With end of pandemic in sight, ‘use shares to reward and retain employees’

Out-Law News | 03 Dec 2020 | 11:14 am |

Lynette Jacobs tells HRNews how companies are using share plans and share awards to incentive and retain staff.

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  • Transcript

    Incentivising and retaining your best talent is obviously a good idea, but it for many businesses we see it has become absolutely essential to their survival. When something as huge as a global pandemic strikes, the challenge for businesses is to try to weather the storm and hopefully thrive at the end of it. As HR well knows, in times of crisis it is even more essential for companies to retain and incentivise the best employees – after all, they are the key to ensuring the longevity and growth of a company. Back in July we ran a webinar called ‘Re-imagining your business post Covid-19’. Back then, in the summer, clients were telling us that, assuming they could survive, to come back even stronger they were having to re-imagine and restructure their business model and that, as a part of that exercise, a key area of focus was their employees who would be the driving force of the business going forward. But, what they recognised was that when times are tough financially for a company, it can be difficult to make employees feel valued and motivated. So the challenge is to find ways to do that. One way, that many of our clients have chosen, is to do it with shares. So whilst it might not be feasible to offer pay rises and bonuses, offering employees equity in the company instead can be a great alternative in order to show your appreciation and reward their ongoing loyalty. Also, having a share scheme can also be cost-effective from a business perspective. Sounds good, so how does that work in practice? To explain, share plans specialist Lynette Jacobs who joined me by video-link from Manchester:

    Lynette Jacobs: “Thank you. Good morning. Yes, with the excellent news of the vaccine having been approved and hopefully with others coming online soon we have been talking with many clients and also hearing from other contacts and companies about how companies are now looking to use share plans and share awards as a form of recognition and reward and retention to their employees. Companies want to say thank you to their employees now for having worked with them through this difficult period and a good way to do this is to make a form of share award to their employees. This can be done under an existing share plan that the company has or, alternatively, a new share plan that the company uses for this specific purpose. If a company has all UK employees or wants to award their UK employees, they can consider using the tax advantaged all-employee share incentive plan. This does mean that they can make a free share award under the plan which would require employees to stay with them for a minimum of three, or otherwise five, years to have the full tax benefit of that award but that can also be a good thing – it's obviously not immediate but it means that they will then have that retention of their employees as well. So it's something worth considering and discussing with your colleagues. Some companies unfortunately will still have been feeling the pinch from the COVID pandemic and in that case the company could be thinking of, you could suggest to your peers, making a form of share award instead of either a salary rise that otherwise might be happening at this time of the year, or going forward, or alternatively, to pay some or all of a bonus that would otherwise be in cash in the form of shares. Things to think about and discuss with your colleagues in relation to any of these ideas is where the shares will come from. They could be new issue shares, they could be Treasury shares, they could be shares that are sitting in an employee trust that the company has. Again, also there are some laws that you need to think about clearly, that can be employment law issues, tax law issues, company law issues, securities laws, but there are ways to get around, or to look at all of these, so that you can make the awards you want. If your company has an employee share trust, regardless of whether you want to make one of these awards I've been suggesting, now or otherwise, if the share price is still currently low, again, the company might think of pre-funding the trustee of the trust to buy some shares in the market now so that it has got those shares then ready to use to satisfy either these kinds of awards that you're making specifically at this moment, or other share awards that will be coming up to vesting to maturity at some point in the future period. That, again, will depend on working out how much cash the company has, there can be potential financial assistance areas to consider from the company's perspective, and also working out how many shares will likely be needed, so how likely awards will vest depending on leavers and performance targets being met. These are all some things that are worth thinking about now at this good time news period”.

    Joe Glavina: “These plans sound great but I guess there’s a risk of arousing unrealistic expectations among employees of the financial rewards. Is that right and if so how do you manage that?”

    Lynette Jacobs: “Absolutely. That's a really good point, Joe, and I should have said that a lot of it has to do with communication. So first of all communication so that employees can see the potential benefits and the reasons to stay with your business during the period until they have the opportunity to actually receive the shares, but also very importantly, also to explain to employees that the value of shares can go down as well as go up and you cannot be seen to be advising them to make any investment opportunity, even if it's something that's not actually going to be costing them money to have the potential of benefiting from.”

    Incentivising and retaining employees is just one of many articles written by Lynette and the share plans team. You can find all of those articles, plus news of the latest developments, by visiting the Outlaw website.