pay and the social value. And that’s really come through loud and clear in the current climate, when you consider that our key workers – those literally putting their lives on the line for others during the pandemic – are probably those on some of the lowest incomes. Whether that leads to a review of remuneration policies, with a focus on what employers can do for key workers, remains to be seen.

This goes for reward packages too. It was great to see insurers, in some cases, extending access to virtual GP, counselling helplines and financial wellbeing services for all their clients’ employees. We will have to wait and see if these continue as long-term employee benefits.

For now, it’s probably safe to say that it is most definitely the time to promote all-employee share plans. And not only for our key workers. As the economic crisis inevitably deepens, it is those employers that do all they can to reward and motivate that will be better placed to ride the current storm.

Impacts on SIP and SAYE

Employers are already switched on to this. In fact, aside from some amendments to Save As You Earn (SAYE) launch timetables, EQ reports that these tax advantaged share plans continue to play a vital part in helping businesses protect the long-term health of their company.

Existing Share Investment Plans (SIPs) have also continued as usual, despite being impacted by falling share prices. Among our clients, the total level of employee monthly SIP contributions has actually risen slightly over the period January to June 2020.

Rudman comments: “Employees haven’t yet cancelled their participation in SIP, likely due to expectations that the share price will recover. The furlough scheme has, so far, enabled employees to continue contributing to their SIP.”

The same, it seems, goes for SAYE accounts. “We have seen an increase in the number of ‘underwater’ SAYE schemes – where the share price is lower than the option price – though with an expectation that share prices will improve, employees are not reducing contributions right now,” adds Rudman. “SAYE is low risk, so employees are continuing to save.”

Our figures show that contributions to newly launched SAYE schemes are high, probably due to the perception of a low option price and expectation of a share recovery. One client’s  – Smiths Group – launch was due to take place in April at the peak of the pandemic. In spite of some take-up concerns, they went ahead to help increase motivation and engagement.

They adapted their communication approach to the new working environment and the launch proved a major success with 54% take-up and total savings of £176,000 a month (a 56% increase in savings from 2019).

Share plan usage trends

Meanwhile, companies are looking at how they can use share plans innovatively in their business, with a view to retain cash in the business, avoid redundancy and reduce the number of people on furlough. Here are some examples of what we have seen:

Salary alternative

Companies looking to preserve cash in the business can delay a percentage of employees’ pay and replace with a share award,that would vest either within a specific timeframe or at the end of the financial year.

One client, DMGT, introduced an employee share plan in April to do just that. Over 1,650 employees enrolled in the plan, with some who were below the threshold salary opting to participate and others choosing to increase their salary reduction to receive more shares.

DMGT’s Head of Reward, John Machin, comments: “The plan has given employees a tangible stake in the success of the company ensuring they are fully engaged and motivated in these unprecedented times.”

Retention and recognition share award

Companies looking to reward employees by means other than cash are typically considering free share awards that enable all employees to benefit equally. These feature a short deferral period or a short period between the award being made and the employees receiving their shares.

Over recent months we have seen companies: issue free shares to all employees with the only condition being the employment of the employee at the time of vesting; grant shares in line with the release of their financial results; have an average period

before vesting of 18 months.

Cash bonus substitute

Some companies with obligations to pay a bonus are looking to use shares an alternative to cash payments by: using a Conditional Share Award that vests shortly after award acceptance; putting the resulting shares into a Nominee; restricting the shares with a minimum holding period of 12 months.

The time is clearly right for share plans, helping employers balance cost savings with incentivisation and treating employees fairly. The challenge for Company Secretaries and Reward Directors will be to continue working closely together to ensure engagement as furloughing is withdrawn. As unemployment grows, remote working becomes more permanent for some and the stress of returning to workplaces is all too real for others. Financial wellbeing is set to become ever more vital and will require joined-up thinking across all stakeholders.

*This article was written for, and features in REBA, July 2020