Share plans/Covid-19 – incentivising employees whilst conserving cash

Out-Law News | 10 Sep 2020 | 12:00 am |

Lynette Jacobs explains how share plans can be used to conserve cash at this difficult time for companies.
Pinsent Masons Video

We're sorry, this video is not available in your location.

  • Transcript

    As you will be aware the UK’s Coronavirus Job Retention Scheme is gradually winding down. Since the start of September employers using the scheme have been contributing to workers' wages. During the period from March to September the scheme has paid 80% of the wages of furloughed workers up to a maximum of £2,500 a month. That has now gone down to 70%, with the employer paying that extra 10% - which will become 20% from 1 October - and, as the BBC reports, many employers are now preparing for the worst when the scheme closes completely at the end of October at which point employment costs will be transferred back to employers in full. With that prospect looming, companies are now looking to become even more creative in the way in which they manage cash. A number of our clients are looking at this right now and one option, a popular one, is to use share plans as a means of retaining and incentivising the workforce. As you would expect, it is not without its complications. To help explain the options, and some of the issues to be aware of, share plans specialist Lynette Jacobs who joined me by video-link 

    Lynette Jacobs: “As you'll be aware, no company or sector has been unaffected by COVID. I would say the majority, unfortunately, disadvantageously although a few in certain sectors like food and groceries obviously, advantageously. Share plans can play a role whichever sector a company is in. So for example, in sectors which have not done so well over the period, they can be used now by companies to make payments of parts of salary. So offering or requiring employees to defer a part of their salary for a period of time and instead be made an award of shares. So the share option can be used and it can be equivalent in value to the amount of salary that the employee is being asked, or requested, to forego for the time being, the idea being that that share option will then be exercisable following a specified period and the value of those shares at that time will then be received by the employee instead of the company having had to pay out the salary at the current time. For companies that have either done well, having been in the fortunate position to do well during this period, or perhaps companies that have been through a bad time but see that things are starting to get better – the furlough is over, redundancies that had to be made have now been made – companies can use, sometimes, the UK tax advantaged share incentive all-employee plan to make a free share award, or otherwise just make a free share award. It doesn't have to be that large, just something to say, you know, hello, we're all back, we’re really pleased that you're with us, we all want to do well going forward and here is an award of free shares. Again, that can be tied into a requirement to remain with the company prepared a time or, alternatively, it can be something where the shares are there for the employee more or less as soon as the award has been made. Another area that companies can look at, whether they are companies which have been badly affected or come through quite well, is to pay some of a bonus, perhaps where the bonus was already paid in shares, then a higher percentage of that bonus, or where hasn't previously been paid to shares to make that payment in shares. Again, these are all ways that a company can use so that it doesn't need to put its hand in its pocket at the moment immediately to make a payment of cash. With all these various areas, there are considerations that need to be looked at. So companies law, tax law, sometimes securities law, employment law, but they are areas that we're seeing many of our clients use, and they can be used creatively, and they can be used with good communication so that you can help your employees to feel good about the company in the future, and to bring everyone together, which is very important at these times. So these are things that you may want to want to raise internally.”