Share plan impact could improve Share plan impact could improve

According to George Bernard Shaw, “The single biggest problem in communication is the illusion that it has taken place.”

Sometimes we hear that HR or financial directors don’t feel that their company’s share plan is generating the level of retention or employee engagement they expected. They ask if the plan is flawed or if there is something better they should replace it with. They might also question what return on investment the business is getting, and if this covers the professional fees incurred in designing and implementing the incentive arrangement.

Sometimes there are defects that need remedy or an evolution of the technical solution to adapt to changed circumstances. But often the lack of participant uptake or appreciation of a particular aspect of the reward package is simply due to poor communication.

HMRC has recently published new research on UK tax-advantaged employee share plans, carried out by the Social Research Institute at Ipsos MORI (an independent research organisation). The research covers the four UK statutory tax-advantaged plans: Save As You Earn (‘SAYE’ or ‘sharesave’), Share Incentive Plan (SIP), Company Share Option Plan (CSOP) and Enterprise Management Incentive (EMI).

The aim of the review was to suggest improvements and consider how increased uptake could be stimulated.

The research sought to:

• Understand the motivations for, and barriers to, participation in these tax-advantaged plans
• Explore awareness and knowledge of the current offerings
• Consider the process and burden of administering the schemes
• Consider how the plans are communicated
  
  

• Awareness and understanding of tax-advantaged plans is generally limited
• Outsourcing both the set-up and management of plans to professional advisers is common
• Perceptions of the value of tax-advantaged plans have changed over the past decade, with these arrangements perceived to be less valuable when compared with other initiatives for motivating or retaining staff
• Smaller companies find them expensive to put in place
• Interest is limited amongst younger employees and stronger amongst older employees with more experience (and more money to invest).

The discretionary option plans, CSOP and EMI are viewed as attractive and flexible schemes enabling employers to retain valued staff in senior positions.

However, the all-employee plans, SIP and SAYE, have maturity periods that can act as a deterrent for some, particularly younger employees who can be more transient in their career path compared with previous generations.

In terms of increasing uptake and participation, the report suggests:

• Further tax incentives, especially for smaller firms. (We’ll have to wait for the Spring 2021 budget to see what the Chancellor’s response to this might be but for those eligible for EMI it is already a world leading incentive.)
• A focus on better communication with employees, especially younger and less senior staff,
  
• A need for increased awareness and understanding by employers of the benefits of such plans.

Ipsos MORI’s report for HMRC highlights that the sought-after benefits of tax-advantaged plans identified by the report, such as improved motivation, retention and the financial benefits, can be attained and optimised with better communication.

An employer needs to not only navigate a suitable choice of plan to fit circumstances, budget and goals, but also prepare effective plan launch materials to explain the incentive to employees in a way that they find engaging and easy to understand.

In our view, effectiveness and impact can also be reduced if any part of the compensation package is just considered in isolation. We recommend companies review how any new incentive will fit within the wider employee value proposition. We encourage companies to adopt a total reward statement approach that helps employees see the overall investment that their employer is making in them, in the form of base pay, equity incentive, bonus/commission/overtime, pension, training, holiday, flexible benefits and other perks.

Tech-enabled solutions are available to assist businesses to cost-effectively deliver multi-lingual communications to multi-jurisdictional, multi-generational workforces in an engaging and accessible way that not only boosts engagement but saves employers’ time and administration cost too. These solutions are scalable to suit entrepreneurial UK businesses and large global organisations.

In offering equity to your employees, you are inviting them to become co-owners and be brand loyal and reap the rewards of successful, collaborative attainment of business goals. How much time and effort would you spend courting and keeping a key investor? Why not give your employees the same care and attention when it comes to nurturing their ability to invest in and grow your business too?

Remember, complexity isn’t clever. A plan that is unnecessarily complex will be difficult to administer, hard for participants to understand and will not engage or deliver as you hope. Be clear and transparent with your communications to board, remuneration committee, investors, employees, union reps and any other stakeholder group. Wherever possible, keep it simple and keep it contemporary.

If we can help you with your share incentive arrangements, whether statutory or bespoke, in the UK or globally, please get in touch.