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Shares for rights: a diamond in disguise?

New law

From 1 September 2013, a new employment status (“employee shareholder“) will become law, allowing employees to surrender certain statutory employment rights in exchange for tax efficient shares of between £2,000 and £50,000 in their employer – hence “Shares for Rights”.

A difficult birth

From the moment the Chancellor of the Exchequer, George Osborne, announced Shares for Rights, the concept has been widely condemned as unworkable – the overwhelming perception is that Shares for Rights will have limited appeal. Various commentators, trade unions and employee representatives have claimed that Shares for Rights will not be attractive to lower paid employees.  The idea of surrendering valuable worker rights in exchange for shares is not seen as a realistic or sensible trade-off between worker protection and employee benefit.

An AESOP fable

There is a saying that a diamond is just a lump of coal that stuck at it and I certainly recall this being the case for something called the All-Employee Share Ownership Plan (AESOP). Don’t recognise the name? AESOP was the original name for the now very successful all-employee share plan, the Share Incentive Plan or SIP. Launched in 2000, everyone complained that it was too complicated and would never catch on – indeed there was almost outright hostility towards it (sound familiar?). Today the SIP has never been more popular amongst companies who want their employees to be eligible for tax efficient shares in their employer.

A fantastic opportunity

For many companies, offering Shares for Rights will not be appropriate, but for small, profitable, fast growing enterprises with dynamic management teams (or at the other end of the spectrum, quoted companies), it is a fantastic opportunity to increase employee commitment and dedication, improve recruitment and retention and fundamentally enhance the overall reward package through a powerful bit of new tax planning.

I predict that Shares for Rights will become more widespread than its critics would have you think. To quote Humphrey Bogart in Casablanca: “maybe not today, maybe not tomorrow but soon….

Nigel Watson, Partner, Head of Employee Benefits

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