FINANCIAL PARTICIPATION
New £1 billion phantom share scheme at Royal Mail
Royal Mail staff could be set to gain awards of up to £5,300 over five years from a new phantom share scheme just unveiled as part of an ambitious new investment plan.
The scheme, based on one already operated by retailer John Lewis, means that 20% of the value of Royal Mail will be distributed equally to every employee in the form of shares.
Designed to modernise and improve competitiveness of the group, the wider restructuring plan also includes measures to fund the company’s pension deficit currently standing at £6.6 billion. The plan will be partly funded by government agreement for a £1.2 billion debt facility, on commercial terms and will run for five years.
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Building on previous success
It follows initiatives already put in place that helped move the company from making losses of £1 million a day four years ago, to a profit of £355 million last year. The previous initiatives included measures that:
enhanced productivity
reduced absenteeism
improved industrial relations
increased basic pay by 25% over four years
award “Share in Success” payments of around £1,500 to help motivate staff.
The new modernisation programme intends to build on these initiatives and is in recognition of the major shift in the competitive environment for postal services and the impact of the internet.
A five-year plan
The five-year plan includes the following measures:
commercial loans to invest about £1.2 billion to modernise the Royal Mail to be paid back out of productivity gains
a £1 billion payment to safeguard pensions and address the deficit
separate funding for the Post Office network part of the Royal Mail
further improvements in productivity
a new phantom share scheme to reward employees for their contribution.
New share scheme based on John Lewis Partnership
In its application, the scheme is designed to be similar to the one in operation at John Lewis with the main terms as follows:
a fifth of the value of Royal Mail will be set aside for the Royal Mail’s 190,000 employees in the form of shares
shares will be distributed equally to every employee, from board members to frontline delivery staff
up to £1 billion could be distributed to staff if modernisation targets are reached
shares will be distributed free
employees holding shares will receive an annual profit share, based on Royal Mail’s performance
the profit share combined with the phantom shares are expected to be worth up to £5,300 per employee over five years, depending on performance.
Tackling the pensions deficit
Also announced were steps to safeguard the pensions of existing and future staff. Currently, the cost of servicing the pension fund is running at £730 million a year, which the company believes, is unsustainable. As a result, there will be:
consultations on how to safeguard an affordable final salary scheme for all existing employees
separate talks to discuss options to replace the final salary scheme for newly-recruited employees with a defined-contributions scheme
an agreement in principle with the pension fund trustees to fund the pension deficit, currently standing at £6.6 billion, over 17 years. Increased payments are already underway
£1 million held in escrow accounts to provide security for the pension fund trustees.
A final word
"The task facing our people is daunting. That’s why we are particularly pleased that the shareholder has agreed to an employee incentive scheme similar to the one run by the John Lewis Partnership. It will underpin the commitment and engagement of our people who, we know, are capable of transforming this vital business on which the whole country depends." - Allan Leighton, Royal Mail Chairman.
Want to know more?
Royal Mail Group plc is wholly owned by the government and employs almost 193,000 people. Its letters and packages business covers the whole of the UK for a “one-price-goes-anywhere universal service”. Each working day it collects items directly from 113,000 post boxes, 14,300 Post Office branches and from some 87,000 businesses.
For more information about the phantom share deal visit the Royal Mail web site at www.news.royalmailgroup.com/news/article.asp?id=1886&brand=royal_mail