What’s the biggest challenge facing your boardroom? Our share plan expert and market-development guru, David Isaacs, thinks it could be finding that Venn diagram that meets the needs of employees, shareholders and corporate engagement.

But are you looking in the right places for answers? And are you actually overlooking a solution that employee share plans have been able to provide for many years already?

To find out, Jai Baker went to David with his questions, and will be publishing a series of articles over the next three weeks to tell you what he thinks.

Jai Baker interviewing David Isaacs

They'll cover:

  • The value of employee share plans. Are the models we have now sustainable and useful? Do companies who offer them really perform better?
  • Engagement is the new corporate buzzword. Do share plans provide a ready-made solution? Should they be more widely-used? Corporate governance is tasking companies to engage more with stakeholders – could they be pressured to use share plans for employee engagement?
  • Do employees with shares in plans engage in the company voting process – if not, what can be done? Can the intended recipients of the Stewardship Code provide help and leverage?

The value of employee share plans

Jai Baker – head of industry, Link

David, I think it’s clear that employee share plans have provided many benefits to  employee participants historically. However, in an era of low interest rates, volatile share markets and economic/job uncertainty, are share plans still fit for purpose? Are they doing a valuable job for employees and employers?

David Isaacs – associate director share plans, Link

Share ownership for employees, and even company ownership, is definitely high on lots of agendas. Share schemes have been receiving lots of media coverage over the last couple of years, especially with the Labour Party pledging to redistribute shares to workers in the UK. (One key point of this policy is that it is not about the redistribution of shares; it also allows up to £500 of profits to be shared with all employees.

'Employee share plans are perhaps more relevant now than they have ever been'

Across the channel, France’s president, Emmanuel Macron, has just pushed through a law for mandatory profit-sharing schemes for employees in firms with more than 50 workers. In the US, Democratic presidential hopefuls, Bernie Sanders and Elizabeth Warren, propose to tackle soaring wealth inequality by giving employees a stake in their companies – and increased authority over the profits and decisions made by their employers.

Employee share plans are perhaps more relevant now than they have ever been, and it’s difficult to see how any employer could fail to engage with their potential benefits:

  • Increased productivity
  • Increased employee motivation
  • Increased employee engagement
  • Shared rewards
  • Improvement of employees’ financial wellbeing

Since the beginning of tax-advantaged share plans in the 1970s, millions of employees have benefitted from owning shares in the companies that they work for[1], and their companies have generally seen a related improvement in company performance[2].

So, should we just carry on extolling the virtues of employee share plans if they are just as relevant to employees and important for company performance as we always thought they were?

Well, I think the overall societal and corporate governance landscape has become much more complicated, and it now has a main focus on stakeholder and employee wellbeing. Employee share plans can play an important role in supporting that.

I like to think, with all the work that has been done recently, that employers and employees are more aware of potential mental health problems within the workplace.

Everybody experiences stress in the workplace at one point or another, but if financial worries are a factor in your life, it can be devastating to your productivity and mental wellbeing.

'Employee share plans offer savings opportunities that can help keep financial worries in check'

Employee share plans offer savings opportunities that can help keep financial worries in check. It’s worth noting that for some colleagues, an employee share plan may be the only savings they have.

I empathise with business leaders as they are feeling pressure to rethink the role of business in society more than ever.

  • Social norms are changing, including expectations from employees, customers, and even investors
  • There’s a growing realisation that a focus on one key stakeholder or metric is flawed
  • Investors such as BlackRock’s CEO, Larry Fink, are increasingly pressing companies to focus on their purpose and how they contribute to society
  • Perhaps most importantly, the world faces challenges like climate change, inequality, resource scarcity and loss of biodiversity. The current shareholder-focused system is not entirely fit for this purpose

If this is the case, is there a place in this ‘modern’ movement for existing employee share plan models?

Earlier this year, the Business Roundtable (founded in the USA in 1972 as a voice on the principles of corporate governance) issued a statement redefining the ‘purpose of a corporation.’

The group, comprising 200 US CEOs, transformed American business goals. They prioritised investing in employees, delivering value to customers, dealing ethically with suppliers, and supporting outside communities – leaving behind the old strategy of putting corporate functions first to serve shareholders and maximise profits.

All stakeholders are now viewed as important. This is not a new idea; you can look back and see General Electric’s Jack Welch and Unilever’s Paul Polman both extolling the virtues of long-term investment in 2009, with care for the economy and society at their core.

Corporate governance in the UK is asking for a shift of emphasis to include stakeholders, employees and shareholders. So, it’s possible to see where employee share plans might have an ongoing, greater role to play.

Indeed, it might be said that employee share plans could be the ready-made model for preserving and enhancing employee engagement for companies. But, we must also be mindful of changes in working practices, such as the opportunity for workers who are not yet employees to share in capital growth. Perhaps more on that next time.

Thank you David. Next time we will look at the possibilities for employee share plans to become a vital engagement tool.

Read the next interview in the series here

[1] 2.4 million employees participated in SAYE and/or SIP in 2018, according to the ProShare SAYE & SIP Report. https://www.proshare.org/assets/files/news/july-proshare-saye-sip-report-launch.pdf

[2] See Oxera report for HMRC on these impacts https://webarchive.nationalarchives.gov.uk/20080728032543/http://www.hmrc.gov.uk/research/tax-advantaged-overview.pdf