David’s Quarterly Market Insights

David Isaacs - Associate Director and Head of Market Development, Link Group
03 February 2020

Why should you turn employees of an AIM-listed company into shareholders?

What’s the biggest challenge AIM boards face? I think it’s meeting the needs of employees, shareholders and corporate engagement – and the answer might have been staring us in the face all along: all employee share plans.

In this era of economic uncertainty, low interest rates and volatile markets, employee share plans are high on agendas worldwide. France’s president has passed a law for mandatory profit-sharing schemes in firms with 50+ employees. Meanwhile in the US, Democratic hopefuls try to tackle soaring wealth inequality by giving employees a stake in their companies.

So share plans are more relevant than ever

It’s hard to ignore the benefits of share plans. As governance becomes more complex, there’s a focus on stakeholder and employee wellbeing. Share plans support that.

They increase productivity, motivation, engagement, give rewards and improve financial wellbeing for employees who might not have any other savings.

How will you rethink your business’s role in society?

Social norms and expectations are changing, with an emphasis on purpose and social responsibility, including:

  • Community support
  • Climate change
  • Inequality
  • And loss of biodiversity

Now, all stakeholders – including employees, suppliers and customers – are viewed as important, rather than just the company’s shareholders and profits.

Corporate governance now requires boards to take an active approach to engage employees, and companies have to report it to prove it.

It’s logical that share plans could be a go-to engagement tool – but don’t take my word for it

Hard evidence shows the improved performance and profitability that comes with a workforce able to share in its company’s profits. Engaged employees are those fully invested in their firm and its processes, so they are your most valuable asset in finding the right improvements for your business.

Now, two million employees in the UK hold shares or options through a share scheme. Employee share plans are used by 80 per cent of FTSE 100 companies, why isn’t there the same level of use within AIM-listed companies?

Interestingly, broad-based share plans don’t seem to affect low voting statistics at general meetings and with the correct level of employee financial education this could change.

Traditionally, this education covers savings, investing and tax. In order to increase engagement we need to build on this. Employees should be given a clearer understanding of ‘company business’ at general meetings, including how they can exercise their rights and powers as an investor and important stakeholder.

If we really want to see higher engagement and wellbeing at work, we should tackle these topics even earlier by teaching children about savings, debt, employment, and pensions in schools – all things that they will face later in life.

Engaged employees are the goal – and the benefits are clear

In summary, we must embrace the all employee share plans we have, and recognise the opportunities they can give us. The success of our businesses, the happiness of our shareholders and, most importantly, the mental and financial wellbeing of our employees depend on it.