Centre urges chancellor to tear up EMI rules - Z/Yen
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Vol 38 No 5 June 2021
Centre urges chancellor to tear up EMI rules
The Esop Centre is urging chancellor Rishi Sunak From the chairman
to reboot the share options based Enterprise The precipitate exit of Yorkshire Building Society
Management Incentive (EMI) by tearing up its from share scheme administration came as a
archaic and increasingly irrelevant rule book. shock to all, not least the employees involved.
An expert Centre ad hoc committee drew up a list But it comes at a time when the business model of
of major changes it would like to see implemented,
in order to expand access to the tax-advantaged share scheme administration is in need of new
EMI to thousands more gazelle-type smaller UK thinking, given its dependence on the artificiality
companies. of government incentives and their link to times
In a covering note, the Centre warned Mr Sunak when more people were employed in quoted
that unless changes to EMI were implemented companies and when deposits were interest-
shortly, the EU’s growing high-tech gazelle bearing.
company sector, now state-assisted, could easily UK government favour has been displayed in
make up further ground, at the UK’s expense, in financial incentives rather than in nudge theory
the planetary race for technological supremacy. which would be cheaper and more effective. The
The Centre’s main recommendations for change - pensions world has been swifter to adapt to the
in what is already the UK’s most popular tax- new times of the redefined gig economy.
advantaged employee share scheme ever - are: At the same time international companies are
*Remove completely the current £3m limit on the showing less interest in replicating UK
total unrestricted market value at grant date of conditions and more in giving priority to pure
qualifying EMI share options in any one company.
objectives.
The committee said the limit served no real useful
purpose and should be abolished. Occasionally, It will be interesting to see how KKR deals with
extra options were mistakenly awarded, taking its acquisition of John Laing, given it is such an
total outstanding options beyond £3m, leading to advocate of employee financial participation.
the disqualification of everyone else’s EMI options All the major share scheme administrators in the
in that company. In addition, the arbitrary £3m UK are now international in scope and
limit sabotages the desire of some qualifying ownership. The Yorkshire shock can tip the
companies to award EMI options to a wider range balance and help lead to rapid reappraisal of
of employees, not just to five or six high-fliers. the UK's specific needs.
*Increase the qualifying Gross Asset Value (GAV) Malcolm Hurlston CBE
test from £30m to £75m. The Centre pointed out
that the £30m limit had not been changed for
almost 20 years, during which time retail prices were unable to incentivise newer key employees
had risen 66 percent. Hence, even if GAV were with EMI options. “You can imagine a poisonous
raised to £50m, that would only restore the EMI workplace atmosphere developing in companies
qualifying limit to the same level it stood at (in real where some colleagues have benefited hugely from
terms) in 2002. So the committee proposed raising EMI option vestings, whereas newer employees of
the new GAV limit to £75m in order to attract far equal standing and competence are denied them
more growing young companies. Committee because their employer no longer qualifies for EMI
members cited cases in which EMI user companies status,” warned the committee.
had outgrown the GAV limit and who therefore *Remove or replace the Working Time Declaration
1
(WTD) because it involves too much wasteful companies were signed up to the EMI scheme by
data and paperwork. If it must be retained, the April 2019. However, an average of only 3,500 or
declaration need only be required on exercise of so of these companies actually award EMI options
EMI options and should only apply for the first each year, according to HMRC statistics. During
three years after grant. the tax years 2015-19, EMI options were granted
*Remove or replace the 92 day reporting to 117,000 employees, but only 27,000 employees
requirement for new qualifying EMI options. The exercised their options during the same years.
committee said that many small companies who Although the financial rewards of EMI
could not afford professional advice didn’t realise participation are often substantial (around £85,000
that the 92 day reporting requirement was per head from option exercises last year) many
policed rigidly by HMRC, with the result that option holders never get to cash in, either because
many of them lost the tax advantages after their EMI was an Exit Only EMI (e.g. predicating
missing the deadline. Furthermore, such a company sale or change of control) or because
companies did not realise that they had to obtain the option holders had moved on to other jobs, in
a screen shot at the time they made their report, search of fresh motivation. In a few cases, their
because it was impossible to re-enter the HMRC employer’s business had collapsed.
website to get one later. The Centre delivered its paper to the Treasury
*Amend the Disqualifying Event rules for eligible after Mr Sunak issued a Call for Evidence on
employees who leave the company with its whether and how more UK companies should be
blessing. Currently, those leavers who retain their able to access EMI to help them recruit and retain
EMI options risk discovering that all subsequent the talent they need to scale up. Agnes Chauvet, a
rises in value of their options do not qualify for senior policy adviser at HMRC and Alexandra
tax relief. Craig, Head of Enterprise Investment at the
*Introduce a Green Exception for leasing Treasury, asked the Centre to send proposals and
companies who are currently among the activities, urge our members to help shape the future
such as financial services, excluded from EMI expansion of EMI.
qualification. The committee said that leasing Readers can review the Centre’s submission to the
would play an increasing role in carbon Treasury in full on the Centre website at:
reduction in the future. Clothes could be leased www.esopcentre.com/news/
as an alternative to the Buy and Throw Away The chancellor sought evidence-backed views on:
culture. Tier Mobility hire electric scooters, as a *Whether the current scheme is fulfilling its
green transport alternative, were currently policy objectives of helping SMEs recruit and
excluded too. retain employees *Whether companies which are
*Modify the Independence Test for subsidiaries ineligible for the EMI scheme because they have
and private equity backed companies. grown beyond the current qualification limits are
Currently, EMI rules state that a qualifying experiencing structural difficulties when recruiting
company must not be a 51 percent subsidiary of and retaining employees *Whether the
any other company, or under the control of government should expand the EMI scheme to
another company. The committee said: “We support high growth companies and how best to
cannot see any difficulty in principle with do this. *Whether other forms of remuneration
extending tax relief to sub-groups that are could provide similar benefits for retention and
independently on an arm’s length basis.” Current recruitment as EMI for high-growth companies.
rules mean that many venture capital and PE Centre members have long been asking: *How is
backed companies can cease to qualify because it you can use a Company Share Option Plan
the investors may be technically connected. (CSOP) but not an EMI if your business is in
The EMI committee comprised leading advisers: financial services (not to mention market
Damian Carnell, director of Corporate Growth gardening)? It makes no sense for successful
Ltd; David Craddock, founder & director of growing businesses to be carved out from a tax
David Craddock Consultancy Services; Colin efficient, flexible share scheme just because they
Kendon, partner and head of incentives at Bird & work in a particular sector. *In a gig economy, is
Bird and tax barrister and employee share scheme the working time requirement for EMI now
doyen, David Pett of Temple Tax Chambers. It redundant? *Once a business has got too big for
was chaired jointly by Malcolm Hurlston, founder EMI, it will need to go to the “next size up” in
of the Esop Centre and by Alderman Professor terms of share schemes – the CSOP. By this time,
Michael Mainelli, executive chairman of Z/Yen, it’s not unusual for businesses to have obtained
which operates the Centre. external investment and developed a “grown up”
At present, roughly 11,500 UK smaller share structure – only to find out that multiple
2share classes can make using CSOP difficult or disappointing, but like all businesses, to remain
impossible. *Given that EMI and CSOP are both relevant and competitive in today’s market, we
discretionary option schemes, why do the rules must continue to evolve. By withdrawing from the
have to be so different? It’s confusing, limiting, share plans market, we will redirect our focus
and means unnecessary extra costs and towards our core savings business – ensuring we
administration for companies having to move meet our goals of passing back value to our
from one scheme to another as they grow. members and building financial resilience.”
Centre member RM2 Partnership added: “These Although YBS Share Plans is known mainly in the
are valid points that have been asked many times employee equity community for its expertise in
before. The Office of Tax Simplification’s report managing SAYE-Sharesave plans, it administers
into tax advantaged share schemes, produced various Share Incentive Plans (SIPs) and
almost a decade ago, mentioned every one of executive share plans too.
them.” Irish Finance Minister Paschal Donohoe
Some believe that companies with up to 499 announced last October that YBS could continue
employees should qualify for EMI (up from 249 (together with Barclays) administering the SAYE
at present), in order to help UK’s tech start-ups accounts of up to 10,000 employees of Irish
attract top global talent. Given the difficulty of companies post Brexit Transition and this will
matching Silicon Valley stock option based pay, continue until their schemes mature.
widening access to share options could make it YBS director of savings, Tina Hughes, delivered
easier for fast-growing start-ups to attract talent. the sad news to clients: “I am writing to you about
YBS Share Plans deposit taking and
YBS to exit share plans administration administration services provided to you. I want to
Yorkshire Building Society is winding down its let you know that YBS Share Plans will be exiting
substantial employee share plans administration the share plans market. YBS Share Plans has been
division after 41 years in being. a key part of Yorkshire Building Society since
From last week (May 26) YBS Share Plans has 1980 and so our decision has not been taken
not been accepting any new clients, the Society lightly. It means that we will no longer be
announced via a media release which took even accepting new share plans clients. Your YBS
staff by surprise. Share Plans relationship manager will be in
However, existing share plan operations and contact with you to discuss this announcement in
schemes and Sharesave schemes will continue to more detail and share key next steps,” she added.
be managed by YBS Share Plans up until their In the run-up, on May 1, the YBS Share Dealing
maturity. All Sharesave deposits are protected service was taken over by Jarvis Investment
under the Financial Services Compensation Management which previously provided the
Scheme. service on its behalf.
Almost 30 jobs are at stake, although YBS said it
was consulting impacted colleagues based in
Bradford about their futures. YBS Share Plans EVENTS
national sales manager Darren Smith told
newspad: “We are hoping to minimise job losses Pro Bono Economics ceo to address members
by redeploying as many of the impacted Matt Whittaker, ceo of Pro Bono Economics will
colleagues to other roles within the Society.” make a keynote address at our third members’
Staff will focus on supporting clients and helping webclave on Wednesday June 9 2021 at 11:00am.
them transfer their share scheme administration to His talk: “Measuring what we value: looking
alternative providers. beyond GDP to build back better”, will examine
A YBS Share Plans spokesperson added: ‘‘These the true value of the charity sector and the post
proposals have not been influenced by the short- pandemic agenda – which links to worker
term changes in client behaviour that we’ve seen autonomy and issues around share ownership.
as a result of Covid-19. They’re being made in Matt was director of the Resolution Foundation
line with longer-term considerations and trends before taking on the leadership of Pro Bono.
in the way our clients want to do business with us. Earlier in his career he was a star member of the
Balances from our YBS Share Plans business Hurlstons team and on the staff of the House of
have remained static historically and we are now Commons library.
seeing balances decline with this forecast to ‘Webclaves’ are online conclaves: private,
continue. Over the last year Share Plans has invitation-only meetings to bring Centre members
struggled to remain competitive. together to discuss areas of common interest.
“We understand these proposals might be Discussion topics and speakers to be announced.
3Centre webinar circumstances, Eso helped produce fixed and
Esop Sofa: newspad review – Tuesday July 13 at variable returns which, in turn, created more
11:00am. We hope you will join us for our flexible labour costs and so the need for
regular panel discussion when guests, Mike redundancies in a downturn was then less
Cheesley, senior share schemes manager at pressing. Eso helped produce productivity rises in
newspad award winner Reckitt Benckiser, Colin many workplaces too, especially when aided by
Kendon, partner at Bird & Bird and a share co-operative working patterns, said David.
schemes expert from Clifford Chance chew over Furthermore, Eso had the capacity to unite
the pick of issues raised in this and next month’s employees in multinational companies because
editions of newspad. their employee share schemes in different
subsidiary companies were kept as similar as
Webinar report possible. Former UK chancellor Gordon Brown,
Eso and sustainable goals: The role of employee who had introduced both the Share Incentive Plan
share schemes in achieving the UN Sustainable (SIP) and EMI, had made it clear to share scheme
Development Goals was highlighted in a Centre practitioners that he had seen Eso as re-
webinar by David Craddock, the independent distributive of wealth, but not through hand-outs,
share schemes consultant, who explained the role rather through hard work.
of employee share ownership (Eso) in
macroeconomics; its application to any national
economy; its economic credentials; the analogy MOVERS AND SHAKERS
between the company economy and the national
economy; and why Eso recommends itself in On the move
support of the UN Sustainable Development Goals *Almost 1,300 investment funds and sub-funds
in both developed and developing countries. The are administered in Guernsey and the current
particular development goal that this webinar value of funds under management and
addressed was Goal 10: “Reducing inequality administration on the island is £324 bn, revealed
within and among nations,” but other goals Channel Islands based trustee Carey Olsen.
interact, especially Goal 8, which calls for *Oxford-based law firm Hedges Law announced
sustained economic growth worldwide and the that its 40 employees had become part owners of
solutions that Eso schemes offer are integrated in the business through an employee ownership
their impact on a range of sustainable trust. All employees are eligible to become
development goals, said David. A pillar of Eso’s beneficiaries of the trust after six months of
contribution in this arena was the fact that employment, with ten percent of the
participation in employee share schemes organisation’s distributable profits to be shared
encouraged the development of personal equally among all staff. The firm said it intended
responsibility. Research in both the UK and US a further majority shareholding to be sold to the
over the past 40 years had shown that Eso employees in two years’ time. Hedges Law said it
encouraged personal responsibility within was advised on the legal aspects of employee
employee groups. There was a strong case for ownership by law firm Stephens Scown, which is
putting Eso in discussion halls alongside the great employee owned. Nikki Poole, md of Hedges
economic variables, such as employment, interest, Law, said: “The team has been absolutely
price and stock exchange levels. He aimed to incredible and as we powered through the
transpose Eso micro economic thinking within a pandemic, I knew the best way to say thank you
company to the national economy. Eso offered was to take the step to move to employee
itself as a supportive mechanism for company ownership . Employee-owned businesses promote
development and a stable economic environment fairness and economic resilience; things that we
generally. It had been shown that Eso worked best need now more than ever as we recover from the
when it aligned with (say) profit-sharing, working challenges of the pandemic. This will enable
with trust structures, decisions taken by works employees to share both the responsibility and the
councils, pro-active approaches to training and rewards of the business. It will increase employee
performance management. engagement and therefore productivity and
He praised work of the late Harvard economist profitability, and equally importantly, employee
Prof Martin Weitzman, who said that having Eso, ownership is known to increase the happiness of
or a near equivalent like profit or enhanced the company’s clients, as they interact with
revenue sharing, in companies helped them cope employees who are happy in their work by virtue
better with up/down business cycles, in which of being informed, engaged, trusted and well
fluctuating reward levels were inevitable. In these rewarded.”
4Pinsent Masons restores staff salaries There may be a case for a new hybrid employee
Law firm and Centre member Pinsent Masons is ownership model in the UK, bringing together the
restoring the salaries of the 98 percent of staff benefits of direct ownership plans such as SAYE
who opted into its Together Plan, which involved and SIP plans, as well as the benefits of the EOT
reducing pay and hours during the first quarter of model (such as creating organic growth in
2020 in response to the economic slowdown. Lost employee ownership through succession planning)
pay is being reimbursed. Pinsent Masons said an SMF report (A stake in success) on
announced that promotional pay rises, previously employee share schemes in the post-Covid
withheld due to the pandemic, would be back- economy.
dated and that it would increase its allocation for In practice, this could be an ownership model
salary increases, after a pause in the review similar to US Esops in which distributions from an
process last year. In addition, bonus payments Esop are based on vesting, which computes how
will be increased after the firm topped up its much of the stock the employee owns. Before an
bonus pot to £13.7m - double its usual size, in employee’s stock can be 100 percent vested, the
recognition of the hard work and dedication employee must work with the company for a
delivered by staff throughout the crisis. The firm defined number of years. Allowing EOTs to
confirmed the repayment of the government migrate over to the Esop model would help widen
furlough money it received last year, as its the number of individuals with an individual stake
financial position at the end of the financial year in the company that they work for, said the SMF.
in April exceeded expectations. Senior partner Another consideration for policy should be
Richard Foley said it was vital that the firm’s incentivising the creation of employee-owned start
success was shared with everyone who helped -ups in the UK, particularly in productive, high
achieve it. He said: “I’m immensely proud of the growth sectors on the economy. The government
team spirit that colleagues have demonstrated recently expressed an interest in creating a British
throughout such a demanding year. We place Silicon Valley with unicorn start-ups valued at
great value on having a team that is motivated more than $1bn. There was scope for employee
and empowered to deliver their best for each ownership to be part of this drive to create
other and for our clients, even under the most innovative, dynamic start-ups in the UK, including
challenging circumstances and so it is only right encouraging university spin-out companies.
that the business has sought to ensure they get the The report accused Tory, Coalition and Labour
recognition they deserve.” governments of being lukewarm over their
commitment to employee share ownership over
the long term. It claimed that continued
UK CORNER institutional support for Eso had never been
developed in the UK. “If the UK government is
Import US Esop, urges Foundation serious about making a success of employee share
The US Employment Stock Ownership Plan ownership policy, it is going to require necessary
model should be brought to the UK, with advice, training and communication available
employee ownership trusts (EOTs) having an through either creating new bodies with sufficient
option to become Esops, where shares are resources or bolstering those available to
allocated to individual employees rather than held [working in conjunction with] existing non-
in a collective pool. Embracing EOTs and Esops government groups promoting employee
as part of entrepreneur succession planning could ownership,” said the report. Perhaps the last time
help widen employee ownership over time, said government rhetoric had been especially
the Social Market Foundation (SMF). enthusiastic about employee share ownership was
in 1999, when the then-chancellor Gordon Brown
had said: “Share ownership offers employees a
real stake in their company… I want, through
targeted reform, to reward long-term
commitment by employees. I want to encourage
the new enterprise culture of teamwork in which
everyone contributes and everyone benefits from
success.
The SMF warned “Despite the majority of
academic literature pointing to benefits from Eso,
in terms of corporate performance, business
rollout of such plans remains limited. This is
despite the tax-advantaged nature of the SAYE,
5SIP, EMI and CSOP plans. This suggests that rise of the gig economy, outsourcing and the
there is likely to be a pervasive lack of awareness demise of a “job for life” had all served to
of – or scepticism over – the case for developing undermine the appeal of - and access to - share
employee share ownership policies within plans for a significant proportion of the workforce.
businesses. If companies widely understood that With gig economy workers treated as self-
share ownership boosts worker productivity, employed rather than employees of a company,
reduces absenteeism and encourages they were unable to benefit from all-employee
innovation, presumably more companies would share plans. Even for employees, share plans
pursue ownership policies of their own accord. might have become less appealing. With staff
Another issue may be lack of awareness of spending less than five years in a job on average,
benefits among employees. Share plan rollout, the five-year holding period for share plans such
with high participation rates, will be limited if as SIP and some SAYE contracts was likely to be
employees are sceptical of the claims that such of limited appeal for those who thought it unlikely
plans can help them accumulate wealth. Some that they would spend so long in a job. It
workers might be suspicious of a share plan recommended that Gig economy workers should
rollout being linked to concessions elsewhere, be given access to employee share ownership
such as on pay.” schemes.
Barely three percent of employees in small UK Furthermore, all-employee SAYE and SIP plans
companies (up to 50 employees) hold either made a distinction between “good” and “bad”
shares or share options, reported the By contrast, company leavers. Good leavers were those who
11 percent of employees in large companies left because of injury, disability, retirement or
(more than 250 employees) hold either shares or redundancy, whereas bad leavers left voluntarily
share options, said the SMF. or were sacked with good cause. Bad leavers who
It attacked the “harsh” accounting treatment of failed to complete the period of their savings
SAYE-Sharesave, which had deterred some Eso- contract lost their right to exercise SAYE share
friendly companies: “One particular cost issue options, but could keep their accrued savings.
that arose in our discussions with stakeholders Good leavers can exercise their options, to the
was the way share plans are treated for value of their accrued contractual savings and, if
accounting purposes” it said. “Since 2009, they do so within six months of leaving, will not
amendments to accounting standards, under pay tax or NICs. “In our view, it is worth debating
International Financial Reporting Standards 2 whether the current definitions of a good leaver
(IFRS 2), have seen harsh accounting treatment and a bad leaver are the right ones,” said the
of SAYE option plans. Under IFRS 2, companies report. A company may still wish to reward an
have to estimate the value of SAYE options on employee who leaves voluntarily, and indeed may
grant and spread the cost over the period until derive benefits from an amicable departure of an
they vest. Employees may stop making their employee – for example if the ex-employee goes
monthly contributions for a variety of reasons on to recommend the employer to potential
resulting in the SAYE options lapsing. customers. A growing number of companies
“Logic might suggest that if an employee stops recognise the benefits of maintaining an “alumni”
saving under an SAYE savings contract say two network of ex-employees. Given this, and the need
years into a five year option with the result that to broaden the appeal of share ownership, there
the connected share option lapses, the company may be a case for treating those who leave
should be able to write back two-fifths of the voluntarily as “good” leavers, or have a separate
estimated costs that it has taken against profits. status that is neither “good” nor “bad”. Having
However, under ISRS2, the company cannot said that, we note that employee share plans are
reclaim the two-fifths and has to expense the used by some companies as a means of retaining
other three-fifths of the costs immediately, even talent, and such a redefinition may serve to
though no shares will ever be issued. undermine employee incentives to stay with an
“The UK Accounting Standards Board declared employer, it said.
that this accounting treatment was “harsh, if not
penal” in relation to savings related share option Convert Covid loans into employee shares
plans, although these objections were not SMEs who took government Bounce Back Loans
reflected in the final position of the International to save their businesses should be able to convert
Accounting Standards Board.” their loans into employee shares and write off the
The SMF report said that another challenge repayment amounts, said the Federation of Small
facing employee share plans in the 21st Century Businesses (FSB) and the Ownership at Work
was the changing nature of the labour market. The organisation.
6Under the FSB plan, struggling SMEs could pitch. The teams were unable to leave their hotels
convert their Bounce Back loans into shares to be as supporters gathered outside.
held in employee ownership trusts (EOTs), Mr Glazer wrote a letter in response to United fans
leaving bank lenders to call in their state in which he suggested speeding up talks about the
repayment guarantees. club being part-owned by supporters. He plans to
Emergency pandemic debt could be assigned to attend a fans’ forum, which would, in theory,
an EOT in return for the trust getting preference allow supporters to ask him questions directly
shares in the business of the same value, plus an rather than through prepared statements.
option to acquire ten percent of the business when Joel, one of the three Glazer brothers, was reacting
there is a future change of control. Turning Covid to a letter from Manchester United Supporters
debt into shared ownership would move the debt Trust (MUST), which claimed the Glazers had
off the company’s balance sheet, added the FSB. never engaged with it during their 16-year
Nigel Mason, an Ownership at Work fellow, said: ownership and outlined a four-point plan. These
“Replacing unaffordable debt with an employee were to “rebalance the current ownership
ownership stake can protect smaller companies in structure in the favour of supporters and engage
a way which ultimately benefits everyone [with] and promote the government initiated fan-
involved.” led review of football”; immediately appoint
He told The Telegraph that loss of taxpayers’ “independent directors”; apply a “share scheme
cash implied by the loan conversion scheme accessible to all” and “offer no opposition to the
would be more than offset by including in the Glazer shareholding being reduced to a minority
equation the loss the Treasury would suffer, were or being bought altogether; and “commit to full
these SMEs to close, from lost tax revenue and consultation with season-ticket holders on any
increased unemployment benefits. changes, including competitions we play in”.
Although more than 1.5m loans worth £46.5bn Mr Glazer wrote back to MUST: “To highlight
were made using the scheme, the Office for some specific points, as one of the few European
Budget Responsibility estimates that realistically football clubs listed on the public markets, we
only 60 percent of them are certain to be repaid. believe in the principle of fans owning shares in
Martin McTague, vice chairman of FSB, said that the club. We have previously engaged with the
if it were left to the banks to collect the loan Manchester United Supporters’ Trust on fan share
debts, thousands of SMEs would go bust, ownership and we want to continue and accelerate
inflicting severe damage on local working those discussions, together with provisions to
communities: “We’re saying there is another way enhance associated fan consultation. We
– give those who are cash strapped the option to recognise that the government-initiated, fan-led
swap debt for employee equity, which would review of football is a positive opportunity to
protect livelihoods, spur productivity and pave explore new structures for fan engagement and
the way for an SME led recovery as we try to influence. I can assure you that we will willingly
emerge from the deepest recession in modern and openly engage in the review, with the aim of
history.” putting fans at the heart of the game and ensuring
The chancellor has increased the Bounce Back their interests are advanced and protected.”
repayment limit from six to ten years and is However, cynics point out that the five million
allowing borrowers to suspend repayments, or shares co-chairman Avram Glazer sold into the
make interest-only payments, for up to six US market last March were Class A shares, which
months. possess ten times less voting power than the Class
More than 400 UK companies are categorised as B shares which the brothers continue to hold. It is
employee-ownership SME businesses, Class A shares which Man United fans are being
collectively worth c.£23bn, employing almost invited to buy.
200,000 people.
Roadchef’s long-suffering ex Esop participants
are complaining that they’ve received no update
Man United owners back fan share ownership so far this year from the EBT trustee in their
Manchester United’s executive co-chairman Joel struggle to receive their High Court awarded
Glazer said he supported fan share ownership of compensation. “We’ve received no
the UK’s most famous soccer team following the communications whatsoever this year from the
anti-Super League protests that forced the re- trustee, who is supposed to be arranging our
scheduling of United’s Premier League game compensation payments,” one ex-participant in the
against Liverpool. Thousands of fans descended Roadchef motorway services chain Esop told
on Old Trafford, with numbers breaking onto the newspad.
7“We’re getting nowhere, which is totally The share options were already worth £10,000
disheartening - it’s just not right,” added the former each at the end of last year for employees in a
Roadchef employee. showroom, customer service or warehouse.
The trustee, Mr Christopher Winston Smith, last Collectively, management and staff own between
year insisted that he was still talking to HMRC in ten and 15 percent of Made.com’s equity,
an attempt to get most, if not all, of the tax equivalent to up to £150m at current valuation.
liabilities removed from the beneficiaries’ Employees can sell the shares at the same time as
individual compensation pots. He has threatened to other investors in the private equity-backed
take their case to the tax tribunal if HMRC refuses company. Ceo Philippe Chainieux said the three-
to scrap the normal tax charges. year scheme had indicated a future financial
He told the beneficiaries by letter last year that if he transaction, for example the sale which has now
accepted HMRC’s intention to tax the been lined up. Made.com was founded in
compensation pots, then in some cases, their net Shoreditch, east London, by Ning Li and Chloe
payments would be next to nothing. Huge legal and Macintosh, who set up the company by working
case financing charges – some say in excess of £5m directly with designers and manufacturing
- piled up in order to get a successful High Court products only when there were sufficient customer
ruling in their favour in January 2014. orders. Mr Chainieux said: “I have been delighted
The Roadchef Esop was one of the earliest in the by the way in which everyone at Made has pulled
UK. Its definition of the key term ‘beneficiary’ was together as a team during this unprecedented time.
too loose, as a result of which there are around There have been many challenges for the retail
4,000 so-called beneficiaries, mostly subsequent sector this year, but I am proud to say that thanks
Roadchef employees who never even participated in to the structure of our business and the tireless
the Esop and who therefore suffered no financial efforts of our people, we have emerged from the
loss! crisis in a very strong position. The share options
A second mishap was that the amounts of the are a way of saying ‘thank you’ to colleagues for
original share awards to employees apparently their past efforts but also a way to give them a
depended upon several factors, including years of stake in the exciting future we see for our brand,”
service. However, in the UK, employee share he added.
schemes cannot enjoy protection from Income Tax
and NICs unless the shares are offered to all New platform for pre-Exit employee share sales
qualifying employees on equal terms. Allowing employees at high growth private tech
start-ups to sell their shares ahead of a liquidity
event, such as an IPO or a trade sale, is a tricky
Free share awards in vogue thing to get right. The big problem is that any
Games Workshop’s 2,500 employees are each solution needs to oversee three things: buyers,
being given £5000 worth of free shares in the sellers and the management at whatever start-up’s
company under a bonus scheme after it recorded a shares they are hoping to promote, said an article
profit surge during the pandemic. Homebound in the FT supported website Sifted. Getting
tabletop games fans ordered 30 percent more items management’s sign-off to let staff sell their shares
than normal during the lockdown as Nottingham- is particularly tricky — ceos and cfos won’t
based Games Workshop was forced to close bother wasting their time unless they can be
temporarily many of its retail outlets. Nevertheless, shown evidence of significant demand from both
its pre-tax profits in the year to ended May 30 were buyers and sellers. Efforts to solve this puzzle are
set to double to at least £150m, compared to the increasing. Equity crowd-funder Crowdcube has
previous trading year, the company said. Its shares launched Cubex, a secondary market to allow
award to all qualifying employees was in retail investors to buy and sell shares in high-
recognition of their contribution to the impressive growth private firms in Europe, and not just those
results, a spokesman said. who have raised cash through the platform.
*Online furniture retailer Made.com, was expected Crowdcube has done secondary transactions
to push the button in early June on a near-£1bn before (more than £16m worth), notably for
flotation, which will mean a multimillion-pound BrewDog, Revolut and most recently for
pay-day for backer Brent Hoberman, founder of Freetrade, the share trading app. The Freetrade
Lastminute.com. Around 650 rank-and-file staff, sale, managed via the next Cubex marketplace,
who were each handed hundreds of free share could have made six early Crowdcube
options last Xmas, will be major gainers as well. shareholders into millionaires (had they sold up)
All Made.com staff apart from senior management as the start-up’s valuation now stands at £265m.
received the same number of share options which Cubex aims to support secondary sales for
will vest in equal tranches over the next three years. thousands of start-ups. Crowdcube teamed up with
8data platform Crunchbase to display information
about these companies in the Cubex marketplace. Join the Esop Centre
The idea is that investors can study the list and The Centre offers many benefits to members,
express an interest in buying shares and once whose support and professional activities are
enough demand has been registered for a given essential to the development of broad-based
start-up’s shares on Cubex, Crowdcube will employee share ownership plans. Members
approach the company about running a secondary. include listed and private companies, as well
“We recognise that the best way to get professional experts providing share plan
secondaries, and primaries as well, is to get the
services covering accountancy, administration,
company involved and the approach that we’re
taking is to have company-led transactions,” said design, finance, law and trusteeship.
Darren Westlake, Crowdcube’s ceo. What Membership benefits in full:
Crowdcube is hoping to bring to the table is Attend our conferences, half-day training
buyers. But Christian Gabriel, founder and ceo of seminars, breakfast roundtable discussions
share management platform Capdesk, thinks and high table dinners. Members receive
sellers are by far the hotter commodity. Capdesk heavily discounted entry to all paid events
has a secondaries product of its own. The and preferential access to free events.
platform, which at its core allows start-ups to
manage their cap table and shareholder register,
Access an online directory of Esop
offers several ways to run liquidity events at the administrators; consultants; lawyers;
touch of a button. Therefore, they’re always registrars; remuneration advisers;
dealing with “cfo-approved sellers” — which companies and trustees.
Gabriel considers a big advantage in a market Interact with Esop practitioner experts and
overweight buyers. It is having some success. company share plan managers
Capdesk recently ran a £2.7m secondary for a Publicise your achievements to more than
well-known London-based mobility firm. That 1,000 readers of the Centre’s monthly
transaction was staged as an online auction with news publications.
the help of Asset Match, which specialises in
auctioning off secondary shares and debt. Instant access to two monthly publications
In June 2020, the firm partnered with the UK’s with exclusive news, insights, regulatory
other big equity crowd-funder Seedrs to allow its briefs and global Esop updates.
users — which had collectively raised more than Hear the latest legal updates, regulatory
£15bn as of January 2021 — to sell shares via briefs and market trends from expert
Seedrs’ secondary market. Seedrs has, to date, speakers at Esop Centre events, at a
facilitated £25m in secondary share sales, discounted member rate.
including £5.5m in the first three months of 2021 Work with the Esop Centre on working
alone. That amounted to more than 34k secondary groups, joint research or outreach projects
share transactions.
Access organisational and event
sponsorship opportunities.
MORE COMPANIES
*More than 60 percent of voting shareholders in Participate in newspad’s annual employee
Rio Tinto revolted against its decision to award a share ownership awards.
generous pay deal to its former boss who was Discounted access to further training from
ousted over the blowing up of the sacred the Esop Institute.
aboriginal Juukan Gorge caves, in order to Add your voice to an organisation
expand an iron ore mine. The Anglo-Australian encouraging greater uptake of employee
miner claimed that it understood the “sense of ownership within businesses; receive
outrage that people feel” as its remuneration support when seeking legal/policy
report was rejected by well over half of those clarifications from government and meet
voting at its twin agms in London and Perth. Jean
representatives from think tanks, media,
-Sébastien Jacques agreed to step down from Rio
last year after the destruction of the 46,000 years government, industry bodies and non-
old rock shelters last May caused a huge profits by attending Centre events.
backlash. The huge rebellion against the board How to join: contact the Centre at
demonstrated how environmental, social and esop@esopcentre.com or call the team on +44
governance (ESG) issues are now influencing the (0)20 7562 0586.
voting behaviour of both institutional and private
9investors. Rio penalised Jacques by docking
bonuses worth about £2.7m. However, his overall
reward still rose by 20 percent to £7.2m last year,
the highest earnings of his tenure. In addition,
Jacques held onto an LTIP said to be worth
almost £20m and he looks set to collect a further
£1.1m golden goodbye later this year.
As the rejected remuneration report vote was
purely advisory, Rio Tinto, now nicknamed Rio
TNT, went ahead with the payments anyway.
Only if a UK company’s remuneration policy against them. He added: “It is obviously tricky,
report is rejected by the majority of voting because Pascal is both a hero and an anti-hero at
shareholders is it forced to tear up its original the moment.”
executive pay policy and come back with a new Mr Soriot has been paid more than £15m in each
one. However, as Rio Tinto is listed in Australia of the last two years, after overseeing a turnaround
as well as in the UK, if its executive pay packages as he rebuilt AstraZeneca’s drug portfolio. It said
are rejected next year too, then the board could that the pension contributions of Soriot and other
face a shareholder vote to remove them, under executives would be cut to the same level of the
Aussie corporate governance rules. wider workforce, at 11 percent of base pay, under
*Almost 40 percent of AstraZeneca’s voting the new policy. An AZ spokesperson said: “We
shareholders gave the thumbs down to the board’s link the remuneration of our executives to
plan to award its ceo, Pascal Soriot, a big increase successful delivery of our strategy and
in bonuses, as three investor advisory groups shareholder returns. AstraZeneca has delivered a
urged shareholders to vote against the total shareholder return of close to 300 percent
remuneration policy. Pirc, Glass Lewis and over the last eight years, significantly ahead of
Institutional Shareholder Services (ISS) all our global pharmaceutical and FTSE 100 peers.”
flagged concerns over moves to raise the The AZ high command, which will have to
maximum share bonus Soriot can receive under a negotiate with leading shareholders over the ceo’s
long-term plan (LTIP) from 550 percent of his reward package, fears that if Soriot gets very
£1.3m base salary to 650 percent. In addition, AZ, miffed over the situation, he could jump ship.
the Anglo-Swedish pharma giant plans to hoist *BAE Systems saw off an investor revolt over a
Soriot’s maximum annual bonus to 250 percent of 13 percent pay rise and £2m retrospective windfall
salary from 200 percent, depending on for its ceo. Just over three-quarters of its voting
performance targets being hit, raising his shareholders backed the FTSE 100 company’s
potential maximum reward to £18m. The remuneration report at its agm, although 24
shareholder advisory groups had recommended percent voted against it. The pay deal includes a
investors vote against the pay policy at the agm. “golden handcuffs” arrangement to keep Charles
The rebellion by shareholders was even more Woodburn after he was approached about being
significant because almost 75 percent of its the boss of Rio Tinto, the miner. Woodburn’s
shareholders actually voted. Many did not buy the treatment at the hands of BAE shareholders is
argument that, as AstraZeneca’s Covid vaccine being seen as a litmus test for other executive
was helping to save millions of lives worldwide, payouts during the pandemic. BAE, whose
its boss was entitled to an exceptionally high Typhoon fighter jets are the backbone of the RAF,
reward in recognition of his role in the anti-Covid disclosed in its annual report and accounts that it
battle. AstraZeneca has faced criticism over was working on its long-term succession strategy
supply shortages of its Covid vaccine and, in rare covering senior executives, in accordance with the
cases, a potential link to blood clots. It has, UK Corporate Governance Code.
however, pledged to supply the vaccine on a not- *BP launched a £360m share buy-back scheme
for-profit basis during the pandemic and lost after recording better than expected profits via the
money making it in the first quarter of the year. global economic recovery.
Moreover, its vaccine is easier to stock than most *BT ceo Philip Jansen bought more than £2m
of the others and is being used widely in poorer worth of shares in his own company after it
continents, such as Africa, southern Asia and announced a drive to connect 25m UK homes with
Latin America. Neville White, the head of fibre broadband by 2026. He bought 1.25m BT
responsible investment policy at EdenTree shares at £1.63 each. Mr Jansen has so far invested
Investment Management, which holds almost £10m of his own money in BT shares.
AstraZeneca shares, described the proposed *Almost 35 percent of voting shareholders in
bonus increases as “obscene” and he voted Cairn Energy were against a 26 percent pay rise
10for ceo Simon Thompson, who was awarded a $1.5m and did not take part in bonus schemes as
compensation package worth £1.5m, up from his position as Glencore’s second largest
£1.2m in the previous year, thanks to an increased shareholder entitled him to hundreds of millions of
bonus. pounds in dividends. The new pay policy
*Shareholders revolted too over top executive gives Nagle, 46, a base salary of $1.8m plus
reward packages at Cineworld agm. More than bonuses and restricted share awards.
26 percent of recorded votes went against its *Former PM David Cameron has not denied
remuneration policy and more than 25 percent reports that he made several million US dollars by
voted against its remuneration report. An cashing in vested stock options issued by
incentive scheme will allow senior Cineworld Greensill Capital, now in administration with
executives to collect £104m and £208m, 5,000 jobs under threat. Other than telling
depending upon where the share price will stand Treasury committee MPs that his salary at
in three years time. Ceo Mooky Greidinger and Greensill had been ‘generous’ and far higher than
his brother and deputy, Israel, are in line to cash what he had earned as PM, Mr Cameron did not
in up to £65m each. reveal how much he had been paid.
*Caterers Compass group returned £25m of *John Laing Group (JLG) is the latest UK-listed
furlough cash to the government as its revenues company to sink in the flood of US private equity
started to recover from the pandemic. Compass, cash flowing into the British corporate scene.
which improved the quality of its school meals Centre member Kohlberg Kravis Roberts
after criticism, returned all its furlough support (KKR) pounced after stalking John Laing’s share
cash in the six months ended March 31 and has price, which has been trading below its net asset
claimed no more in this new fiscal year. value during the pandemic. JLG is an international
*The new chairman of Credit Suisse (CS), originator, active investor and manager of
Antonio Horta-Osorio, bought £870,000 worth of infrastructure projects, but has just 155 employees
shares in his new employer to demonstrate his worldwide. Its business is focused on major
confidence in being able to improve the fortunes infrastructure projects awarded under
of the troubled banking giant. His purchase governmental public-private partnership (PPP)
represented almost one quarter of his expected programmes across many markets. A takeover
annual compensation at CS, which has ties with approach at 403p a share, a level not once
Greensill, the collapsed finance firm which was achieved during John Laing’s six years on the
advised by ex PM David Cameron. The Swiss stock market, valuing the group at £2bn was an
banking giant was then pummelled by the fall of offer the board could not refuse. JLG directors
the US hedge fund, Achegos. have recommended the offer which is at a 26
*FirstGroup sparked off a row with transport percent premium to the 320p net value of its
unions after announcing that it would resume assets, as reported at the end of last year.
dividend payments, while rail employees are *London Stock Exchange Group (LSE) suffered
being subjected to a two-year pay freeze. an investor rebellion at its remote agm after
FirstGroup is giving shareholders little more than raising its ceo David Schwimmer’s salary by more
a tenth of the 3.3m it got by selling its US than £200,000 after LSE’s £20bn takeover of data
operations recently, while it pays down debt and provider Refinitiv. Almost a quarter of voting
partially fills a hole in its retirement fund. shareholders, including major investors, voted
*Shareholders staged a rebellion at Glencore against the LSE’s remuneration report in protest.
over plans to pay its incoming ceo up to $10.4m a They complained that the significant salary rise
year. More than a quarter of investors who voted could well translate into multiples of that number
at the mining and trading group’s agm rejected its in future bonus payments.
new remuneration policy. Ivan Glasenberg, *The Treasury netted £1.1bn by selling 580m
Glencore’s long-serving ceo, is due to leave in the NatWest shares – five percent of its holding–-at
next two months and will be replaced by Gary 190p each, cutting the taxpayers’ stake in the bank
Nagle. Glasenberg, 64, drew an annual salary of to just under 55 percent.
*Pendragon’s battle with its shareholders
continued after 42 percent of votes cast at its agm
were against its remuneration report for the year
ended December 31. More than 41 percent of
votes were then cast against the re-election of MD
Wright, the director in charge of remuneration
policy, after a major row over the company’s
executive bonus bonanza during the Covid-19
11crisis. However, the car retailer appeared to
indicate that it would once again ignore investor
anger, reported The Times. Leading investors
including Anders Hedin, a 13 percent
shareholder, and City institution Legal & General
had concluded that Pendragon’s payment of a
£413,000 bonus to Bill Berman, chairman and
ceo, taking his reward package to £923,000, was
way too high. Both shareholders said the payout
should have been lower because it was made Tesco’s remuneration committee did not adjust the
during a year in which Berman axed 1,800 profit target to enable an annual bonus payout for
employees and took £52m of taxpayer furlough executives despite the pandemic. The board’s non-
support cash. Mr Berman himself was slapped in executive directors said that after much debate
the face by shareholders – 21 percent of those they had decided not to “apply any discretion”
who voted opposing his re-election as a director. despite the pandemic, which had led to millions of
*The vast army of Royal Mail (RM) employee pounds in additional costs to support safety
shareholders must be pleased to see their measures and staff in stores. Tesco’s decision
employer fight its way back into the FTSE index to hand back business rates support to the
of the top 100 quoted companies after a two-year government and bad debt at the group’s banking
exile. RM’s share price has soared since April last operation hit profits. Neither did the group’s
year when it stood at 124p to just shy of 600p as directors adjust performance measures for the
this issue went to Press. Postal employees hold c. LTIP payouts this year – which applied to former
11.5 percent of the company’s equity – via its fd Alan Stewart, who left in April. He received
Share Incentive Plan and its EBT trustee. only 23 percent of the maximum long-term bonus
*UK private equity firm Cinven said that Centre or £433,000 in cash and shares, taking his total
member Sanne Group, the alternative assets and payout for the year to £1.4m, down from £3.6m a
corporate services business, had rejected its year before. Total directors’ pay almost halved to
£1.35bn buyout offer. Cinven said it was £5.9m from £11.7m a year before in the light of
considering its options and had until June 11 to the bonus miss and a handover to new ceo, Ken
make a firm offer or walk away. Last month, Murphy, and new fd, Imran Nawaz.
Cinven proposed 830p per share to Sanne, which The decision on bonuses came after Tesco
provides out-sourcing services to clients across shareholders delivered a major protest vote against
the Americas, Europe, Middle East, Africa and pay last year with investors representing 67
Asia Pacific. Cinven investments are focussed on percent of Tesco’s equity voting not to back the
business services, financial services, consumer, group’s remuneration report. Shareholders
healthcare, technology and industrial in North objected to a late change in an executive bonus
America and Europe. The buyout firm said its scheme, which handed an additional £1.6m to
proposal allowed eligible Sanne shareholders to Lewis and £900,000 to Stewart. While directors
retain the right to collect the company’s final did not adjust the targets for the two bonus
dividend declared in March. schemes which were due to pay out this year, they
*Former Tesco ceo Dave Lewis cashed more than did adjust targets for long-term bonus schemes
£13m of share options last October after leaving which kicked off in 2019 and 2020. Murphy
the group, as he exercised bonuses awarded received £992,000 for his first five months at the
during his six years at the helm, reported The helm, including £363,000 in compensation for
Guardian. The payments were part of more than income forfeited at his previously employer, the
£30m in total reward for Lewis since he owner of health and beauty retailer Boots.
joined Tesco in 2014, not including up to 1.6m Murphy’s signing-on fee was eclipsed by that for
further share awards, valued at £3.7m, which Nawaz, who received £644,600 in compensation
Lewis will be able to cash in over future years, for loss of stock awards and for “commuter
subject to the group’s performance. He did not support” from his previous job at Tate & Lyle.
receive any payoff when he left the company and Nawaz is lined up to receive further compensation
will not receive a final annual bonus for 2021 as payments in the year ahead on top of his £700,000
the company missed profit targets, according to annual salary.
the group’s annual report. He received £1.6m for Meanwhile, Tesco UK shop floor staff are to
his final seven-month stint at the retailer, down receive a bonus equivalent to two percent of
from £6.3m for the previous year, which was the annual salary in June. The payment comes on top
biggest annual pay award for a Tesco executive in of £130m paid out in bonuses last year,
a decade. comprising ten percent extra on monthly salaries
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