Organisations must do more to ensure employee share plans are aligned with business objectives

Research shows organisations that offer share ownership programmes to their employees outperform similar organisations that donít. However, employers will not see real business benefits unless the share plans fit in with the organisations overall objectives, warns the Chartered Institute of Development (CIPD). The CIPD has published a new book, ëEmployee share plans: supporting business performanceí, to help employers implement effective share plans in the context of the tax and regulatory environment, as well as the new accounting standards.

Employee share schemes can play an important part in how people are managed and a recent CIPD survey finds that around two fifths of employers offer all-employee share plans. In the right environment such plans have a positive impact on people, productivity and performance. Inez Anderson, Director at Smith and Williamson will discuss how employers can get the most from benefits spend including employee share schemes, at the CIPD Annual Reward Conference, on 7 February 2006.

Charles Cotton, CIPD Reward Adviser, says, ìEmployee share plans can help to make employees think more like an organisationís owner. This leads to greater attention being given to the overall success of an organisation and not just their personal positions. However, organisations that do not also invest time and resource in the implementation and communication of a plan run the risk of losing out on these benefits ñ this can be counter-productive and lead to low morale and recruitment and turnover problems.

ìIt is not enough to just sit back and expect the plans to work. Only with ongoing communication and maintenance will the plans help meet organisational objectives, motivate staff and benefit the business. Employers should consider them an integral part of the total reward package, working with staff and line managers to implement a package that meet the needs of the business and employees. It is essential to align share plans with the wider business objectives and with the organisation’s culture if they are to succeed.

ìMaking sure employee share schemes work in the long-term is an ongoing process. Employers must communicate to staff, or certain staff groups, in terms of how the plan will work and whatís in it for them and about how their shares are performing and why.î

ëEmployee Share Plansí stresses the business case for employee share schemes and uses case studies to demonstrate how to choose a plan and implement it. It addresses new accounting standards, examines executive share plans and looks at overseas issues:

New accounting standards (IFRS 2)
New standards for share-based payments came into force last year ñ organisations now need to recognise the cost of providing share incentives as an expense. The report indicates that most organisations appear to be reviewing their employee share plan design (either broad-based or executive) rather than canceling them.

Sara Cohen, the reportís author, says, ìThe new accounting standards have made a positive impact by encouraging some organisations to look more closely at the return on investment rather than simply selecting a plan because it has no cost. This will encourage employers to investigate different arrangements and then develop a plan that meets the needs of the business. The report covers a number of issues that employers must consider when implementing the standard and communicating share plans in general. î

Executive arrangements
Growing shareholder activism, updated institutional investor guidelines, the Directorsí Remuneration Report Regulations and the Combined Code on Corporate Governance have put executive share plans under the spot light like never before.

Leslie Moss, Executive Remuneration UK Practice Leader for Hewitt Associates, the publicationís sponsor, says ìExecutive share plans play a vital role in aligning wealth creation by executives and senior managers with the interests of shareholders and other stakeholders. A well-designed plan that takes account of employee perspectives and is properly-communicated can be very motivating. However, design is not sufficient in itself. Organisations should also ensure that the corporate and personal performance metrics for these plans are relevant and stretching because shares are a valuable and limited commodity. This report provides companies with an excellent basis for creating a formal and transparent policy on employee share participation.î