Organisations must do more to make employee share plans work

Jan 31 2006 by Brian Amble Print This Article

Share ownership programmes often make a real contribution to performance, but employers will not see their real business benefits unless their share plans fit in with the organisations overall objectives.

According to Britain's Chartered Institute of Development (CIPD), organisations that offer share ownership programmes to their employees outperform similar organisations that don't.

Employee share schemes can play an important part in how people are managed, and a recent CIPD survey found that around four out of 10 employers offer all-employee share plans.

In the right environment, says Charles Cotton, CIPD Reward Adviser, such plans have a positive impact on people, productivity and performance.

"Employee share plans can help to make employees think more like an organisation's 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 Ė this can be counter-productive and lead to low morale and recruitment and turnover problems.

"It is not enough to just sit back and expect the plans to work," Cotton added. "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.

Making sure employee share schemes work in the long-term is an ongoing process, he insisted, meaning that employers need to be careful to communicate how the plan will work, what benefits it offers employees and how their shares are performing and why.

And as a new CIPD book, Employee share plans: supporting business performance points out, growing shareholder activism in Britain, coupled with updated institutional investor guidelines, the Directors' Remuneration Report Regulations and the Combined Code on Corporate Governance have put executive share plans under the spot light like never before.

"Executive share plans play a vital role in aligning wealth creation by executives and senior managers with the interests of shareholders and other stakeholders," said Leslie Moss, Executive Remuneration UK Practice Leader for Hewitt Associates, the publication's sponsor.

"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."