June 17, 2018
Employee Share Schemes

ProShare interviewed 1,699 employees across the UK workforce of 11 companies. About 70% of those interviewed were participating in their company’s SAYE and/or SIP; 30% were not.

Employee Share Schemes: What is SAYE?

Save As You Earn (SAYE) was introduced in the Finance Act of 1980. Under a SAYE Plan, employees are given the right (“option”) to buy a certain number of shares in the company at a future date at a purchase price (the “option price”) that is determined when the option is granted. The option price must not be less than 80% of the market value of the underlying shares at the time of grant. Participating employees are required to save between a minimum of £5 and maximum of £500 per month under a SAYE savings contract with an approved building society or bank savings carrier. SAYE contracts last for three or five years. Any bonus or interest earned on these savings is tax free.

Employee Share Schemes: What is SIP?

The Share Incentive Plan (“SIP”) is a tax-advantaged plan that offers Income Tax and National Insurance advantages for employees and companies, provided the Plan meets the requirements of Schedule 2 of the Income Taxes (Earnings & Pensions) Act 2003 and is also registered and reported via HMRC’s ERS Online filing service

Employee Share Schemes: Age Groups

Participants were split into the following categories:

Millennials (younger aged 16 – 21 / older aged 22 – 37)

Generation X – Younger (aged 37 – 45)

Generation X – Older (aged 46 – 56)

Baby Boomers (aged 66 – 72)

Maturists (aged 73+)

Here are some of the take-outs:

Employee Share Schemes: SAYE Participants

Reasons for participating in the scheme: 80% said it was a convenient way to save, 38% said they wanted to own shares in the company, 75% said they wanted to profit from the shares and 2% cited other reasons.

Across the generations – millennials thought convenient way to save was the was important factor with this reason being less important for Generation X and even less for Baby Boomers. For Baby Boomers ownership in the company was more important than for Generation X and the least important factor for Millennials.

Reasons for non-participation in the scheme: 40% said they couldn’t afford to participate, 25% percent said they couldn’t participate for another reason, 21% said they had other arrangements, 16% said they may not be with the company long enough, 6% said they didn’t know how the scheme worked, 6% said that shares were a risky investment and 3% said they weren’t aware of the plan.

Across the generations – it was the younger Generation X group who showed the greatest loyalty to their employer with only 7% of them citing a non-participation reason of not planning to be with the company long enough to benefit from the Plan.

Employee Share Schemes: SIP Participants

Reasons for participating in the scheme: 77% said it was a convenient way to save, 52% said they wanted to own shares in the company, 69% said they wanted to profit from the shares, 67% said the matching shares were valuable to them and 58% said the tax advantages were valuable to them.

Millennials valued SIP as a means of share ownership to a greater degree than their older colleagues, with 58% being the highest value recorded across the generations for this reason for participation. However, Millennial employees value the convenience of SIP even more highly at 78%.

Reasons for non-participation in the scheme: 32% said they couldn’t afford to participate, 5% said they didn’t feel able to participate, 25% percent said they didn’t understand how the scheme worked, 18% said they had other arrangements, 24% said they may not be with the company long enough, 17% said they weren’t aware of the plan, 24% said that shares were a risky investment and 23% said they had other reasons.

47% of Millennials choose not to participate in SIP because they don’t believe they’ll be with the company long enough to benefit from the Plan. The five-year holding period is simply too long a time-horizon for them.

Employee Share Schemes: Conclusions

The survey report contains more analysis than outlined above but even from these figures one can see that educating employees on how employee share schemes work and even making them aware that they exist is something that employers should focus more on, in particular, in these examples, around the SIP schemes.

More examples of the experience with employee share schemes can be found in the link.