FAQ's

There are a number of areas that companies commonly ask us questions on in relation to the implementation of a employee share scheme. Some of the following questions and answers may help in assisting you make the right decision for your company.

In research you will find information about a major piece of academic research by Freeman and Conyon which suggests a strong beneficial connection. There is a raft of other research, particularly related to companies in the US where employee share ownership is widespread. This research indicates a clear link between employee ownership and improved corporate performance, so long as this is combined with a management style that makes employee shareholders feel like part owners.

For example, the US General Accounting Office found that participatively managed employee ownership firms showed an annual productivity increase that was 52% better than other firms.

The UK Employee Ownership Index, compiled by Equity Incentives compares share price growth of UK quoted companies committed to widespread employee share ownership with the growth in the main stock market indices

Since 1992, the Index has out performed all of them (FTSE 100, FTSE All Share and FTSE Small Cap) significantly.

US and French quoted companies with widespread employee share ownership also show strong out performance.

Where employee effort adds value to the business and where this is clearly communicated to employees, share ownership can be the most satisfying employment benefit available.

One goal of an employee share scheme is often to encourage employee loyalty, through permitting employees to receive their shares, or exercise their share options, only after a certain length of time with the company. Many of the companies we talk to say that this does work in practice.

It is likely to if it is simple for employees to understand and clearly communicated. If you are a knowledge based business, you may need to offer a benefit package that competes with companies offering stock options or similar to many, or all of, their employees.

By partly paying your employees in shares, you can relieve immediate pressure on your precious cash flow. This is often particularly important in a business's early years.

Whilst cash and other short-term benefits are key, a company will often be looking for ways of getting your employees to focus on the longer term. They may need good reasons for investing their time, and company resources, in projects not likely to generate a quick return. Share ownership can send a signal that they are expected to do so and will be rewarded for the results.

Employees working in a particular subsidiary or division may identify primarily, or only, with that specific business. But where all the businesses in a group are related and inter-dependent, it is essential that they also focus on the bigger picture. A share scheme that uses group company shares as a reward for divisional or subsidiary performance can help your employees strive for success at all levels in your business.

The UK government is committed to encouraging employee share ownership through targeted tax incentives. Employees who are given shares, or able to buy shares at a discounted price upon exercise of share options, are not required to pay income tax or national insurance on this valuable benefit, if one of several HMRC approved employee Share Plans is used. Under a SIP, employees can now buy tax advantaged shares in their Company out of pre-tax income.