Half of SAYE share schemes fail to deliver profit for staff

Official government figures cast doubt on the value of
offering share schemes to employees.

Personnel Today has learned that statistics collated by the
Inland Revenue show that in around 50 per cent of schemes employees would not
benefit immediately from exercising the option to buy company stock in
save-as-you-earn share schemes.

 

Under SAYE schemes employees have the option to buy shares
after a specified period at a price set when they entered the scheme, or
convert their savings to cash.

But the IR’s figures are understood to show that half of
schemes are “underwater”, where shares are worth less than at the start of the
SAYE scheme.

This is mainly the result of falling share prices among
blue-chip companies, but it also highlights a significant weakness of schemes
as an employee benefit.

The poor performance of SAYE schemes will also raise fears
over the viability of Gordon Brown’s plans for widespread employee share
ownership.

The Chancellor wants to develop more all-employee share schemes
and in March’s Budget he announced lower Capital Gains Tax to encourage
participants. But these schemes do not have the safety net in SAYE schemes and
if their success followed the pattern of SAYE performance, half of all
participants would lose money.

In the US employees in a similar scheme run by food giant
Kellogg have seen life savings plummet in value with a 45 per cent decline in
the stock price since last year.

A survey by the independent company ProShare last November
found 25 per cent of company schemes underwater, but Sally Russell, head of
employee share ownership at ProShare, said the revenue’s figures will be more
accurate because all companies are required to submit data.

Just over 300 firms took part in the ProShare survey, while
the Inland Revenue figure is based on returns from all the 1,200 companies
taking part in the scheme.

Every participant has to declare the option price and the
market price to the Inland Revenue at the end of the financial year.

Mark Childs, vice-president of compensation and benefits at
Fidelity, advised companies to be cautious.

“I am aware of a lot of old-economy share schemes being
under water – particularly in banking, retail, consumer products and
engineering. Companies need to recognise that a lot of their employees cannot
afford to take the risk associated with single-company investment”.

 

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