Side by Side

Since the Institute acquired ProShare in May 2018, we have stepped up efforts to raise the profile of Employee Share Ownership (ESO) within the UK. The UK has a long-standing and proud tradition of fostering ESO, with tax-advantaged share plans such as the all-employee Save As You Earn (SAYE or Sharesave) and the Share Incentive Plan (SIP), and the discretionary Company Share Option Plan (CSOP) and Enterprise Management Incentive (EMI) plan all introduced between 1980 and 2000. Indeed, many millions of employees have benefitted from owning shares in the companies that they work for (2.4 million employees participated in SAYE and/or a SIP in 2019, according to the latest ProShare SAYE & SIP Report), and their employers have benefitted from the correlated productivity boost that these plans in particular bring.

All such plans operate in different ways, with varied tax advantages for participating employees and employers, but they all seek to achieve combinations of increased productivity; shared financial reward with the company’s employees; increased employee motivation; increased employee engagement; and improvement of employees’ financial wellbeing. Whilst all have undoubtedly helped employees and employers considerably over the years, some of their design features are now rather dated.

Times change, as do workforces, workplaces and the nature of work itself. Gone are the days of a career for life. Employees move around much more frequently now than in the past. Yet, whilst the compositions of UK workforces have changed radically over the past 40 years, most of the related employment benefits have not.

Entitlement to workplace benefits depends largely on one’s employment status: employee, worker, fixed-term contract, zero-hours contract, ‘gig’ economy worker, self-employed. Companies cannot offer share schemes to certain growing sections of their workforce because individuals in these subsets do not fit neatly into the definition of ‘employee’ as set out in the relevant legislation. Furthermore, younger employees in their 20s move job on average every two and a half years and either don’t want to invest in a plan that locks them in for five years, or else are penalised as bad leavers if they resign before the term expires. Many of the large employers that ProShare represents would like to have the choice of whether or not to offer share plans more broadly within their workforce as they recognise the motivational and productivity boosting effects these plans bring. The law as it currently stands, however, prevents them from doing so.

Consequently, we have been lobbying MPs and the UK Treasury to implement changes which will make share plans more efficient and effective. Most recently, this was in advance of the March 2021 UK budget, when there was real concern that Capital Gains Tax thresholds would be cut substantially following a report from the Office of Tax Simplification (OTS). ProShare had met with the OTS and been assured they did not intend to impact share plans, however it was still a relief to see no change by the Treasury for now.

ProShare’s seven key ‘Asks’ to super-charge employee share ownership are:

1. reduce the Share Incentive Plan holding period from 5 years to 3 years

2. make resignation a ‘good’ leaver reason for SAYE and SIP

3. introduce a ‘lookback’ feature for SAYE option exercise prices

4. abolish the working time requirement for EMI participation

5. review and increase the £30k limit for CSOP

6. link the availability of the corporation tax deduction on executive share plans to the offer of all-employee share plans to the broader workforce

7. re-introduce tax-advantaged cash profit-sharing schemes for companies and organisations which are unable to offer shares to their workforces.

Our lobbying work is starting to bear fruit and we now have a base of interested MPs who we are asking to add pressure onto Treasury to think of share plans in the context of how employees should be encouraged and rewarded by their employers once we emerge from the pandemic. As part of this work, in May we will be promoting an independent report we have commissioned from the Social Market Foundation looking at Employee Share Ownership and the post-COVID economy. The report will look in detail at the case for Employee Share Ownership, barriers to it, and how ESO might be expanded to encourage greater take-up among harder-to-reach groups such as lower income workers.

With societal change now placing employees as key stakeholders, the time is right for a comprehensive review of the legislation underpinning employee share schemes. We do not underestimate the potential complexity of such a review, as it will involve amendment to fundamental pieces of legislation like the Companies Act 2006, but the government has the opportunity to make such changes if it truly wishes to embrace modern employee share ownership. The vibrant share plans community, which recently celebrated the 2020 ProShare Awards, is itching for such change. The financial, productivity and wellbeing benefits of offering share plans more broadly within companies’ workforces would be considerable, for the employer, the workforce and for the UK economy as a whole.

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