Illustration for the article entitled "Is it the right time to offer employee share schemes and what is HR's role?"

Is it the right time to offer employee share schemes and what is HR’s role?

Employee incentives are diversifying and must keep up with staff requirements. Although many factors may attract or retain employees, benefits and incentives must move with the times and adapt to satisfy ever-evolving employee needs. Offering employees shares in the company is a form of incentive that can potentially increase engagement, attract or retain employees, and offer them a sense of belonging.

But in the current climate, is the time right for share schemes to boost engagement, attraction, and retention? What is HR’s involvement in planning and implementing share schemes, and who should shares be offered to?

Companies are hiring

An employee share scheme rewards individuals in a company with equity. It differs from share option schemes as it gives employees real shares in the business rather than the option to buy shares at a later date.

With the Polish Economic Institute reporting that Polish companies want to hire new employees and 24% of companies are planning new jobs this year, the wider review of employee compensation and incentives is surely pertinent.

Each organization will decide if a share scheme is possible (and timely) and, if so, how shares are rewarded and who is eligible, as shares can be offered to senior staff or everyone.

However, creating and maintaining an employee share scheme can be complex and require planning and expert execution. Therefore, HR must be involved in reviewing whether the company should offer a share scheme, highlighting the short—and long-term costs of running the scheme, the initial legal or financial costs of setting it up, and the potential attractiveness of the scheme to employees. If it goes ahead, HR must also be a central part of the communication to employees and ensure that all awarded shares are documented.

Tap into the ownership effect

Share option schemes may help companies attract and retain talent by giving individuals the opportunity to share company ownership. This may also build engagement, motivation, and loyalty, as individuals will be more involved in company success and may strive harder to increase profitability.

This is where the ownership effect comes in. Evidence shows that if an individual owns a part of the business in shares or options, they are more likely to contribute effectively to business success.

Share schemes can help a company preserve cash because instead of offering benefits or bonuses that require immediate payment, there is limited upfront payment. This may also allow a more attractive total compensation package when recruiting, and employees may also receive tax benefits on shares.

Murray Tompsett, head of ProShare, says all share plans have something in common, ‘They align the interests of the employees with those of the shareholders. It’s been proven that having employee share planners in place also increases engagement massively, and it has a really positive impact on productivity.’

The impact of HR

Before any scheme is implemented, HR plays a critical role in communicating with staff to understand what people actually want regarding incentives. What Nicholas Kirk, CEO of PageGroup, said regarding the 2024 Talent Trends Report applies: ‘The priority is open dialogue and joint problem-solving. By fostering a culture of mutual understanding and adaptability, both companies and their employees can thrive in this rapidly changing landscape.’

If a share scheme is agreed upon, HR is pivotal in planning, implementing, and running employee share schemes. Not only will they have the knowledge to understand schemes and know when they are appropriate for a company, but HR should also be able to advise management on who shares should be awarded to, what market competitors are doing, whether they are using share schemes for recruitment and retention and assess the ongoing success of the scheme once it is set up.

In some companies, shares will only be awarded to certain employees. If this is the case, a proposal must convince the existing shareholders to reduce their stake and open up shares to some or all employees.

By offering employees investment opportunities, individuals may feel more immersed in the company, gain a deeper sense of belonging and see opportunities to influence business growth and benefit from long-term dividends and growth.

Is it the right time?

However, as we saw in PageGroup’s 2024 Talent Trends Report, employees still expect higher wages. Depending on individual situations, in the current market, the seemingly more tangible compensation option of salary may be more important to employees than share option schemes whose value will not be immediate.

Also, with the recent cost-of-living crisis, share options may not be at the forefront of employee needs and wants. One 2022 survey by HR and payroll software provider CIPHR of over a thousand employees showed that the share options did not feature in the top 25 benefits they value the most.

It’s like banking your money

Share schemes can enhance financial stability in the long term, but are not a quick solution to employees’ financial concerns. That’s why, if an individual has not previously held company shares, it’s essential for HR to communicate the details of the scheme, how to invest and the benefits and disadvantages of a share scheme.

Ifty Nasir, founder and CEO of Vestd, says share schemes can help businesses plan longer term and support employees through the increased cost of living. He says, ‘If the cost of living is going up, do businesses definitely need to match all of that through salary? Or could employees take a slightly smaller reward today in service of a reward tomorrow?

‘It’s like putting money in the bank: each month you stash something away for the future, while also having a stake in the business, so you can actually contribute to the outcome. It’s potentially more valuable than just giving it to the bank.’

Before any scheme is implemented, HR and senior leaders must consider whether this incentive will support company plans and objectives and fit with the company culture. They must also consider who will be eligible for shares and how this will be communicated to existing employees and potential recruits.

Author: Sarah Haselwood

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