Employee attraction and retention are among the biggest challenges employers face right now. At the same time, financial security is frequently cited as one of the most important factors when an employee decides to leave or join a company.
A natural response to this double conundrum is for organisations to maximise the impact of their compensation package – and for some, share plans form part of the solution.
Share plans can be an attractive incentive for people to accept or retain a position within an organisation while also helping them achieve financial resilience over the long term, according to Ifty Nasir, founder and CEO of share scheme and equity management platform Vestd.
What’s more, financial benefits are increasingly important to employees in the turbulence of the current economic climate, Nasir says. He cites a 2022 report from the Mental Health Foundation showing that more than one-third of UK adults (34%) feel anxious about their financial circumstances – and as the cost-of-living crisis continues, that number doesn’t seem set to fall any time soon.
With many organisations now feeling a responsibility to support financial wellbeing beyond their legally mandated obligations, Nasir has seen more employers looking to start a company share scheme. In return, those organisations are benefiting from increased employee loyalty and motivation, he insists.
“During a time where employers are struggling to attract and retain talent, our own research has shown that 93% of businesses feel that giving employee some skin in the game has helped with their recruitment efforts – offering the prospect of a meaningful financial incentive to job hunters in a culture of excessive, and often futile, perks,” Nasir says. “Creating an environment where staff are aligned towards the long-term success of a business inevitably leads to increased employee satisfaction and retention.”
Tony Guadagni, senior principal at Gartner HR, points out that share plans are typically an option for more senior employees who tend to stay with the employer for a lengthy period of time and have their compensation tied to the long-term performance of the organisation.
“However,” he says, “while it’s still uncommon for companies to offer share plans to mid to junior level employees, some leaders are considering these long-term compensation options as a way to build trust and loyalty from early in their careers, drive productivity and build employee engagement, as employees are offered a stake in the company can feel personally invested in its success.”
The size of a company and its access to liquid markets will also be a factor, according to Elena Visser-Adams, associate in the incentives team at law firm Burges Salmon. “For example,” she says, “a large PLC will almost always look to offer some sort of equity programme for its staff. By contrast, private companies – especially those that are backed by private equity – will take a different approach, with more care taken over who should participate in the share plan, and with the design more tailored to achieving a specific outcome.”
The type of company can also dictate how share plans are aligned with the goals of the organisation and employee. For private companies, equity ownership is often about sharing the sale proceeds of a company as it works towards a sale or an IPO – described by Visser-Adams as “true economic alignment”. For PLCs, however, equity ownership is often targeted at a combination of different factors such as “strategic alignment, culture and competitiveness in the market”.
There are pitfalls to consider. For example, there can be an enhanced level of complexity if internationally mobile employees participate in the share plan. Also, tax implications need to be considered by all parties, and specific, tailored advice is essential.
Another key consideration is the end game. While one of the main purposes of a share plan is to encourage staff retention, it’s inevitable that employees will leave at some stage.
“Care needs to be taken to understand what happens on cessation of employment,” says Visser-Adams. “How are shares or options dealt with in a leaver scenario? If employees are classed as a bad leaver, should they incur a detriment? What does that detriment look like?”
Performance targets linked to participation in the plan also require thoughtful design. These should be sensibly calibrated – challenging but still possible to achieve.
“In the eyes of participants, a good share plan is one that pays out, while a bad plan is one that doesn’t,” Visser-Adams observes.
But all things considered, just how effective are share plans in building employees’ financial wellbeing and resilience?
According to Jane Foley, managing director for the EMEA region at global employee share plan provider Computershare, studies have shown that employees who consistently invest in a share plan can improve their overall financial situation over time.
“This is because companies with share plans typically allow employees to invest at regular intervals and match or provide additional discounts for workers, which means that employees typically receive more than the amount they invest themselves,” she says. “Companies that offer such plans are effectively opening the equity door for their employees and helping them to secure a more stable financial future.”
Foley adds that in a recent survey of participant employees at Computershare’s EMEA-based clients, more than half (55%) agreed that having employee shares provided them with increased financial diversification, as well as a sense of security and wellbeing during the pandemic.
Well, they say sharing is caring – and the evidence suggests that sharing equity can indeed have a positive effect on employees’ financial resilience.