• Liz Hunter, Director |
3 min read

’We’re in it together‘ is a sentiment that chimes with the pandemic experience. Yet as other commentators have remarked, whilst we may have all been in the same storm, we’ve not all been in the same boat.

The theme of this year’s Employee Ownership Day is “Better Together” and so I’m taking this opportunity to propose that more employers could consider broadening out employee ownership participation within their business.

If the past year has taught us anything it’s that key workers at the base of an organisation’s pyramid can be no less important to its resilience and future success than the C-suite sitting at the apex. Yet, historically, equity ownership has often been the preserve of founders and family, investors and the top tiers of management.

The UK provides a wide choice of tax-advantaged employee share plans. Save As You Earn, Share Incentive Plan (SIP), Company Share Option Plan (CSOP) and, for smaller companies, Enterprise Management Incentives (EMI). When considering which plan to adopt, there is no one-size fits all approach.

Whilst many companies have established an employee share plan, only a small proportion currently offer equity on a fully inclusive basis. It’s clear that the majority of the UK workforce is currently excluded.

Share prices can of course go down as well as up and whilst it may be appropriate for senior executives to have some ‘skin in the game’, it is not unusual for companies to view cash based pay as king when it comes to the wider workforce.

It is however possible, with both SAYE and SIP, to insulate employees against financial loss. With SAYE the employees can choose to simply get a return of all their cash savings at the end of the savings period and with SIP there is the ability to offer free shares and/or matching shares to deliver upside only reward. 

As we look to now revitalise our economy post lock-down there’s opportunity for companies to review their existing reward strategy and consider if it is effectively driving acceleration of sustained performance or, perhaps, acting as a divisive ’them‘ and ’us‘ drag force.

It can still be appropriate to ringfence differentiated reward for more senior executives and founders who are shouldering more of the burden and accountability for operational and strategic decision-making. A discretionary and selective share plan still has its place but is, I suggest, best accompanied with an all-employee foundation level arrangement too. 

So, how might you look to broaden the employee share ownership participation in your business?

  1. Larger companies should explore the use of a SIP or an SAYE plan as a way of saying ‘thank you’ for recent efforts and to share the upside of future value creation tax-efficiently.
  2. For smaller companies EMI is often a go-to share option plan but for an eligible business dependent on headcount increase for growth, the plan limits can be a constraint to widening participation. Prudent planning at the outset in terms of valuation approach and share class design can be key to getting the most out of the plan award limits, then moving on to use a CSOP plan when EMI use has been exhausted. 

It’s also possible to create wider employee ownership indirectly and provide all-employee tax-free profit share under a statutory qualifying bonus plan. Increasingly the use of an Employee Ownership Trust (EOT) is a framework adopted to allow efficient ownership succession within private businesses. Whilst each such trust has common features, each EOT transaction has its own unique requirements and there are several trip hazards to navigate both in relation to establishment and the detailed requirements to ensure any future  profit share can be made tax-efficiently. It’s important to ensure that such arrangements are both implemented robustly and designed to be fit for the future (as much as anything that involves tax can be!).  

In offering equity (directly or indirectly) you invite employees to become co-owners and be brand loyal and reap the rewards of successful, collaborative attainment of business goals.  FDs may also be advocating cash conservation and may not yet be releasing the purse-strings when it comes to base pay rise or cash bonuses - so that’s perhaps another reason to explore how to create a ’better together‘ ownership culture in your company using shares.