Jai Baker – head of industry, Link
David Isaacs – associate director share plans, Link
The new engagement model seeks to level the playing field for each group of stakeholders. No longer should the shareholder always be deemed first in the pecking order when it comes to the input and benefits of a business’ profitability.
Shareholder rights remain in law and regulation, but in 2019 there are corporate governance reforms that will require greater engagement by boards with employees and workers, and more corporate reporting about the workforce. New requirements ensure company boards consider the interests of employees, business relationships with suppliers and customers, the wider community, and the environment during the decision-making process.
Perhaps the most significant change is the requirement for the boards of premium-listed companies to engage with employees and other stakeholders, so that they can effectively understand their views and interests.
'Engaged employees are those fully invested in their firm and their work'
How much more powerful could this engagement be if employees were also shareholders through an employee share plan?
Employees manage thousands of processes, and control the vast majority of companies’ business relationships. Their views can be hugely informative to a board when it comes to operational effectiveness and strategy development; and their commitment to a company can uncover business risks at an early stage.
Engaged employees are those fully invested in their firm and their work. They actively think about the firm’s processes – and identify improvements. Their enthusiasm reflects a corporate culture that encourages engagement. Most importantly, they are productive.
The revised UK Corporate Governance Code gives three possible methods for engaging with employees and the wider workforce, with the aim to enhance the 'employee voice' in the boardroom. This may be through a director appointed from the workforce; a workforce advisory panel; a designated non-executive director; or a combination.
Would it be so far-fetched to consider that employee share-ownership plans could engage a workforce, aligning rewards and success with the company’s performance?
Employers looking at an uncertain business environment may not be encouraged to offer, repeat or expand employee share plans, and employees may be disinclined to invest if they are uncertain about the potential rewards. However, these sorts of incentives may be just the thing for an employer to retain, engage with and incentivise a workforce to increase productivity in challenging markets.
There are now over two million UK employees who hold shares or options through a share scheme. Employee share plans are used by 80% of FTSE 100 companies. Overall statistics from the Save As You Earn and Share Incentive Plan schemes that we operate for our clients are encouraging:
SAYE statistics 2017 - 2018
SIP statistics 2017-2018
Clearly, companies incur costs when they operate an employee share plan, as they would with most other employee benefits. But, whilst measuring all of the benefits may be difficult, there is hard evidence of improved performance and profitability that comes with a workforce able to engage with and share in the profitability of the company they work for.
Employee share plans are still popular and have changed over the years to accommodate the changing working landscape. However, elements of the schemes are of their time and don’t fit with some major changes in the world of work that we have seen very recently. These elements may need to be addressed soon to maintain the relevance of employee share plans – and perhaps propel them into a modern engagement tool.
Patterns of working have changed and people are much less likely to remain with one employer for many years as they used to. Having a SIP holding period of five years or saving in a five or even three-year SAYE scheme may become less attractive if a period of employment is not expected to last. Also, entitlement to benefits from an employer usually depends on whether you are an employee, and the law and regulation refer to employee status.
'We need to look at new models that meet the requirements of the modern employment landscape'
We are in an era of zero-hours contracts, the gig economy and fixed term contracts. The workforce is changing and if schemes can’t be offered to significant parts of the new workforce because of their ‘status’, then we need to look at new models that meet the requirements of the modern employment landscape.
Perhaps the answer is a new type of scheme that enhances participation of gig-economy workers and young people who typically embrace the idea that at least every two years they should change their employer. If this happens, it would result in those employees not sharing the potential benefit of participating in a SIP and/or SAYE – even if they had chosen to join the employee share plans.