On 4 May 2021, the Social Market Foundation (SMF) published "A stake in success: Employee share ownership and the post-Covid economy". ProShare and the Chartered Governance Institute UK and Ireland sponsored the research.
The report sets out the case for an expansion of employee share ownership in the UK, and for the share-ownership agenda to form a part of a "fair and strong economic recovery" narrative as we emerge from the coronavirus crisis.
The SMF notes that evidence suggests that employee share ownership could play a role in tackling the UK’s productivity crisis. Share plans could also be an important tool for bolstering the financial resistance of UK households.
The report identifies a number of barriers to participation in employee share plans and the rollout of plans, and makes a number of interesting policy recommendations:
Nudging businesses to offer employee share plans through new measures
Proposed new measures include amending company annual reporting requirements to require certain companies to provide details of share plans and participation rates (in the same way as gender pay gap reporting requirements have prompted many companies to take action).
Modernising share plans to reflect the 21st-century labour market
To reflect changes in the labour market, certain policy changes could be made to encourage participation – for example, decreasing the holding period for the Share Incentive Plan (SIP), from five to three years, and changing the rules for leavers under tax-advantaged plans so that voluntary leavers are not treated as "bad leavers".
A wider SMF recommendation is that gig-economy workers should be allowed to participate in tax-advantaged plans. This would be a more difficult legislative change to make, but would certainly modernise share plans.
Getting lower-income workers on board
The SMF also makes proposals designed to get lower-income workers on board, for example changing the SIP legislation so that such employees could be allowed preferential access to free shares or greater SAYE option price discounts.
Employee shareholder voice
From a governance perspective, the report emphasises the value of Employee Advisory Panels in encouraging engagement with workers.
Supercharging entrepreneurship and innovation
The report makes some recommendations in relation to enterprise management incentive (EMI) options.
To qualify for EMI, one of the conditions is that the company or group must have fewer than 250 full-time equivalent employees. The report recommends that this limit should be increased, so that companies with up to 499 employees should qualify for EMI.
Separately, the Treasury is currently consulting on whether and how the EMI scheme should be expanded – see our recent Insight. It will be interesting to see whether this proposed increase will be taken forwards as a means of ensuring that the EMI regime is properly targeted at small and medium sized enterprises and high growth companies.
More specifically, the report includes a recommendation that the EMI working-time requirement should be lifted for academic employees who participate in university spin-outs. This is something that has previously been proposed and could well be revisited.
The report has received widespread coverage in the press, highlighting the benefits of employee share ownership.
It is to be hoped that the report, together with the responses to the Treasury's call for evidence on EMI, will mean that employee share plans will continue to be strongly supported. Modernising the rules in a few key areas would increase participation rates and ensure that tax-advantaged plans provide the incentives they are intended to deliver.
Please get in touch with your usual Osborne Clarke contact or one of the experts below if you have any queries or would like to discuss further.