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• Many organisations use technology to offer efficient enrolment processes and targeted communication of a scheme. Social networking sites such as Facebook and Twitter are also used.
• Share plan providers have to get to grips with changes to taxation, such as the new 50% tax rate for employees earning more than £150,000, which causes complications when shares are released.
• Automatically enrolling employees into a share scheme can be an effective way of boosting take-up.
Case study: Asda uses Facebook campaign
Asda began offering its sharesave plan in 1982 and has used different marketing tools to build take-up each year. Last year, the supermarket giant, supported by Computershare Plan Managers, introduced a Facebook page to
promote the scheme to younger staff.
Laura Wilcock, shares manager at Asda, says: “We have always found sharesave is not as popular among our younger staff and wanted a way to get the message out to them.
“We had just started working with Computershare, which suggeste †we build on the success of our employee website. This has a popular Facebook page and it suggested we set one up for sharesave, too.”
The Facebook campaign ran through the launch period, giving staff updates on the option price, as well as reminders to sign up.
“Although we did not monitor where sign-ups came from, we did see an increase in take-up, with about 26,000 of the 150,000 eligible staff taking up the offer,” says Wilcock. This was an increase of about 2,000 on the previous year’s figure.
Technology is leading the way as employers adopt innovative approaches to communicating employee share schemes and get to grips with new tax legislation, says Sam Barrett
Technology is leading the way as employers adopt innovative approaches to communicating employee share schemes and get to grips with new tax legislation, says Sam Barrett New tax rates, improved technology and the simple quest to increase employee share ownership have driven something of a revolution in the employee share plan market.
Alexy Armitage, head of employee share ownership at IFS Proshare, says: “Employee share plans are fairly straightforward, but there has been plenty of innovation as employers adapt to changing circumstances and introduce new forms of communication to increase employee share ownership.”
Technology is one of the key drivers of the advances, with many organisations offering a totally paperless process from promotion of the share scheme and the application process through to maturity. Martyn Drake, managing director of Computershare Plan Managers, says: “First there was paper, then interactive voice recognition over the telephone, and now we have email, internet and SMS text messaging. When it comes to applications, the more instant employers can make them, the more enrolments they get.”
After incorporating SMS text messaging into its share plans last year, Vodafone saw about 30% of enrolments conducted through this medium.
Phil Ainsley, director of employee share plans at Equiniti, has also seen technology put to good use in share plans. “We have seen [organisations] creating e-versions of the paper documents and some using online chat rooms around a launch to deal with questions,” he says.
For example, BT has a multilingual chat room, setting times when staff can go online and ask questions in different languages. “This has really high usage and we are starting to see other companies use this form of technology too,” Ainsley adds.
Personalised messages for staff
The greater flexibility offered by technology means it is also used to improve marketing and promoting share plans. By segmenting staff, employers can deliver more personalised messages. For instance, an employer might want to use different marketing messages to staff in their 20s than for those in their 60s. “We have seen this approach used to good effect, especially with staff who have become eligible for a plan for the first time,” says Ainsley,
Social media have also been used, but with varying degrees of success. Some providers have dismissed social networking websites, such as Facebook and Twitter, as too gimmicky, but others recognise their merits. Case studies and interviews with staff who have taken part in an all-employee share plan can be shown via YouTube or Facebook. “It does not work with every employer, but it can be a good way to target younger staff who are not typical shareholders,” says Ainsley. “Seeing someone explain how they have used a share scheme to save for a car or a holiday can be a very powerful marketing message.”
Although some organisations are keen to embrace new technology, it is not always an option, says David Kilmartin, head of business development at Capita Share Plan Services. “E-commerce makes the process quicker and slicker and can result in an increase in take-up of up to 10%, but some feel they should offer a paper option.”
As well as using new technology, share plan providers have had to grapple with taxation changes, with the new 50% tax rate for employees earning more than £150,000 a year causing headaches in HR departments.
Mike Landon, executive compensation director at MM&K, says: “Employers need to sell the correct amount of shares to cover income tax and NI [national insurance] but, for some staff, it is not always clear whether this should be at 42% or 52%. This can mean they sell more shares than is necessary.”
Calculating PAYE rates
Finding a solution to this helped Marks and Spencer pick up the IFS ProShare award for most effective use of technology in 2010. It worked with Killik Employee Services to develop technology to calculate the various PAYE rates correctly to prevent staff selling too many shares to cover their tax liability.
Tesco also picked up an IFS Proshare award for fostering employee share ownership. Teresa James, group share scheme manager, says: “We talked to HM Revenue and Customs (HMRC) about moving from a position where staff actively opted into the plan to one where they had to opt out if they did not want to receive their free shares.”
Tesco’s plan received HMRC approval in July 2008 and the automatic opt-in was included in all new staff contracts. This has boosted take-up, but James says: “Some people opt out as they see it as against their religion, but we have been working with the Muslim Council of Britain to explain that the shares reward staff for work they have done.”
Although Tesco’s approach is likely to help employers increase take-up on share schemes, Kilmartin says it is not quite so straightforward. “To move to this opt-out position, they need to change employment contracts, which is a major consideration.”
Further developments are likely as legislation and taxation change. And advancing technology will simplify share plans and increase take-up. Computershare’s Drake says the firm has apps for the iPhone and BlackBerry in testing with a US client. “Employees used to be happy to wait for their paper applications to be processed, but this is not acceptable any more,” he says.
Innovation in executive share plans
• The recent scrutiny of executive remuneration has meant executive share plans are also undergoing change.
• Rob Burdett, principal at Hewitt New Bridge Street, has seen much more innovative thought regarding the performance conditions attached to executive share schemes, and on the underlying structures used.
• This has meant a move away from plans that focus on earnings per share or total shareholder return, to a more blended approach.
• There has also been a rise in the number of value-creation schemes, with a larger one-off award, depending on performance.
• Such arrangements have been controversial because of the potential size of the award.
• Employers set a threshold hurdle, for instance that the share price must rise from 50p today to 100p in three years’ time. If this does not happen, the executives get nothing, but if it does, they get a percentage of the excess.
• There are pros and cons to this, but the real issue is that the award is uncapped.
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