Latest statistics for all-employee share plans
ProShare issued its Save-As-You-Earn (SAYE) & Share Incentive Plan (SIP) Report in respect of the 2018 calendar year on 25 June 2019. HMRC published its latest statistics on tax-advantaged share plans for the tax year 2017-18 on 27 June 2019.
This article extracts details from the two data sources about current practice for these two tax-advantaged all-employee share plans. Figures differ between them due to differences in the time periods and samples of companies.
Number of companies operating SAYE
Both sources give three sets of figures about the number of SAYE schemes in place. But both show that about 300 companies actually granted SAYE options during the latest year. (This represents a substantial fall from the more than 1,000 SAYE schemes operated throughout the 1990s.)
Terms of SAYE offers (ProShare)
Although SAYE legislation allows a qualifying period of up to five years, most companies either have no eligibility period at all or only require up to three months of service. They apparently take the view that a commitment to save for three or five years is more relevant than past service.
During the year, 82% of companies offered an option exercise price at the maximum permitted 20% discount.
3-year versus 5-year options
64% of companies offered 3-year options only, with the remainder offering a choice of 3-year and 5-year options. In practice, 86% of options granted during the year were for three years.
Employee participation in SAYE (grants during the year)
The higher number of grants from the ProShare figures suggests that some of these options may not have been tax-advantaged or were granted to overseas employees.
We estimated monthly savings from the HMRC data assuming the same division between 3-year and 5-year options as reported by ProShare.
Number of companies operating SIPs
The figures show that about 80% of the companies awarded Partnership Shares and about two-thirds of these also awarded Matching Shares. Just over a quarter of the SIPs awarded Free Shares.
HMRC figures show that more companies awarded Dividend Shares than other types of award because entitlement to Dividend Shares continued for past awards even if companies made no new offers in the current year.
Terms of SIP offers (ProShare)
The SIP legislation allows an eligibility period of up to 18 months before the award date for Free Shares. This enables companies to make awards only to employees who were employed for a complete financial year. Despite this, more than 60% of companies either have no eligibility period at all or set it at less than 12 months. This suggests that most companies use Free Shares as a future retention tool, as opposed to a profit share which rewards past performance.
ProShare does not report eligibility periods for Partnership Shares. In our experience, as for SAYE, there is usually either no eligibility period or a maximum of three months.
The SIP legislation allows companies to match each Partnership Share (bought with employee contributions) with up to two Matching Shares. The ProShare report shows the following range of market practice.
70% of SIPs with Partnership Shares either offer no Matching Shares at all or a matching ratio of less than 1 for 1.
Employee participation in SIPs
In the above table, the HMRC figures for annual awards of Partnership and Matching Shares have been divided by 10 on the assumption that most (but not all) awards of these types of shares are made monthly. However, the ProShare participation levels suggest that a higher proportion of Partnership Shares are now acquired only once a year and that the HMRC figures should only be divided by, say, 5. (An alternative explanation is that the ProShare figures include some non tax-advantaged awards and those made to overseas employees.)
ProShare reports that 26.5% of companies offering Partnership Shares allow lump sum contributions and 12% operate an accumulation period, instead of monthly purchases. This may suggest a trend towards awards being made less frequently than once a month.
The HMRC figures in £ above for Partnership and Matching Shares represent the average value of shares awarded on each award date (whatever the frequency). Nevertheless, the average Partnership Share award value of £100 is close to ProShare’s average monthly contribution of £99.
For further information please contact Mike Landon.