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.