Ever since employee share plan benefits were revitalised with the arrival of share incentive schemes in 2001 - spectacularly described by HMRC as 'the most tax-advantaged employee share scheme ever introduced into the UK' - employees have been queuing up to take a stake in their company's success. Attracted by the possibility of receiving £3,000 worth of free shares, and the ability to spend 10% of their salary (or £1,500 per year) on additional shares free of income tax and National Insurance, an estimated five million staff now own company shares.
According to the latest Workplace Employment Relations Survey, 20% of workplaces now offer some form of employee share ownership plans - mainly large companies, where 44% offer it, compared with just 5% of SMEs - responsible for some £13 billion worth of turnover.
While personal gain is arguably the greatest motivational factor for buying shares (any increase in value of shares will be free of income tax/NIC liability, and capital gains tax can usually be avoided), Government has long liked to think that staff who own company shares take a direct interest in the performance of their company and work harder to improve its profits (and therefore their dividend).
Surprisingly, though, virtually no research has ever made a strong case for this causal link. Plenty of studies show staff stay longer - logically they have to, in order to sell their shares - but there is an absence of research supporting the idea staff will actually work harder. In fact some commentators believe it is precisely because share ownership is the most tax-advantaged employee share scheme ever introduced, there is no incentive to give any additional discretionary effort at all. It is far too easy to wait and watch the returns come in.
Until now, that is. The results of a two-year study by Computershare with The London School of Economics (LSE) is exclusively published here. It proposes that not only do share-owning employees indeed stay longer, they do in fact work harder as well.
More than 3,000 employees were surveyed - comprising a mix of members and non-members of company share plans. Nearly 1,000 of these were from the UK, while the rest were based in Ireland, Australia, South Africa and America. It found members of share schemes were far more likely to describe their work as 'above average' (44%) compared with non-members (35%).
Alex Bryson, research fellow at the LSE, compiled the data. "We know people tend to rate their own work highly, so we took the difference between how they said they rated themselves and a later question on how they rated co-workers. The difference between share scheme members and non-members rating their level of work was dramatic. We're not entirely saying its causal, but what we are saying is that it is statistically relevant - at 99% in fact - and notwithstanding control variables."
The research also finds share scheme members were less likely to tolerate under-performance by their colleagues. Some 82% of share-scheme members said they would talk to a supervisor or take some form of other direct action if they saw someone not pulling their weight; this compares with just 49% of non- members who would do the same thing. More than one third (34%) of non-members said they would do nothing if they saw a colleague not doing their job properly; when share-owners were asked the same question, the figure was 28%.
Stuart Crosby, CEO of Computershare, says: "The industry has been crying out for robust data that finally lets boards and shareholders know whether the investment made in a share plan is, in fact, worthwhile."
In addition to finding that those who belong to company share schemes stay with companies longer, share plan members also say they take a greater interest in the finances of the company they work for. Nearly half (45%) of share plan members report looking at the financial performance of their organisation on a 'weekly or more often' basis; this is in contrast to 17.5% of non-members.
According to Michael Hurlston, chairman, The Employee Share Ownership Centre, the findings add new weight to anecdotal assumptions that share ownership breeds higher engagement and harder work. "There are very few ways organisations with multiple subdivisions can unite an entire workforce, but share price is one of them," he says. "Our view has been that workers belonging to share schemes tend to work smarter rather than harder, but this research seems to suggest the latter as well.
The prime minister, Gordon Brown, clearly believed in the link, by launching new Share Incentive Plans (SIPs) and Enterprise Management Incentives (EMIs), so now is a good time to be re-examining it, and this research is a positive step in this direction."
But if connecting share ownership with working harder is a large leap, researchers from the LSE attempt to go one stage further. It finds (and makes the link) between those who own shares and demonstrably lower levels of absence. It finds 47% of share-owning staff had taken days off in the past six months, while this rises to 54% for non-members. Surely this is more tenuous?
"There is a 7% difference in absence between share-scheme members and non-members," says Bryson. "Although the statistical confidence figure drops to 90%, this still means, if you sampled 100 different people on 100 separate occasions, you can discount randomness in this link 90% of the time. It also means other factors, such as age, gender, and length of time in the job, can all be discounted. It's still a strong link."
In fact, the research goes a stage further, finding absence rates were significantly lower among those paying the maximum monthly contribution and those with at least 2,000 shares.
Overall some 55% of those polled, who own shares, said they bought them consciously as an investment opportunity. With most people wanting to do whatever they can to protect their investment, it seems only natural they will work better to ensure this happens. Finally, it seems the link between share ownership and hard work is here.
SHARE OWNERSHIP IN NUMBERS
171,000,000 - The figure, in pounds, employees are losing in tax breaks this year by failing to utilise the most tax-efficient employee share schemes, according to professional advice website, unbiased.co.uk
1,000,000 - Estimated number of employees with SIPs
570,000 - The number of employees who took out SAYE options in last year
WHAT OTHER SURVEYS SAY
Most previous research has come from America
- In 2007, the US Employee Ownership Foundation found 72% of companies said creating employee stock ownership plans (ESOPs) had indicated better performance. But 9% said there was no difference and 19% said they had worse performance that year
- The most comprehensive study to date of ESOP performance in private companies was conducted by Joseph R Blasi and Douglas L Kruse, professors at the School of Management and Labour Relations at Rutgers University. The study paired 1,100 ESOP companies with 1,100 comparable non-ESOP companies and followed them for over a decade. It found ESOPs appear to increase sales per employee by about 2.3%-2.4% over what would have been anticipated, without an ESOP
- Research conducted by Hamid Mehran, professor at the Kellogg Graduate School of Management, found the rate of return on capital for ESOP companies was 2.7% higher. It also found 60% of ESOP firms experienced share price increases upon announcement of the ESOP programme, and 82% indicated the ESOP had a positive impact on business results.
