Research shows more could be done to increase employee participation in share plans

A survey carried out by industry body ProShare into attitudes to employee share ownership found that many employees lack awareness of what the main features of their company share plans are, or are put off participating due to the schemes being unaffordable or offering insufficiently attractive financial returns.

The survey also explored differences in the awareness and appeal of share plans between employees grouped by gender and generation. Those differences could help employers to choose and implement their plans, and also help the government to "future proof" the UK's share plan framework, share plans expert Suzannah Crookes of Pinsent Masons, the law firm behind Out-Law.com, said.

The study, co-sponsored by YBS Share Plans, Secondsight and WEALTH at work, looked at employee attitudes to two different types of share plan schemes – Save As You Earn (SAYE) and Share Incentive Plan (SIP) schemes. In total, 1,699 employees from 11 UK businesses responded to the survey – 1,210 of the respondents said they were participating in their company’s SAYE and/or SIP scheme.

Crookes said that the study provides "valuable feedback" on the reasons why some employees do not participate in their employer's share plans. The results could help inform companies' efforts to increase participation, she said.

"The study focusses on the tax-advantaged plans: SAYE and the SIP," Crookes said. "Relevant tax legislation sets out the framework for these plans, and companies must adhere to the relevant provisions in order for participants to benefit from the tax advantages. So there will be a limit to the extent to which companies can make changes to address particular employee feedback. However, there are areas of flexibility within each of the plans which may offer companies the chance to alter their offering to employees."

"Moreover, companies need to ensure that employees understand the plans and are aware of these flexibilities. Communication, targeted to the appropriate audience, has a key role to play. There is much that companies can do to increase awareness, understanding and potentially also take-up of the plan through education and communication, without the need to make any significant changes to the plan itself," she said.

SAYE, also known as Sharesave, is a type of 'all employee' tax-advantaged share scheme which allows employees to build up and ultimately benefit from a financial stake in their employing company. Employees who join a SAYE scheme have money deducted from their pay after income tax and national insurance each month over the life of the scheme, which is usually three or five years. This money is then used to buy shares in the company at a discounted price.

SIPs were introduced in 2000 as a means of encouraging employees at all levels to acquire shares in their employer company. SIPs must be open to all employees who are subject to UK tax on employment income. Under a SIP, employees may be offered up to £3,600 of free shares each year free of income tax and National Insurance contributions (NICs), and may buy up to £1,800 of "partnership shares" each year from their pre-tax salary. Employers may give up to two additional matching shares for each partnership share an employee buys.

According to the report, 80% of the SAYE participants surveyed said they decided to participate in their employer's SAYE plan because they saw it as a convenient way to save. Three quarters of those questioned said they wanted to profit from the shares. Fewer than half (38%) were motivated to participate by the idea of owning shares in the company.

Offering a greater option price discount would encourage or increase participation in SAYE schemes, 68% of participants, and 40% of non-participants, said.

Having the ability to vary the amount of monthly contributions that can be made to the scheme, and offering a shorter savings term would also help in this regard, many of the survey respondents said.

The report said: "A significantly higher proportion of non-participants would like to see a shorter savings term than the three and five years generally available currently (depending on which term/terms companies choose to offer their employees). This indicates that the three or five year requirement is so off-putting to them that they decide not to participate based on this reason."

People with longer service at companies more commonly view participation in SIP schemes as a "convenient way to invest", according to the study. It found that 95% of employees with over 20 years of service see the scheme as a convenient way to invest, compared to 64% of people who have between one and three years with the company. Profit is the main overall driver for those participating in SIP schemes, according to the report.

However, the survey highlighted a lack of awareness over many of the features in SIP schemes, including in respect of the maximum value of free shares that scheme participants can be issued each tax year.

"We should be concerned that the key features of the plan are not better understood," the report said. "SIP is a more complex plan than SAYE in many ways, and there clearly are significant improvements still to be made in communicating the key features simply to the entire eligible employee population including those who do join up."

"We should also be concerned – though perhaps unsurprised – that 25% of respondents participating in SIP partnership shares appear unaware of the plan’s key benefit i.e. that deductions are taken from gross pay," it said.

The most common reasons for non-participation in SIP schemes are that employees view participation as unaffordable (32%) or that they do not understand how they work (25%). A further 24% of the non-participating respondents said their non-participation is at least in part because they see shares as a risky investment.

Employers that improve the 'matching ratio' for tax free shares they offer to employees that buy shares in SIP schemes could attract new participants to the scheme, according to the results of the survey.

Improving the matching ratio and increasing the maximum value of free share awards were cited as the main factors that could spur or encourage increased participation in SIP schemes by existing participants and non-participants respectively.

ProShare said more needs to be done in particular to attract millennials – people born between 1980 and 2000 – to participate in share plan schemes.

"Failure to engage the rapidly growing workplace millennials population on share plans could have existential consequences for the share plans industry," ProShare said. "This failure would also have an adverse impact on millennials, depriving them of a valuable and practical means of improving their financial wellbeing."

"The greater the number of non-participating millennials ascending to decision-making roles in the corporate world, the less likely they will be to operate all-employee share plans in the companies that they run, not having known or experienced the benefits that these plans can offer," it said.

Crookes of Pinsent Masons said: "Research such as this will be helpful over time in informing discussions between the share plans industry, the Treasury and HMRC in relation to any further changes to SAYE and SIP which will be helpful in ensuring plans continue to be relevant in the context of changing working patterns. One such change which is already in the pipeline based on industry feedback is the proposal announced at last year’s budget to permit participants to take a 12 month break from saving under an SAYE plan where they are on maternity or parental leave."