Whatever the state of the market, remuneration packages are normally crucial in securing the right candidates and for many companies at the moment, staff retention is high on the list of priorities. It’s not always enough to resort to installing snazzy drinks machines, and offering head massages (it has been known). Perks aside – let’s talk real benefits. What if your reserves don’t stretch to offering salaries the size of Germany? Ever considered share options?
- The how and why
- Choosing the right scheme
- The evidence of reward
- Does it motivate the workforce?
- Help available
The how and why
The basic theme behind share schemes is that companies reward employee loyalty with a chance to share company profits. The most common method is to invite employees who have been with the company for a chosen length of time, the option to buy company shares – or to award a number of free shares.
Feedback from companies who run share schemes shows that it’s not just employees who stand to gain from the incentive. Suggested advantages of running share schemes include:
- Increased employee motivation/happiness
- Employees feel a sense of part-ownership in the company
- Attractive option to offer potential employees, when other benefits are not appropriate
- Aids staff retention
- Alternative to offering cash rewards when reserves unavailable
- The option of offering cash or equity as employee rewards
But it’s certainly not ‘one size fits all’. Similar to other financial products, there’s a complete range of schemes available – so you might find yourself in a maze to start with. The list of options you can make available to your employees is complex and varying.
Choosing the right scheme
You might offer investment in the company at a reduced rate, or simply award free shares to employees. Each scheme type requires a different level of commitment from the employee – especially financial – so you’ll need to consider your motivation for offering the scheme, and what you intend to gain – and select an appropriate scheme.
We spoke to Elis Portlapage, recruitment manager of software company Port Ltd. He agrees that it’s possible to encourage job satisfaction amongst employees with offers of share schemes. ‘We wanted to create a motivated workforce where everyone shares in the success of the company.’ In fact, the company changed its mind ‘in the eleventh hour’ as Elis says, and extended the previously limited executive plan to all of its employees. ‘We were going to run a separate scheme for remaining employees, but felt that it was quite restrictive. The rules for the executive plan are more flexible – and now we can offer that to everyone.’
Are you thinking that this sounds very complex, and you need to be a large corporate firm to operate this type of scheme? If so, you might be surprised to learn that Port Ltd. currently has sixteen employees, and Elis says the administration is relatively simple – especially with running one plan instead of two. From his point of view, the rewards speak for themselves. ‘Many of our clients are brokers and investment banks – and we’re well aware of the highly competitive salaries they can offer to IT staff. Our employees are mainly IT technical people, and being a young company building reserves, we cannot afford to offer enormous salaries or cash rewards to match those of the larger firms. But the offer of share options, along with our excellent working environment, has helped us to recruit our key staff, and keep them! Since growing to sixteen people, we have not had any leavers – and we’ve noticed that employees are demonstrating a strong interest in the business, and subsequently a good understanding. We emphasise to potential entrants that although young, we are a successful and profit-making company, and I think employees respond to this.’
The evidence of reward
Looking at larger firms, it’s interesting to see that among many of the ‘best companies to work for’, almost all included share options along with their employment benefits. At Cisco, some of the employees receive as much in share options as they do in salary – and 94% of employees said they feel they receive a fair share of the profits. The emphasis within Cisco on share options does suggest it is a successful operation. It appears the key difference with share options to other benefits is the motivational factor. Employees who share the profits in some way, actively seek to contribute to the company’s success.
Does it motivate the workforce?
But not all schemes encourage employee loyalty in any way. With some scheme types, the focus is more on offering a unique service to employees – and financial reward. Some schemes are free to join, and therefore accessible to all employees, regardless of their salary. Whereas a ShareSave scheme for example, requires monthly contributions from wages/salary, and employees must be able to afford the scheme.
Wendy Stedman administers a ShareSave scheme for a large consultancy firm. She says that a ShareSave scheme is not necessarily designed to motivate employees – but the financial reward available makes it an excellent benefit to have. And with such a large company, it will always be difficult to promote feelings of part-ownership. The scheme does instigate a positive response. Of the 3,500 employees on the payroll, 1260 joined the 2001 scheme. This is a high percentage, considering that many of the 3,500 will either already be in the scheme, or ineligible to join due to their recent start in the company. As opposed to the scheme run at Port Ltd., assisted by the financial accountants, Wendy says the administration for this scheme is considerable. ‘We deal directly with the brokers at Lloyds and Halifax to run the share scheme, and because so many employees participate, there is a lot of commitment required from the company to run the scheme.’
Interested in running a share scheme? Most companies consult their existing accountants, or financial consultants for advice on running a share scheme. They’ll be able to help you with working out the cost of the scheme, and how to administer it legally and hopefully efficiently!