Low-income workers who own shares in the company they work for enjoy a £10,000 “wealth premium”, new analysis shows today.
The Social Market Foundation found that employee share ownership plans can allow workers on low wages to accrue far more in assets than others on similarly low incomes.
Less than 5% of all workers currently benefit from such plans and the cross-party think-tank said ministers should take steps to encourage companies to offer share plans, and to promote their benefits to workers.
Greater employee share ownership could be an important tool for bolstering the financial resilience of UK households and giving workers a stake in the economy after the pandemic, the SMF said. Employee share ownership can also boost firms’ productivity.
Under current tax rules, companies are currently able to offer employees a limited number of shares either free or for purchase well below market prices. Over 14,000 companies in the UK operate some form of tax-advantaged employee share ownership plan, including BT, Tesco, Whitbread, and Greggs.
In a report on employee share ownership, the SMF found that workers who can take advantage of such offers have much more substantial financial assets than people in similar income brackets who do not or cannot take a stake in their employer.
While it might be expected that people who own shares would have greater wealth than those who do not, the SMF found the wealth effect of employee share ownership is clear even between people in similar income groups. That suggests that employee shares give a significant boost to wealth, the report said.
Employee shareholders in the lowest income quartile – the poorest 25% in the UK – have median net financial wealth £10,900 greater than those that are not employee shareholders, the SMF calculated. (See the report
For younger workers on low incomes, the advantages associated with employee share ownership are stark.
Among the poorest half of people aged 25 to 34, typical net financial wealth among those who are not employee shareholders was just £77. But among employee shareholders, wealth stood at £750.
For the poorest half of people aged 35 to 44, wealth was £450 among those who are not employee shareholders. But for those who do own shares in an employing company, wealth was £8,835, a difference of £8,385.
SMF analysis of Bank of England Survey data from 2019 suggests that, among households in the bottom income quartile, the median amount saved each month is just £12. Close to half – 47% – were saving nothing from their income each month. Furthermore, close to a third (31%), had no savings in the bank that they could draw upon in an emergency situation.
Scott Corfe, Research Director at the Social Market Foundation, said:
“Too many people on low incomes struggle to build up savings and wealth that can help them weather tough times and enjoy financial security. This evidence suggests that employee share ownership is associated with much greater wealth and security for people in low-income groups.”
“Companies that offer employee share ownership are giving their workers an opportunity to build up their wealth and financial resilience. That should be encouraged. Politicians who want a fairer, more resilient economy after the pandemic should lead a new drive to expand employee share ownership and give more people a stake.”
“Giving more workers a chance to own a stake in the company they work for would be a good way to build back better after the pandemic.”
Peter Swabey, Executive Director, ProShare, said:
“Our members have been aware of the benefits that participating in share schemes brings to employees for many years. These plans need to keep pace with changing work expectations for the benefits to be more broadly accessed. This is particularly true for younger people who are put off by the length of commitment required to their employer. Government should look again at whether rules set decades ago reflect current employment patterns and take action to prevent ambition being penalised.
“With the increased focus on the role of stakeholders in corporate reporting, this report provides compelling evidence that doing right by their workforce is not only doing right by society but also brings valuable productivity benefits for companies of all sizes.”
The report found several factors are holding back employee share plan participation, recommending a range of interventions to encourage their use.
The barriers to uptake include a lack of awareness of the benefits of ownership, as well as “risk aversion” and the requirement to stay with the same employer for a minimum of five years to realise maximum plan benefits. For employers, the cost of administering share plans and the complex accounting rules for their use can be a deterrent.
To widen participation, the SMF propose that the Government launch a new Employee Ownership Commission to promote share plans and their use. Other changes should include requiring companies to publish more information about employee share plan use, and offering workers who own shares a chance to sit on Employee Advisory Panels with a say on company management.
About the report:
- The SMF report, A stake in success, was sponsored by ProShare, which is part of The Chartered Governance Institute UK & Ireland. The SMF retained full independence of this and all of its research.
- A stake in success is published at 07:00 on Tuesday 04 May at smf.co.uk/publications/a-stake-in-sucess
- A launch event accompanying the report takes place at 10:00 on Tuesday 04 May – further details
- For press enquiries, please contact Linus Pardoe, SMF Impact Officer – firstname.lastname@example.org – 07402 576995