Share plans that reward all employees – not just executives – can be the perfect solution to recruiting and retaining talent. Wider share ownership can also enhance financial returns for all stakeholders, despite economic and societal challenges. Shane Hugill, Head of Executive Compensation Services, and Jon Cartmell, Director, Executive Compensation Services, assess the benefits and explain how to measure success
Companies are increasingly using share plans to reward more employees, beyond executives and boost staff engagement amid the Great Resignation.
The trend for businesses to use share schemes to motivate and retain employees was tested and heightened in the pandemic. Now high inflation and a looming recession may have fuelled it further.
We have noticed clients putting more new share schemes in place. And their focus is often on rewarding all employees instead of aiming solely at top-tier management.
In June, private equity firm KKR rewarded employees of a US garage door company – including those on the assembly line – with about USD175,000 each, after it sold the business for USD3bn.
The windfall revealed a potential shift in how private equity firms engage with wider employee bases in their portfolio companies, prioritising their welfare and financial success, to drive higher returns for all.
This is being seen across all types of firms and sectors, both private and public – ranging from food manufacturers and financial services to commodities firms.
This year, insurer Aviva gave GBP1,000 in shares to 22,000 staff, turning every employee into a shareholder.
Times are challenging for employers. Businesses desperately want to grow, but recruiting and retaining talent can be difficult.
The Great Resignation has brought staff shortages, while employees have heightened expectations. Individuals are prioritising their work-life balance, but compensation remains important in today’s economic environment.
Young employees are also seeking responsible employers with a strong focus on environmental, social and governance (ESG) issues. Others are demanding broad-based share ownership to enjoy the financial rewards of the business.
Share schemes are a great way to attract talent.
Applicants can instantly understand that their work will be aligned to business success, with a potential future pay out. Not offering a share plan can be a disadvantage when recruiting.
Share plans can boost employee engagement, leading to higher productivity and profitability. Arguably they hold the key to a stable, motivated workforce – something critical to business success.
Implementing a share scheme that rewards everyone and doesn’t just focus on the senior executives allows employers to show they are serious about employee welfare, social issues and responsible growth.
High inflation is hurting businesses and individuals alike.
When times are tough and companies are cash-poor, hiring talent and engaging employees remains vital to successfully navigating economic uncertainty.
Businesses want to spend their money wisely and with maximum effect.
Share plans can be the perfect solution. Benefits can include:
They are also flexible, suiting all kinds of businesses from small private firms to large multinationals.
Share schemes come in various shapes and sizes that can be tailored to a company’s aims and tweaked to deal with changing dynamics.
They are a meaningful yet powerful employee benefit, with a high return on investment.
Giving an employee a stake in the business can help protect them from inflation. If the business grows in a few years’ time, the payout could outstrip inflation and any pay rises.
It reduces an individual’s dependency on cash-based payments and can mitigate the effects of inflation, while reducing the burden on company cash flow. It’s win-win for both employers and employees.
Companies must ensure that any share plan ties into their corporate ethos. They must balance what has the most value while remaining authentic.
Share plans can foster employee ownership, give a financial reward – or both. Whatever the aim, they require efficient administration and effective communication.
An executive compensation adviser can help to design schemes with simple, innovative mechanisms to award shares.
The adviser will take account of a client’s ownership model and corporate strategy as well as tax rules and employment law.
Once a share scheme has been designed, managers should be able to focus on running their core business. So performance metrics and outcomes have to be clear, understood and achievable.
An administrator can help ensure the scheme hits its objectives and measure its success. For example, if the aim is to increase employee engagement, an annual internal share round can be set up, with buying and selling activity measured.
Where businesses or private equity owners can showcase eye-catching success, they will attract and retain talent.
We believe this trend – for companies broadening out their existing share plans and for private equity houses adopting similar larger-scale plan types in their portfolio companies – is here to stay.
That’s down to economic drivers such as high inflation, changing employee demands and future sustainability goals for companies.
Get in touch to find out how Intertrust Group can help you