Employee share schemes fall flat

Feedback to the Chancellor’s proposal for employees to give up their rights in exchange for shares in the companies they work for shows an overwhelming rejection to the idea.

Despite just five respondents to the plan expressing any form of support for the scheme, George Osborne is expected to press ahead regardless when he makes his Autumn Statement later today.

While the chancellor’s plan was trumpeted with some fanfare at the Tory party conference in Birmingham on 8 October, it has singularly failed to excite employers or their staff. In fact just 209 responses were received to the consultation.

Under the new employment contract, employees will be given between £2,000 and £50,000 of shares, of which any profits would be exempt from capital gains tax. In exchange, they will give up their rights on unfair dismissal, redundancy, and the right to request flexible working or time off for training, and will be required to provide 16 weeks’ notice of a firm date of return from maternity leave, instead of the usual eight.

Owner-employee status will be optional for existing employees, but both established companies and new start-ups would be able to offer only this new type of contract for new recruits. Companies hiring owner-employees will continue to have the option of inserting more generous employment conditions into the employment contract if they want to.

ifs ProShare – the voice of the UK’s employee share ownership industry, said in a statement:

‘These proposals are about labour laws and employment contracts i.e. the offer of a financial incentive in exchange for the waiving of various employment rights from redundancy pay and unfair dismissal rights to the right to request training and flexible working.’

‘It is therefore regrettable that what is essentially a new form of employment contract is being sold as a new employee share scheme. It is not.’

Aside from the five respondents that expressed support, 85 “responded negatively” and a further 87 were lukewarm at best. Nine gave mixed responses. One said the idea of employee owner was good, but that the proposed “implementation is so restrictive as to remove the benefit for anyone except an unscrupulous employer seeking to bend the rules to exploit his workforce”.

The government response also noted that “almost all respondents who identified benefits added there were also costs involved.”

Ed Stacey, head of employment at PwC Legal, said:

‘Removing employment rights, such as unfair dismissal, is not an attractive option for businesses or employees and will not achieve the aim of increasing companies’ appetite for recruitment. The changes to arrangements for returning from maternity leave, request for flexible working and time to train have also been met with a largely negative response.’

‘If you take away people’s unfair dismissal rights there is a real risk that the number of discrimination cases will increase. These will prove far more costly for businesses in the long run.’

Just 11% of respondents said the proposal to remove employment rights would have a positive impact.

More details are available from the BIS website.