When it comes to investment, the advice is always “Don’t put all your eggs in one basket”. Where does that leave employees in employee owned businesses, when it comes time to decide whether or not they want to participate in the company’s share plan? Surely it’s not wise to invest your spare cash in the same vehicle that provides your income?
I saw this in reality in one company, where, as an Independent Trustee, I participated in the annual discussion about how many shares to make available for employee purchase. Employees are not highly paid, and are not likely to have accrued significant pension pots. Under the HMRC approved Share Incentive Plan, there is scope to make share purchase quite attractive to employees. Shares are offered at the lower of the two share valuations for the year, and are paid for from pre tax salary. The company can offer up to two free shares for every one partnership share purchased. New limits came into force this year which allows the company to offer employees up to £1800 shares (or 10% of salary) for purchase annually. This is quite a lot of money to commit for people on basic hourly rates.
This is a business where all information is shared. The employees know the company’s performance, the strategic plan, the outlook. They can elect employees to the board, and can challenge the management team via a number of routes. As shareholders, they are a particularly well -informed group.
The deciding factor was a contribution to our discussion from an older employee. He didn’t see the value in investing in a pension at this stage in his life, where performance was unlikely to be stellar and any payments would be eaten by charges. He would welcome the opportunity to invest in the company he worked in. He had confidence that the share value would grow and he felt able to impact on that share value. To him, paying into an institutional pension fund seemed like giving his hard-earned money away.
The moral of the story seems to be, if you have several eggs, spread them around several baskets. If you only have one egg, why not invest it in a basket you know well, can influence and have some control over the future?