Share Incentives analysis: How can employee share plans affect the attitude and performance of staff?
What is employee engagement?
Although there is no accepted definition of employee engagement, it is often linked to employees displaying positive attitudes and behaviours in the workplace which, in turn, lead to higher motivation and commitment.
Employee engagement brings clear benefits for businesses and has been repeatedly linked to improved business performance, higher productivity and improved profitability. A 2012 study of employee engagement run by Kenexa (Workplace Trends 2012) found that organisations with high employee engagement outperformed their counterparts with lower engagement levels in several key areas. The study ranked the UK as the lowest of six global economies in terms of employee engagement (the other five being India, Brazil, Germany, China and the US), and indicated that if the UK were to move its engagement levels to the middle of the top quartile, it would be associated with a £25.8bn increase in GDP.
Therefore, employee engagement can lead to a virtuous circle whereby positive attitudes and greater motivation lead to increased productivity and better corporate results, which can then be used to reinforce those positive attitudes.
What is the link between share plans and engagement?
The traditional view of employee share plans is that they contribute to increased productivity in two main ways:
- they assist in the recruitment and retention of the best people (by making it financially beneficial for them to stay); and
- they motivate employees by aligning employee interests with those of management and shareholders – in the case of executive plans, this is commonly achieved through the use of performance measures.
However, research suggests that although share plans may influence employees' attitudes – for example, by making them feel more positive about the business, and more loyal and committed – the impact on employee behaviour (in terms of increased productivity) is less clear. Furthermore, the evidence suggests that only organisations that are majority employee-owned (such as the 'John Lewis' ownership model) show any significant behavioural change as a result of share ownership.
The evidence for behavioural change among organisations with mainstream employee share plans (such as ‘save as you earn’ and ‘share incentive’ plans) is limited.
If employee engagement requires positive attitudes and behaviours, but research suggests that the impact of share plans is broadly limited to attitudinal change, it raises the question of how share plans can affect employee engagement.
How can a company maximise employee engagement through the use of employee share plans?
Although the evidence indicates that share plans on their own may not lead to higher employee engagement, share plans can be used as a catalyst that creates the conditions for engagement.
Research has highlighted four key 'enablers' of engagement, which are common across businesses with highly engaged employees:
- a strong strategic narrative;
- engaging managers;
- employee voice; and
- organisational integrity.
As share plans are closely connected with the performance of the business, companies have the opportunity to maximise the use of these enablers through share plan communications.
For many companies, share plan communications will just involve describing how the plan works and some of the potential benefits that employees may enjoy. However, for companies to make the most effective use of their share plans, the launch of the plan should just be the start of an ongoing conversation with employees. By making the link between reward and business performance, share plans provide the opportunity to discuss business goals and performance in a context that is personal to the employee.
What are the potential benefits for a company of communicating its employee share plans effectively, and what are the downsides if it fails to do so?
Share plans present companies with an excellent opportunity to engage with their employees. Companies will sometimes spend a lot of time and money implementing a share plan. However, without an effective communications strategy that can be a wasted expense. If companies can use their share plans to increase employee engagement, the benefits that may arise include higher levels of retention, innovation and customer service and reduced absenteeism. Engaged employees are more likely to recommend their organisation to others, thus building the 'virtuous circle' of benefits previously mentioned.
In most cases, a poor communications strategy is just an opportunity lost for the business. However, there can also be a damaging effect on employee engagement where employees participate in a share plan and the expected benefits do not materialise (due to a downturn in business performance, for example). An effective communications strategy can reduce this damage by involving employees in ongoing discussions about business performance. In addition, employees will better understand the challenges facing the business and be motivated to support the business in tackling them. In the absence of any ongoing dialogue about business performance, a downturn can actually lead to a vicious circle of lower morale and lower productivity.
What approach do you recommend a company should take when communicating its employee share incentives?
How a company communicates its share plan will differ from one organisation to the next. To be successful, the communication should build on existing channels and protocols to ensure the medium used is appropriate and accessible for the audience. For example, while electronic communications (e.g., intranet, e-mail, text, etc) may be the most effective method for some businesses, in other cases more traditional methods may still be the best way of communicating (e.g., posters, group presentations and hard copy brochures).
The communications approach should also be business-focused and endorsed by management, clearly showing how the plan fits with overall business strategy. This will create the conditions for the ongoing business conversations that are essential for employee engagement.
Once the share plan has been launched, are there further steps that the company should take in order to maximise employee engagement in the future?
The launch of the share plan should be just the beginning of an ongoing conversation with employees relating to both the share plan and the overall business. While the launch communication is important for ensuring that all legal requirements of the plan are fulfilled, the ongoing communication is likely to have a greater impact on the successful achievement of the plan's aims (i.e., improved motivation and engagement).
Although the share plan launch may well be handled by the HR team, who will have the necessary experience and resource for such communication, the responsibility for communications around the share plan going forward should lie with management.
Enabling staff to talk about business performance (using share price as a catalyst), managers can help teams and individuals to see how what they do at work directly links to the bottom line. This direct 'line of sight' between individual, team and business performance is a key output of share plan communication. Team meetings, appraisals and goal setting all provide opportunities for these conversations and a regular communication schedule, for example built around quarterly results, will ensure that the plan is kept 'live'.
An earlier version of this article was first published on Lexis®PSL Share Incentives.