Employee share schemes in the United Kingdom

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Employee share schemes are part of the remuneration packages offered to some employees in the United Kingdom. [1]

Contents

History

ESOPs became widespread for a short period in the UK under the government of Margaret Thatcher, particularly following the Transport Act 1985, which deregulated and then privatised bus services. Councils seeking to protect workers ensured that employees accessed shares as privatisation took place, but employee owners soon lost their shares as they were bought up and bus companies were taken over. [2] The disappearance of stock plans was dramatic. [3]

The John Lewis Partnership has been cited as an example of an employee share ownership. [4] [5] [6] However, unlike some other employee ownership arrangements, partners in John Lewis have no proprietary right to their stake and cannot buy or sell their rights or collectively dissolve the entity. [7] ESOPs are almost entirely opposite because at John Lewis, employees get a voice at work but cannot trade an ownership stake; an ESOP typically carries no meaningful voice but allows the interest to be bought and sold.

In July 2012, the Department for Business Innovation and Skills published a report, "The Employee Ownership Advantage, Benefits and Consequences". This report listed several major advantages of employee ownership including stronger longterm focus, increased employee representation at the board level and greater preference for internal growth. The report also highlighted that employee owned businesses face greater problems when it comes to raising capital and dealing with regulatory requirements. The study was based on data from a survey of 41 employee-owned businesses and 22 non-employee owned businesses in the United Kingdom, and also draws upon the published financial data of 49 EOBs and 204 non-EOBs in the UK.

The Chancellor of the Exchequer George Osborne announced in a speech at the Conservative Party Conference on 8 October 2012 that the law would be reformed to create a new employment status for "employee-owners". [8] Employee-owners will pay no capital gains tax on any profit made from selling these shares. Still, they will have to give up certain employment rights in return, including redundancy and unfair dismissal. The consultation by the Department for Business, Innovation and Skills was published on 18 October 2012. [9] Lawyers have suggested that the employee-owner scheme could have significant unintended consequences as, under the existing proposal, it may be possible for entrepreneurs to set themselves up as employee owners in order to avoid capital gains tax. In practice, those entrepreneurs will be far more 'owner' than 'employee' and the employment rights they will be giving up are likely to be of much less value to them than to ordinary employees and so the tax advantages would be of far greater value to them than to ordinary employees.

On 3 December 2012, the government published its response to the consultation. It had decided to press ahead with the changes despite 92% of responses to the consultation being either "negative" or "mixed" [10] and despite it being "widely derided both in the House of Lords and in business chambers across the country". [11] The term "employee owner" was dropped in favour of the more accurate "employee shareholder". Lawyers have commented that uncertainty remains as to how these proposals will operate in practice.

In April 2013, the Enterprise and Regulatory Reform Bill was passed and received Royal Assent. Implementation of the employee-shareholder provisions was expected to take place in October 2013. The employee ownership provisions received significant amendment in the House of Lords, with the unintended consequence possibly being that trade unions may now benefit. [12]

At the end of June 2013, it emerged that just four companies had enquired about the shares-for-rights scheme, while only two had gone the further step of asking for information about it; the chancellor had been expecting thousands of firms to actually sign up. [11] [13]

Types

Several types of tax advantaged schemes exist: [14]

See also

Related Research Articles

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<span class="mw-page-title-main">Joint-stock company</span> Business entity owned by shareholders

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Common stock is a form of corporate equity ownership, a type of security. The terms voting share and ordinary share are also used frequently outside of the United States. They are known as equity shares or ordinary shares in the UK and other Commonwealth realms. This type of share gives the stockholder the right to share in the profits of the company, and to vote on matters of corporate policy and the composition of the members of the board of directors.

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Employee stock options (ESO) is a label that refers to compensation contracts between an employer and an employee that carries some characteristics of financial options.

<span class="mw-page-title-main">Share (finance)</span> Unit of equity ownership in the capital stock of a corporation

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<span class="mw-page-title-main">Employee stock ownership</span> System giving employees stake in a companys ownership

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<span class="mw-page-title-main">Stock</span> Shares into which ownership of the corporation is divided

Stocks consist of all the shares by which ownership of a corporation or company is divided. A single share of the stock means fractional ownership of the corporation in proportion to the total number of shares. This typically entitles the shareholder (stockholder) to that fraction of the company's earnings, proceeds from liquidation of assets, or voting power, often dividing these up in proportion to the number of like shares each stockholder owns. Not all stock is necessarily equal, as certain classes of stock may be issued, for example, without voting rights, with enhanced voting rights, or with a certain priority to receive profits or liquidation proceeds before or after other classes of shareholders.

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<span class="mw-page-title-main">Economics of participation</span> Umbrella term in the business world

Economics of participation is an umbrella term spanning the economic analysis of worker cooperatives, labor-managed firms, profit sharing, gain sharing, employee ownership, employee stock ownership plans, works councils, codetermination, and other mechanisms which employees use to participate in their firm's decision making and financial results.

Bankers' bonuses are traditionally paid or awarded to some workers in the finance industry at the end of the bank's financial year. They are intended to reward employee behavior during that year that has increased the profits of the bank or some relevant part of its business, as shown by the annual accounts. The bonus culture is usually associated with the front office or investment banking divisions of banks. Although calculated in respect of past service, payment of all or part of a bonus may be deferred and made contingent on subsequent events, such as future profitability or continuing employment; this is especially appropriate if the business done is of a kind which cannot be reliably valued at the end of a year.

<span class="mw-page-title-main">Workplace participation in the United Kingdom</span>

Workplace participation in the United Kingdom refers to the structures that people at work have to participate in the way their organisation is managed. UK labour and company law generally leaves this up to the management of the company, appointed by shareholders and banks, to determine, and in contrast to most European jurisdictions requires only a minimum participation practices. Workers have the right to,

An Employee Stock Ownership Plan (ESOP) in the United States is a defined contribution plan, a form of retirement plan as defined by 4975(e)(7)of IRS codes, which became a qualified retirement plan in 1974. It is one of the methods of employee participation in corporate ownership.

An employee trust is a trust for the benefit of employees.

An employee ownership trust (EOT) holds a permanent or long-term shareholding in a company on trust for the benefit of all the company's employees. An EOT provides indirect (trust) employee ownership of a company.

References

  1. ↑ "Practical Law UK Signon". signon.thomsonreuters.com. Retrieved 2020-11-03.
  2. ↑ A Pendleton, J McDonald, A Robinson and N Wilson, ‘Employee Participation and Corporate Governance in Employee-owned Firms’ (1996) 10(2) Work, Employment and Society 205-226
  3. ↑ L Trewhitt, 'Employee Buyouts and Employee Involvement: A Case Study of Investigation of Employee Attitudes' (2000) 31(5) Industrial Relations Journal 451, the way they vanished was 'nothing short of dramatic'.
  4. ↑ Moulds, Josephine (27 June 2011). "Co-operatives like John Lewis thrive in uncertain times". The Daily Telegraph. London.
  5. ↑ "Incentivising Share Ownership and the John Lewis Economy". The Huffington Post. Retrieved 2016-09-02.
  6. ↑ Jha, Pushkar (25 September 2012). "Is employee ownership the answer to our economic woes?". The Guardian. London.
  7. ↑ See John Lewis Partnership, Constitution Archived 2014-05-02 at the Wayback Machine
  8. ↑ "Share The Facts". www.conservatives.com. Retrieved 2016-09-02.
  9. ↑ "Consultation on implementing employee owner status" (PDF). Department for Business Innovation & Skills. October 2012. Retrieved 2016-09-02.
  10. ↑ "Implementing Employee Owner Status: Government Response to Consultation" (PDF). Department for Business Innovation & Skills. December 2012. Retrieved 2016-09-02.
  11. 1 2 Elizabeth Rigby (28 June 2013). "Chancellor's 'shares for rights' plan flops". ft.com . Retrieved 1 July 2013.
  12. ↑ "Labour calls for Agricultural Wages Board not to be abolished". BBC News. 24 April 2013.
  13. ↑ Tim Wigmore (1 July 2013). "The flop of shares-for-rights shows Osborne at his worst". London: The Daily Telegraph. Archived from the original on 4 July 2013. Retrieved 1 July 2013.
  14. ↑ "Tax and Employee Share Schemes". GOV.UK. Retrieved 2020-11-03.

Further reading

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