February 10, 2020
This report from UK think tank Social Market Foundation looks at how to promote wider individual employee share ownership in the UK.
This report analyses the scope to promote wider individual employee share ownership in the UK, and the potential benefits of doing so. The report assesses the potential for employee share ownership to reduce inequality, tackle the UK economy’s productivity crisis, improve financial resilience and increase employee voice within companies. A survey of 1,000 listed company employees, commissioned as part of this research, found that:
This suggests that employee share ownership could improve workforce productivity. 56% said that employee share ownership would make them more interested in other types of investment, suggesting that it can encourage individuals to engage more with savings and investment products. 46% of those surveyed that held employee shares/options said that they did so because they expect shares to increase in value in the future. 42% said they did so as another way to save/earn money, and 36% said they held shares to benefit from dividend payments.
Given the research findings, the SMF recommends: The Government should set a target for the percentage of employees in public companies who own shares/share options in their employer, and deploy public scrutiny and pressure to encourage firms to take action to ensure that target is met. Setting a target and expectations would lead business managers to think about barriers within their firm to increasing employee share ownership and respond appropriately. The Government should update regularly the Employee Share Ownership Index, which tracks the performance of listed firms with employee owners against the movements of the wider FTSE All Share. The Government should abandon the legislation which allows employers to restrict the voting rights of employee shares. Moreover, the Government should explore the possibilities to reclassify employee shares in order to give participating workers more voting rights than external shareholders. This could include enhanced rights to nominate board directors. The Financial Reporting Council should require firms to include information on what type of employee share ownership schemes are operated, the extent to which each scheme is taken up by eligible workers and the average value of employee shares in annual reports. The Government should decrease the holding period of Share Incentive Plans from five years to three years. Employee share schemes should reflect the affordability constraints and risk appetites of workers. This might favour share option schemes over simply letting workers buy company shares. That employee share ownership is seen as part of a broader package of initiatives aimed at improving employee pay, motivation and ‘voice’. Policymakers should also consider the case for encouraging other forms of non-regular remuneration, such as profit-related and performance-related pay.Read Full Report
By Jonathan Cribb; Tom Waters; Thomas Wernham; Xiaowei XuRead more