Daniel Monaghan considers economic policy during the pandemic, and makes the case for British businesses to move toward progressive ownership models.
The UK currently occupies a perilous position. With high-levels of coronavirus cases across the country, the nation stands poised to leave the European Union without a deal. The winter lockdown was bleak for both individuals and businesses up and down the country. Many business owners feel the ongoing restrictions could threaten their company’s very existence, while workers worry if they will be in a job after Christmas. Already we have seen the collapse of major retailers, including the Arcadia Group and Debenhams. Decision-makers are in the most unenviable position. Yet in times of great difficulty, we must look beyond convention and aim to approach challenges in new and innovative ways. One such option could be to broaden the use of share payments in the most progressive and revolutionary way in living memory. By compensating employees with shares in lieu of a proportion of salary, businesses could remain viable while employees would attain a greater equity and ownership at work. The long-term result could be a workforce and economy which is more prosperous, productive and fair.
Share payments to employees are not new, in fact they are a consistent staple in modern business. Their use is common in companies ranging from the largest FTSE 100 firms to the smallest new start-ups. Different companies have different reasons for using share payments and stock options as compensation methods to employees, but with all of them they work as additional incentives which increase staff retention. For start-ups, they are used as ways of incentivising highly-talented people to join companies when they are unable to pay them a market rate salary. The promise of a substantial pay-out as a result of equity ownership, through dividends or via initial public offering, is a big enough reward to bring in new staff. In established companies, share schemes help attract and retain executives, by providing share options which can radically increase the overall financial package an employee receives – often far outstripping salary payments in the long-term. The Government also has a long history of promoting these practices, establishing numerous schemes which incentivise the uptake of share-ownership models. Schemes such as Save As You Earn (SAYE) and Share Incentive Plans (SIPs) offer tax breaks to increase employee take-up of share ownership, with a particular view of rewarding long-term retention of equity. The practice of share payment to employees is therefore common, effective and promoted by both employers and Government.
The pandemic presents the opportunity to expand this practice in the most progressive way for generations, encouraging businesses across the UK to pay employees in shares in a greater number than ever before. In particular, the Government could work with trade unions to develop a new payment scheme which would see employees rewarded with equity shares in lieu of a proportion of salary payments. This could act as an alternative or complement to the furlough scheme currently enacted by the Treasury. The concept could provide positive long-term outcomes for all parties involved – the employer, the employee and the state.
By paying employees in shares, companies could save on their salary costs in the short term, remaining more liquid and better able to withstand the impact of the downturn in demand. For employees, they would attain a greater stake at work – more ‘skin in the game’, with a potential for greater financial gains long-term as the economy bounces back and they begin to receive an annual dividend. For the state, the Treasury could reduce its reliance on the furlough scheme, whilst potentially increasing its tax revenue in the long-term as the pool of shareowners is greatly increased. As with the SIPs scheme, employees should be rewarded with tax incentives for holding onto their equity for an extended period. The Government should want to achieve this outcome as the UK currently lags far behind comparative nations in terms of share ownership as a percentage of the population. Despite the extensive privatisation programme of the Thatcher Government, the UK never became a share-holding nation as envisaged by the Prime Minister. Share-ownership on the stock exchange has increasingly been concentrated in the hands of a small minority – contributing to a dramatic increase in inequality since the 1980s. As of 2018, only 13.5% of the British population own any quoted shares according to the Office of National Statistics. This pales in comparison to the United States and Australia, with 37.6% and 31% owning quoted shares respectively.
The Government should aim to spread wealth more broadly, providing prosperity and ownership across the UK. Pluralised ownership models, such as co-operatives and partnerships, have been shown to provide a myriad of benefits for businesses and the economy more broadly. Employee ownership models have been shown to have increased profitability levels, higher staff retention and higher rates of business survival, according to the New Economics Foundation. By moving toward more progressive ownership models, British businesses could improve their chances of bouncing back following the end of the pandemic, with a workforce which has greater job security, increased productivity and greater prosperity.
Daniel Monaghan is a policy and public affairs professional. He is an active Labour & Co-operative Party member, representing both at a local level in South West London. He is a graduate from Warwick University and LSE. He tweets at @dan_m1993.