Jai Baker sat down with share plan expert and market-development guru, David Isaacs, again to talk about employee share plans and how they can help your company overcome challenges in corporate governance.

Left_David Isaacs Right_Jai Baker.jpg

Jai Baker – head of industry, Link

David, we know from our internal research that getting small or retail shareholders to vote at annual general meetings is challenging. Is this different when you look at employees who are participants in employee share plans?

David Isaacs – associate director share plans, Link

For a general meeting event where paper proxy cards are issued, mainly to retail shareholders, on average only 5 per cent of the cards are returned with voting preferences -representing 21 per cent of the issued share capital.

On average, 53 per cent of issued share capital is voted in total on each resolution. So, it's safe to say that the majority of votes cast come from institutions and intermediaries holding shares on behalf of ultimate investors. These statistics are broadly the same when you look at participants in employee share plans voting at company meetings.

There could be several reasons for this:

  1. Real or perceived pressure from the company to vote in a particular way, enhanced by voting transparency that leaves employees feeling exposed
  2. A lack of understanding about the topics covered in the resolutions
  3. A lack of appreciation about what share ownership means and what benefits/powers it gives ’joint’ owners of the companies

So, in addition to promoting more use of employee share plans by companies to bolster engagement, would you advocate more financial education?

Traditionally, financial education around employee plans has focused on savings, investment and taxation. These are all key to employees making decisions about participation.

However, if engagement is to be achieved, then we have to look at building on this and developing a greater understanding of ‘company business’ at general meetings, including what rights and powers employee investors have as share owners and how those rights are exercised.

'The complexities of savings, investment, taxation, debt, employment and pensions need to be tackled in the school environment'

I believe if we tackle these issues, then the transparency concerns would be less influential in the minds of employee voters, and the levels of engagement and voting would be substantially improved.

For too long, formal education about practical financial matters has been limited and now - more than ever - the complexities of savings, investment, taxation, debt, employment and pensions need to be tackled in the school environment and curriculum.

Do institutional investors have a role in advocating employee share plans as an engagement tool?

Institutional investors have a huge stewardship responsibility towards the long-term health of the companies they invest in. This is clearly shown in the new UK Stewardship Code 2020 which takes effect from 1 January 2020.

'Institutional investors need to understand the values of employee share plans for the long-term ’health‘ of organisations and their employees'

It sets high expectations and, in particular, the new code establishes a clear benchmark for stewardship as the responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries leading to sustainable benefits for the economy, the environment and society. There is a strong focus on the activities and outcomes of stewardship - not just policy statements.

Institutional investors need to understand the values of employee share plans for the long-term ’health‘ of organisations and their employees. 

How would you summarise an approach to employee share plans for the immediate future?

My advice is:

  • Continue to embrace and improve the employee share plan provision we have
  • Recognise the corporate governance engagement opportunity, as well as the positive performance and profitability outcomes
  • Work to overcome barriers where workers may not be classed as ‘employees’
  • Expand financial education and literacy to embrace shareholder rights and how they might be exercised
  • Work with ‘stewards’ to improve their understanding of employee share plans
  • Seek greater involvement from them to promote the benefits of employees who are engaged and incentivised with companies through employee share plans

You read Jai and David's previous interviews here:

Employee share plans, stakeholders and engagement

Engagement – will it turn into long-term wedded bliss?

Have you listened to our new Governance360 podcast yet?

You might be interested in our episode on share plan engagement...

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🎧 Spotify

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Or find the whole series:

🎧 Apple Music 

🎧 Pippa Podcasts 

🎧 Spotify 

🎧 YouTube