Out-Law News 2 min. read
06 May 2021, 11:42 am
An expansion of employee share ownership in the UK could help boost post-pandemic business recovery by tackling the productivity crisis and improving outcomes for low-paid workers, experts have said.
A study carried out by the Social Market Foundation (SMF) found that employees owning shares in the companies they work for have higher levels of financial wealth. It also found employee share ownership was consistently linked with better company performance and relationships between the firm and its employees.
Share plans expert Lynette Jacobs of Pinsent Masons, the law firm behind Out-Law, said: "Studies cited in the SMF report clearly show that the operation of tax-advantaged all employee plans such as Sharesave (SAYE) and Share Incentive Plans (SIPs) is linked to improved company performance including increased turnover and profitability – with some evidence that offering both plans has an additional impact, that can only be a good thing for both employees and companies."
However, the report highlighted (52 page / 1.1MB) a number of barriers to increasing access to employee share plans, including scepticism of the model by businesses, the cost and time associated with introducing a share ownership plan, risk aversion, and increased mobility within the labour market.
The SMF said the government and regulators should introduce new measures to encourage businesses to offer employee share plans. For example, it said public procurement rules could change to favour companies able to demonstrate how they share success with employees.
The Audit, Reporting and Governance Authority, which is due to replace the Financial Reporting Council, should review the accounting treatment of share plans that disincentivises their implementation – in particular the harsh accounting treatment for SAYE options that are cancelled by plan participants. The SMF also recommended that the government decrease the holding period which applies under the SIP to enable full tax-advantaged treatment from five years , to three years to reflect trends in how long people stay in a job. Gig economy workers should also be able to participate in tax-advantaged share plans, according to the report.
Employee incentives expert Fleur Benns of Pinsent Masons said: "We have been lobbying government for these changes for some time now – it is hoped that the SMF report will add real weight to the argument that, as we move into the future world of work post pandemic, now is the time for real action in this area."
Rules should be changed to allow preferential access to free shares for lower income workers, or give other incentives to benefit those with lower incomes, the report suggested.
The SMF said the government should lift restrictions on voting rights for employee shareholders, and even give employee shareholders enhanced rights in the event of a corporate failure. Employee advisory panels should be a central element of companies’ engagement with workers where share ownership schemes are offered, and the SMF said firms without employee advisory panels should explain why they do not have them.
The report recommended the introduction of US-style Employment Stock Ownership Plans (ESOP) to the UK, with Employee Ownership Trusts (EOTs) having an option to become ESOPs where stock is allocated to individual employees rather than held in a collective pool. The SMF said this model would help succession planning and widen employee ownership over time.
Jacobs said: "As employers grapple with the changes to the working world, with agile working likely to become increasingly popular, share plan participation is a real opportunity to create a tangible link between employees and the company they work for as well as well as providing financial reward."
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