Employee Share Ownership

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Employee Share Ownership
Attitudes and strategies for change
social research
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Angela SouthwellTNS Social Research

• Specialise in social and government research
• Applied Mathematics (statistics) 12 years in
  research and analysis positions
• Program evaluation
• Policy development
• Communications research (social marketing)
• Areas of interest and speciality
• Labour market, employment workplace research
• Business research (DEWR, FaCS and Office of Small
  Business)

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AgendaEmployee Share Ownership

• Background to study
• Overview key issues (recap)
• Attitudes
• Barriers/benefits
• Strategies for change

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The three stages of research

• a literature review which identified the key
  concepts and issue
• qualitative research
• in-depth interviews with specialist and
  non-specialist advisors, business owners without
  ESO
• case studies of businesses with ESO plans
• quantitative survey which collected data from a
  sample of 1,000 businesses, via telephone
  interviews with human resource managers or the
  owner/operator
• all businesses with five or more employees
• stratification included business size and major
  industry groups
• representative and statistically reliable
  information on the incidence of ESO, reasons for
  take-up and the impact on issues such as staff
  motivation and organisational productivity

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Key issues from the research

• ESO is a complex area
• General awareness of the concept among businesses
  is high
• Lack of depth of understanding of implementation
  issues
• Lack of knowledge also extends to some advisors
• Broad support of the concept of ESO among
  Australian businesses
• Incidence of ESO is low
• Many with plans rate them as being highly
  effective
• Many businesses do not see ESO as relevant for
  them
• Business is challenged by the complexity, costs
  and workplace culture

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ImplicationsCommunication strategy development

• Need for awareness raising
• Concept
• Relevance
• Benefits (counter barriers)
• Tax exemption (other policy levers or
  assistance??)
• Assistance with implementation / complexity
• Role of advisors

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ImplicationsAwareness raising Familiarity

Q How familiar would you say you are with
employee share ownership plans ?
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ImplicationsImplementation Confidence

Q How confident are you that you could implement
a plan in your business today?
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Q When setting up your plan which of the
following professionals assisted you?
ImplicationsRole of advisors
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Implications Role of advisors Ways of finding
out about ESO
Where did you find out about plans for ALL
employees types of schemes?(65 of all
population)
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Communications Strategy
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Conclusions / ImplicationsCommunications
Strategy Development

• Target Audience where to start?
• Take up and awareness universally low
• Use early adopters (testimonials)
• Industry targets?
• Small - medium businesses?
• Messages and content
• It is relevant to you
• Benefits to both business and employees
  (salience)
• Good for reward and recognize performance
• Counter perception of employee resistance (case
  study/anecdotes)
• There is help available when it seems to hard

• DEWR info
• Other businesses
• Advisors
• Tax exemptions
• Other policy levers or incentives???

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Conclusions / Implications Information Channels
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Awareness of Employee Share Ownership
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Awareness and lack of awareness

• Awareness of broad based schemes (share plans
  that are open to all employees) was highest
  among
• Public companies listed overseas (87)
• Companies with over 100 employees (85)
• Companies with annual turnover of over 50
  million (81) and
• Companies with mostly white collar workers (79)
• Lack of familiarity with ESO was reported most
  often among businesses
• in the Health and Community Services industry
  (70)
• in the Transport and Storage industry (73)
• who rated their organisational culture on a range
  of measures as Good (65) or Average (64) but
  not Excellent
• with mostly blue collar workers (60)

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Awareness of ESOAwareness of ways of providing
employees with some ownership or equity in the
business

• AWARE NOT AWARE
• General awareness 91 9
• Option plans awareness 81 19
• Availability of SO plans to ALLemployees
  awareness 65 35
• No need companies to be listed on the stock
  exchange awareness 49 51
• Employees tax exemption awareness 23 77
• Aware of everything listed above 19 81

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Awareness of ESO Industries
TOTAL
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Awareness of ESO
OFFICES OVERSEAS
EMPLOYEE NUMBER
Head office in Australia 31 USA/Canada 43 Europ
e 23 Asia 3
BLUE/WHITE COLLAR
DETAILED OWNERSHIP
TOTAL
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Awareness of ESO
ANNUAL TURNOVER
TOTAL
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Awareness of broad based ESOBusinesses without a
plan

• For businesses without a plan who were aware of
  the concept 70 are aware of ESO that are open to
  ALL employees

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Incidence of Employee Share Ownership
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Incidences of ESO

• The incidence of ESO reported in the survey was
  low, with one in ten businesses (10) having a
  plan. Only 4 of all businesses had a broad
  based plan which was open to at least 75 of
  employees.
• Industries with higher incidences of ESO were
• Manufacturing (22)
• Finance and Insurance (19)
• Communication Services (15)

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Companies most likely and least likely to have an
ESOP
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IncidenceBroad based plans

• For businesses with a plan, 44 are broad based
  (open to more than 75 of employees)

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Details of plansWhat type of equity?
What form of equity does the plan provide?
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Attitudes towards Employee Share Ownership
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Business attitudes

• The main barriers to increased implementation of
  ESO plans related to
• a perception of a lack of relevance of ESO to
  their business
• practical issues regarding legal and tax
  complexities
• employee resistance
• additional legislative/taxation issues were seen
  as significant barriers for business
• limited tax incentives and/or unattractive and
  complicated tax treatments depending on the plan
  type or transfer of ownership (capital gains tax
  issues)
• burdensome corporations law disclosure
  requirements
• annual valuation requirements which can be
  expensive, complex and difficult for unlisted
  companies

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Business attitudes (cont.)

• The research highlighted the key concerns of cost
  and complexity for businesses wanting to
  implement an ESO plan
• The four main negative perceptions emerging from
  the survey were
• businesses without share plans believe that share
  plans are not applicable to their organisation
• employees would prefer other types of benefits,
  do not/would not understand ESO and some could
  not afford to be part of a plan
• set up and maintenance costs are expensive
• legal requirements are too difficult.

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Employee attitudes

• employee resistance was one of the most
  frequently reported concerns for businesses with
  and without ESO plan
• Qualitative research with employees found that
  while in many cases understanding was low,
  perceptions varied even within organisations. The
  views of employees towards ESO plans appeared to
  be driven by a range of factors, including
• the performance of the share price
• the size and age of the company
• the value and type of shares (needs to be
  significant/worthwhile)
• previous experiences (positive and negative) with
  share schemes
• life stage and current financial position
• understanding of share ownership generally and an
  openness to this
• existing employee relations and trust of
  management

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Effectiveness of Employee Share Ownership
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Effectiveness of plansAmong those, who have a
plan
Overall how effective has the share plan been in
delivering on the objectives?
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Effectiveness/rationale of plansLarger gaps
between have a plan and dont have a plan
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Effectiveness/rationale of plansSmaller gaps
between have a plan and dont have a plan
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BarriersLarger gaps between have a plan and
dont have a plan
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BarriersSmaller gaps between have a plan and
dont have a plan
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Openness Behaviour change model
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OpennessBehaviour change
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OpennessBehaviour change
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OpennessBehaviour change framework (qual
research)
type of business
barriers

• Pre-contemplation

• Most smaller businesses

• Awareness
• Understanding
• Salience / relevance

• Businesses at particular life stages (post MA,
  with older owners, retiring)

• Initial set up costs
• Lack of benefits to business
• Management resistance (loss of control etc)

Ready for Trial

• Medium large businesses with some
  infrastructure
• Listed companies

• Practical issues (tax, reg)
• Employee resistance

• Listed companies (top 100)

• Practical issues (tax, costs)
• Ongoing plan management
• Employees exiting plans

Maintenance
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OpennessBehaviour change Type of business
Medium - 20-99 employees 47 Partnerships
(managing/non equity) 53 Blue collar
45 Good culture 48 Do not offer
bonuses 48 Not all / none of employees
eligible for bonuses 47
Pre-contemplation 40
Contemplation 33
Public unlisted 60 3-50M annual turnover
48 Casual/temp less than 75 of staff are
permanent 39 Blue collar or both white/blue
equal 38 Average culture 37
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OpennessBehaviour change Type of business
Ready for Trial 16
White collar 23 Excellent culture
22 Turnover 100K-3M 21
Maintenance 11
Large 100 employees 30 With overseas
offices 32 50 Sites in Australia
39 Public 35 Public listed
overseas 72 Public listed in
Australia 49 Over 50M turnover 32 Offer
Bonuses 14 All employees eligible to
receive bonuses 15 Do not have awards 14
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OpennessPerceptions of Effectiveness
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OpennessBehaviour change Perceived
effectiveness
Increase employee loyalty and retention 7.1 Benef
it to both the business and the
employee 7.1 Assists employees to focus on
company goals 7 Employees are more committed to
the organisation 7 Help transfer ownership to
more employees 6.9 Increase employees wealth
over the long term 6.9 Increase employee
motivation 6.8
Pre-contemplation Mean 6.6
Contemplation Mean 6.1
Benefit to both the business and
employee 6.8 Increase employee
motivation 6.7 Employees are more committed to
the organisation 6.6 Increase loyalty and
retention 6.5 Help transfer ownership 6.5
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Ready for Trial Mean 7.2

• Focus on company goals 7.7
• Increase employee loyalty and retention 7.7
• Good way to reward and recognise good
  performance 7.7
• Increase employee motivation 7.7
• Help transfer ownership to more employees 7.7

Maintenance Mean 7.4
Benefit to both the business and
employee 8.9 Good way to reward and recognise
good performance 8.0 Long term wealth 7.9 Commi
tment to organization 7.8 Help transfer
ownership 7.7 Focus on company
goals 7.7 Increase employee loyalty and
retention 7.7
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OpennessBehaviour change Top 5 Barriers
Share plans are not really applicable to my
organisation 8.3 Some employees would prefer
other types of employee benefits 7.5 We would
not want to offer employees these sort of
benefits 7.3 Some employees would not understand
arrangements 7.2

There are better ways of motivating and
rewarding employees 7 Some employees could not
afford to be part of the scheme 6.9
Pre-contemplation
Contemplation

• Share plans are not really applicable to my
  organisation 7.5
• Some employees would prefer other types of
  employee benefits 7.4
• Mgt would not want employees to have ownership
  /control 7.2
  
• We would not want to offer employees these sort
  of benefits 7
• Some employees would not understand arrangements
  7

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Ready for Trial
Some employees prefer other types of
benefits 6.7 Legislation involved with
implementing a plan is too complex 6.1 There is
not a significant tax advantage to employees
5.7 There are better ways of motivating /
rewarding employees 5.6 Some employees would not
understand arrangements 5.5
Maintenance
Some employees prefer other types of
benefits 6.7 Some employees would not
understand arrangements 6.3 There are better
ways of motivating / rewarding employees 5.1 Share
plans are complex to implement 4.2 Some
employees could not afford to be part of a share
plan 4.1
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Business engagementWhere are they at?
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Strategies for change
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Strategies for change
Ready for Trial
These businesses are already sold on the idea,
they just need help in implementing a plan (i.e.
turning ideas into action). Strategies Assist
and facilitate implementation by addressing the
key areas where things can go wrong in
implementation. Facilitate development of
professional advisor help for all businesses (not
just big end of town), address practical issues
of paperwork and employee communication. Provide
guidelines and real examples of how to easily
implement a plan.
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ConclusionsIncidence and effectiveness of ESOP

• Driver of change / barriers to change
• Awareness
• Attitude or perception of relevance and benefits
  to business
• Employee resistance (perceived or real?)
• Policy and/or systemic issues - complexity of set
  up and management
• Areas for action and consideration
• Review of legislative/cost/other impediments
• Provision of implementation assistance
• Develop a proactive communication strategy

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