If you’ve made the decision to introduce an employee share plan in your company, then most likely you have done your homework and know the benefits that can accrue to a business from going down the equity compensation route.
Deeper engagement, increased motivation, greater loyalty, aligning employees’ interests with those of the business, and making a positive difference on recruitment and retention – these are among the benefits to a company associated with effective employee share plans.
It’s all well and good to know how encouraging employee ownership can ultimately benefit the bottom line, but in your eagerness to get there you shouldn’t lose sight of one key element of the equation: namely, securing high employee stock plan participation rates among your workforce. Fail to do that and your share plan will not achieve all that you hope it will.
When you’re trying to encourage your people to sign up to a share plan, you need to be able to place yourself in their shoes. Listing off the likely benefits for the business may well work for you, but it’s not necessarily going to trigger a groundswell of enthusiasm among the workforce.
“When you sign up, you will become more motivated to help the company succeed” may well be a factual statement, but if emphasized at the outset when employees are in the process of deciding whether or not to participate might not have the desired effect.
Instead, you need to communicate with employees in a way that emphasizes the benefits of share ownership to them on an individual basis, as opposed to highlighting how their stock plan participation will help the business to prosper over time, and that they too will ultimately profit from that success.
In essence, employees will wonder “How will this work for me?” and when you are looking to get your share plan off the ground you need to engage with them on that level. It needs to be pitched as a win-win proposition, but one in which the likely benefits for employees are deliberately emphasized.
So, what’s in it for them? Why should your employees want to sign up to whatever share plan initiative you have decided is the best fit for your company?
Let’s look at how the process might unfold if you were launching an employee stock purchase plan (ESPP). When looking to maximize stock plan participation, you need to list and go into detail on the advantages for individual employees, as opposed to those for the company.
And the good news is there are several advantages for individuals when it comes to ESPPs. Your job at this stage of the process is merely to make your employees aware of those upsides.
Everyone loves a discount, whether it’s in the supermarket or on company shares. With an ESPP, the discount on share price can be as much as 15%, which in itself makes the proposition attractive.
Some ESPPs add an additional discount-related incentive in the form of a lookback clause. With such a provision, participants get to choose between paying for their shares at the market value seen at the start of the offering period or the value on the actual purchase date. In practical terms, this means going for whichever price is lower, thus potentially securing an additional discount.
Shares acquired via an ESPP can receive favorable tax treatment. If you hold the shares for more than two years after the start of the offering period and at least one year after the purchase date, then you can expect to only pay capital gains tax on whatever profit you make when you sell the shares. There is a lot more that could be said about ESPPs and taxation, but that is outside the scope of this article. Suffice it to say, it can be an attractive point for plan participants.
For employees who have been considering making a private investment of some sort but are unsure how to proceed, the opportunity to join a company share plan may be ideal. When you sign up to an ESPP, you have the reassurance of investing in a company that you know (at a discount!).
When employees sign up to an ESPP, they don’t have to worry about making any manual payments during the life of the plan. The money that will be eventually used to purchase shares is set aside from salary automatically for however many months the terms of the agreement will require.
Prospect of profit
There are no guarantees, but one of the biggest incentives of all is the prospect of being able to sell shares at a profit down the line. The discount built into the ESPP purchase price insulates participants somewhat against the possibility of a decline in value over time, but if those shares increase in value, then employees stand to make a significant profit when they choose to sell.
This might seem obvious, but it is worth stating. Stock plan participation will be voluntary. Yes, you will want high participation and thus will be encouraging employees to sign up, but by emphasizing the voluntary nature of the process, you hand the power over to your people to make their own call. From the psychological perspective, when people feel that they’re making a decision of their own volition, they are more likely to be happy with that course of action and stick to it.
The above list presents merely some of the benefits of share plan participation for employees. We could present a more exhaustive list, but the main point we’re trying to communicate here has been made – when you want to attract participants to your share plan, you have to pitch it at the level of what’s in it for them, as opposed to what’s in it for the business. If you generate the level of interest you desire among your employees, the benefits to the business will flow naturally from that over time.
Global Shares can advise you on every step of the journey. Contact us today to speak to one of our employee share plan representatives.