Staff share schemes could prove expensive as markets crash

Staff share option schemes could cost employers millions of pounds under the current economic conditions, experts have warned.

Organisations have been urged to review variable pay deals that offer employees a set value of shares – for example, £1,000-worth.

Such schemes could eventually pay out more than 10 times their current value – thereby giving away a greater proportion of the business – according to Marc Jobling, assistant director of the Association of British Insurers.

Most share schemes take several years before they can be exercised, meaning their eventual value could be much higher than they are with shares currently depreciated by the economic turmoil, he said.

In this clip, share plans expert Ian Fyffe of Pinsent Masons explains how falling share prices are affecting employee share awards.

“There is a danger, when you’ve got a significantly depressed share price, of awarding that number of shares which results in excessive reward for employees, far more than an employer could afford to pay,” Jobling told Personnel Today.

Sophie Black, director, performance and reward for Ernst & Young, added that many remuneration committees won’t have altered pay schemes since before the credit crunch.

“Most committees only meet three times a year, and generally will only look at a remuneration strategy every three-to-five years, but now there’s a change needed that will require a fundamental look at rewards strategy, which will take considerable time and effort,” she said.

However. Charles Cotton, rewards adviser at the Chartered Institute of Personnel and Development, cautioned employers against fiddling with bonus terms. “You can’t keep moving the goal posts, or employees and shareholders will get upset,” he said.

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