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Saturday, 20th April 2024 |
| Save as you earn schemes benefit corporates |
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| Save as you earn schemes can be used to give your employees a stake in the business and help to create greater employee loyalty, Rachel Killeen writes. |
Attention chief executives, human resources and finance executives - save as you earn (SAYE) schemes give your employees a stake in the business and apportion greater loyalty, employee commitment and retention to your company.
SAYE schemes were introduced by the Government in section 68 of the Finance Act 1999. These tax efficient schemes allow employees to save a portion of their salary over a fixed period of time, enabling them to buy shares at a predetermined, discounted price, at a future date. A bonus is earned on the amount saved over the contracted period.
Save as you earn schemes allow employees to buy shares in participating companies at the current market price, or at a discount of up to 25 per cent - the strike price. To pay for the shares, employees agree to save between IEP10 and IEP250 per month with a certified contractual savings scheme for three, five or seven years. Within six month after the option period, staff can buy shares, with accumulated savings plus bonus, at the strike price or withdraw the money with accrued interest, tax-free. Gain on shares is free of income tax but subject to capital gains tax once sold.
There are now over 70 publicly quoted companies implementing SAYE schemes in Ireland at the present time. While privately owned companies are not prohibited from setting up SAYE schemes, it is undoubtedly more difficult to apportion a share of a company to employees, if it is not publicly trading.
SAYE has a number of benefits for both employer and employee. Employees now have even greater incentive to contribute to and benefit directly from the future success of their employer’s company - all of this in a tax efficient manner. In addition, costs of setting up such as scheme can be deductible for corporation tax purposes. In the US, results of similar schemes in 380 publicly traded companies were measured, showing that those with employee schemes had total shareholder returns averaging 6.9 per cent higher than the return similar for companies without the scheme.
Encouraging ownership of shares by employees has long-term benefits, as opposed to straightforward share options that in many cases are bought and sold straight away. Long term share ownership assists in aligning interests of employees and shareholders, giving employees a share in the enterprise leads to success and greater profitability, inspiring greater commitment, motivation and retention of staff. For employees SAYE schemes provide the opportunity to acquire equity and often at a discounted price, there are tax benefits, and savings are fully protected. Providing adequate information to employees on these benefits is essential and it is important to allow sufficient time to prepare for and launch the scheme internally in the company.
Implementing an SAYE scheme can be quite straightforward. First the company must seek approval from the board of directors, then company shareholders and most crucially the employees. For this scheme to be truly successful, uptake has got to be relatively high.
The board determines the rules of the scheme, which include the objectives, the estimated take up, the number of years savings can be made for, the bonus amount to be provided by an Approved Savings Carrier and the level of discount on the share’s market price.
The discount is an important factor - up to 25 per cent discount on the current market value of the share price is allowed by regulation. Convincing shareholders that this will not dilute shareholder value requires careful marketing, but shouldn’t be difficult for major public companies, as the maximum amount of share capital that can be allocated to a share-save schemes over five years, is a total of 5 per cent.
The board must also determine which staff are eligible to participate, whether determined by level of service or type of contract. To obtain Revenue Approval, the scheme must be open to at least 70 per cent of staff in the company and not just to senior grades.
Once approved by board and shareholders, the promotion of the scheme begins. Presumably the paper to the board has covered the major motivating factors as reasons to introduce the scheme.
US economist Louis Kelso devised similar Schemes as a means for retiring owners to transfer companies to employees - to ensure continuity. Modern SAYE schemes meet the needs of employers in a tight labour market who wish to offer additional incentives that help in the hot competition, heady salary, high taxation and prohibitive BIK environment, when luring people to join their team.
Allow sufficient time to inform employees fully and satisfactorily before take up of the scheme begins. Appoint a champion for SAYE in the company, to handle calls and manage the marketing and administration of the scheme. The following marketing tools are most useful:
• Information workshops
• Management briefings
• Question and answer guides
• Intranet updates
• Internal staff magazines
• E-mail bulletins
• Direct mail to each employee
• Information help desk
• Highlight the company share price
Implementation of a scheme such as SAYEs in a company is another powerful tool in conveying the commitment of a company to it’s employees. It has the dual benefit of increasing employee interest and commitment. In fact, research has shown that employees who become shareholders in a company show significantly greater interest in the elements that affect the share price and subsequently their role in contributing to its future success. In addition, it is important in marketing the scheme to employees to emphasise that this is a savings product, with all the positive enhancements that a long-term savings plan produces - be it for retirement, holidays, family or other lifestyle requirements.
Rachel Killeen is marketing manager of SAYE Schemes at Ulster Bank Financial Markets. |
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| Article appeared in the May 2001 issue.
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