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IRS looks at the merits of employee share ownership

FINANCIAL PARTICIPATION

IRS looks at the merits of employee share ownership

In a move designed to encourage a US-style entrepreneurial culture, the UK government has announced that it wishes to double the number of companies in which all employees have the opportunity to own shares. But does giving employees a stake in the business really make a difference? The record to date has been somewhat patchy, says employment analysts Industrial Relations Services.

In this seven-page article, IRS looked at the experience of 15 companies operating share incentive plans for their UK employees — including drinks giant Coca Cola, Somerfield, the supermarket chain, and engineering group GKN. The vast majority of these businesses operate at least one of the tax-favourable share plans sponsored by the government.

The case for giving employees a stake in the business

Introducing equity ownership focuses on the holy trinity of motivation, performance and commitment. Schemes aim to:

  • increase employee involvement in the business

  • generate greater workforce commitment

  • enhance contribution to the business and a sense of responsibility

  • align the interests of employees with those of shareholders

  • give staff a direct interest in the financial performance of their company.

Share plans had very mixed results

But it seems that for IRS at least, the jury is still out: Although our sample is small, and drawing firm conclusions is difficult, the experience of the organisations featured has been very mixed some have seen real business gains, while others report little impact.

Although the researchers found strong support for the view that share plans help develop greater financial awareness among employees, the effectiveness of these incentives hinged in large part on movements in the firm’ s share price.

More worryingly for proponents of employee share ownership, IRS discovered that in a few cases, share schemes have either been ineffective or, worse, had a damaging impact.

Allied Distillers, for example, complained about administrative hassles, complexity and the risk of share price dilution. At Somerfield, where the share price is underwater — in other words, below the option price — equity incentives were reported to have had a negative impact on recruitment and retention.

Want to know more?

Title: Assessing the value of share ownership , Pay and Benefits Bulletin 496, May 2000.

Availability: contact Industrial Relations Services, tel: 020 7354 5858 or email the editorjeremy.baugh@irseclipse.co.uk

Web: For details of IRS publications, jump to . . . www.irseclipse.co.uk

 

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