Employee Shareholder Status: an overview

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The employee shareholder scheme has received a lot of coverage over the last month, which I would has something to do with the recent BT success story, with almost 23,000 workers walking away with a combined £1bn fortune last month after a hike in share price – an average of £40,000 for each individual involved in the scheme.

But what exactly is this employee shareholder scheme that thousands of workers are taking up since its launch towards the end of 2013? Essentially it is employers offering share incentives to employees (a minimum of £2000) in return for the surrender of certain employment rights. The last twelve months has witnessed an increase in companies starting to offer this controversial government scheme. To understand why, let’s look at the benefits:

  • Employees’ vested interest in improved performance incentivises increased productivity and entrepreneurialism
  • A focus on improved performance reduces conflict and increases collectivism, entrepreneurship
  • Improved employee responsibility and accountability
  • Reduction in employee turnover

There are obvious benefits to adopting the scheme, yet it has also received a number of criticisms focusing on the mandatory resignation of employee rights, which are surrendered in return for shares. Examples of rights surrendered include

  • Statutory redundancy pay
  • Right to claim unfair dismissal
  • Right to request flexible work
  • Right to request time off for study/training leave

However, employees can claim unfair dismissal based on the following:

  • Discrimination
  • Whistleblowing

Plus they remain entitled to the same health and safety standards as employees not on the scheme, as well as receiving the equivalent entitlement to minimum holiday pay, sick pay, and maternity pay

For employers considering the scheme it is worth noting that before an individual agrees to be an employee shareholder, they must first receive advice from an independent advisor on the terms and effects of the employee shareholder agreement. When this takes place, it is the employer who is required to meet reasonable costs for that advice, whether the individual accepts the position or not.

Looking at the number of complexities inherent in the scheme, it is advised that employers draw up clear employee contracts before implementation takes place. The contract should include details of exactly what rights an employee is giving up and it must provide them with significant information relating to the shares being offered. In addition, contracts should include buy back clauses that will come into effect if the employee was to resign from the company or be dismissed.

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