A new report has set out the case for an expansion of employee share ownership in the UK. The Social Market Foundation’s report called ‘A stake in success - employee share ownership and the post-COVID economy’ argues that employee share ownership could play a role in tackling the UK’s productivity crisis, improving economic growth, innovation, and outcomes for employees such as higher wages. The Foundation, the SMF, works to promote evidence-based policy and cross-party co-operation in politics.
The Guardian covers the news, flagging how low-income workers who are offered the chance to own shares in the companies they work for are typically £10,000 better off than workers on a similar salary. It quotes Scott Corfe, the research director at the SMF, who says its findings underline why ministers should do more to encourage companies to offer share ownership schemes. The SMF wants the government to launch a new employee ownership commission to promote share plans, which could include setting out new rules requiring companies to publish more information about employee share plan use.
So, let’s get some reaction to this report because it sends a very positive message and one that should interest HR. James Sullivan-Tailyour is a share plans specialist and joined me by video-link to discuss it:
James Sullivan- Tailyour: “Well, this report by the Social Market Foundation is really interesting because it's the first report, certainly that I'm aware of and certainly in recent times, that has really taken a forensic look at employee share plans, and the benefits that they can deliver not just for the employees that participate in the scheme, but also for the company that operates the scheme and also, interestingly, for society as a whole. The report has obviously identified that employees who participate in broad-based all employee share schemes tend to have a greater level of savings and household wealth, but also that the companies that operate the schemes outperform other comparators on share indices, and also generally tend to have better employee engagement and levels of satisfaction in the company. What's most interesting and has picked up a lot of attention is the report has demonstrated that the use of employee share schemes may be a really important tool in addressing the UK’s relative productivity gap with other Western European countries and the USA and that, by giving employees a stake in the company, there's strong evidence that that increases output, increases value add, and increases productivity overall.”
Joe Glavina: “The report sets out a number of recommendations which I know you’ve looked at, James. So, in broad terms, what are they saying and who are they aimed at?”
James Sullivan-Tailyour: “Well, there are some important recommendations aimed at the government and a lot is aimed at improving awareness of employee share ownership schemes and the benefits of them both widely amongst the public and employees, but also amongst employer companies, making them aware of the tools that are available to them to set these schemes up, and the benefits that they can deliver. For example, there's a proposal that there'd be a specific commission, or body, set up the sole purpose of which is to promote the use of employee share schemes in the UK. Some of the other recommendations are a little bit more granular and they are aimed at addressing one of the issues that's identified in the report which is that employee share schemes are really good for well-paid employees in settled jobs that tend to last for, you know, a long time, for many years, but what they're not good at, what they're not currently doing, is involving people whose positions are more temporary, you know, perhaps only for a short period of a year or 18 months, and also including lower paid employees who, for one reason or another, maybe they feel that they can't afford to participate in the in the plan, or it's too complex for them to understand, or that the incentive that's available to them just isn't worth the bother. There are some recommendations about how employee share plans could be improved, their operation could be improved, and what companies are allowed to do with them could be enhanced, so that it can encourage a broader population of participants and, in particular, capture those employees who are currently missing out from participating.”
Joe Glavina: “The report flags up a number of barriers to share plan participation. On the company’s part, a scepticism towards the benefits of employee share ownership, around whether share plans really do improve corporate performance. Also, looking at employees, a lack an awareness of the
potential financial benefits of share plan participation. Do you recognise those?”
James Sullivan-Tailyour: “Yes, absolutely. I think there it is right that some organisations are sceptical about the benefits of introducing an employee share plan and I think a lot of that has got to do with the complexity of the schemes. There’s no getting around the fact that introducing an employee share plan is a complex job. It’s a complex job to implement it and to operate it on a go-forward basis. There all sorts of considerations that have to be taken into account from tax, to accounting, to getting your communications right and that is a big job for HRDs and company secretaries, there’s no denying that, but what this report really demonstrates is that companies that are prepared to put the time into get an employee share plan up and running that it and what this report really demonstrates is that the, the effort that companies put in to setting up and running a share scheme really pays dividends in terms of employee engagement, in terms of company profitability and growth, and also that there can be social dividends reaped as a result. Turning to the employee scepticism piece, I think this is where some of the recommendations of the report around tweaking the way in which the schemes work will be really interesting and helpful. For example, some of the recommendations are aimed at allowing employees who are in shorter term positions, or in industries where there's a lot of chopping and changing between jobs and two different organisations, can continue to benefit from their participation in the share plan, and don't have to stay around for three or five years before they receive any value. That can be a real demotivating factor for employees who know that their time within an organisation is unlikely to last as long as the share plan is expecting them to stay around before they see any benefit. So, if changes like that can be introduced, I think it could be really important in broadening employee participation in these types of arrangements.”
Joe Glavina: “The report talks about one of the barriers being a lack communication of the benefits of employee share ownership. I do wonder if some HR professionals feel reluctant to get drawn into fielding questions on share ownership because it is a complex area, hence the limited communications with staff.”
James Sullivan-Tailyour: “Well, it is tricky in that there's a balance that has to be struck there but the great thing about some of these share plans is that the benefits are quite often obvious. So, because there is no risk for participants, either participants will be receiving shares for free, or they will be participating in an arrangement where they can withdraw at any time and get the money that they've already contributed back into their pocket. So, often it's a case of not giving advice to participants as to the benefits of a scheme, but just highlighting those features of the scheme which have to be there in order for the scheme to work properly and comply with all of the legislative requirements. So, well designed employee communications around share plans are often able to emphasise the benefits without ever giving advice and that is the most important part, in my experience, of an employee share scheme, making sure that the communications that you send to employees hit all of those right notes and when that's done, and when the benefits of the plan are shown to speak for themselves, then those organisations that get those communications right see really high levels of take-up and a high degree of employee satisfaction with the plan.”
The report by The Social Market Foundation’s report is called ‘A stake in success – employee share ownership and the post-COVID economy’ and if you want to look at for yourselves you can. We’ve and we have put a link to that in the transcript of this programme.
- Link to The Social Market Foundation’s report: ‘A stake in success’ - employee share ownership and the post-COVID economy’