Every company should offer their workers a save-as-you-earn scheme. Here’s why
The best way to narrow the wealth gap is by making ordinary workers richer, says David Thornton. Share schemes are one of the best ways of doing that.
I saw a frankly remarkable statistic in the paper last week. Oxfam is claiming that the wealthiest 1% on the planet will soon control more wealth than the remaining 99% put together.
The rich getting richer is one of those trends that's so big it touches on everything. If you visit London, the streets are crawling with Rolls Royces and loud sportscars. The top end property market is going from strength to strength. Capital in the 21st Century, a big boring book about inequality, is a best seller.
In few places is the trend more evident than big companies. Here, bosses seem able to earn vast sums in a short space of time often without creating much in the way of measurable value. At the same time employees' wages have been stagnant.
But what if I told you that companies can reduce this inequality, and simultaneously raise employee engagement, with one simple change?
How lucky BT employees booked a 500% gain
Here's how these schemes work. Employees save a set amount each month for a period of three or five years. When the plan starts the worker is granted an option to acquire shares in his employer at the prevailing market price. If the shares do badly the option is worthless; but at least the cash savings are intact.
On the other hand, when the timing is perfect, the workers can acquire a tidy capital sum. Francis has just overseen the plan BT launched near the bottom of the market in 2009 - this coincided with the lowest ever BT share price, options were granted at just 61p.
All full-time employees were eligible and a whopping 22,000 participated, despite the huge uncertainties over the economy and markets back then.
Those options can now be exercised; and happily the shares have since risen to around the £4 mark. This represents a return of over 500%. But what does that mean for the staff who joined the scheme?
The average worker saved £8,000 over the five years of the plan. This purchased £49,000 worth of shares at the time the scheme matured last year, resulting in a handsome £41,000 profit. Those saving the maximum permitted each month ended up with shares worth £88,000 and a gain of £74,000.
You won't join the 1% but it's a feel-good buzz
Francis described a feel-good buzz about the company. Levels of engagement and interest in the BT's financial performance were raised. I suspect many people's knowledge of finance and the stock market has been improved as a result, which is also a good thing. Equity ownership can be a real wealth builder and save-as-you-earn schemes like BT's are a great way of helping employees on to the ladder.
I struggle to see why any company shouldn't offer a save-as-you-earn scheme to their workers. The profile of these schemes needs be a lot higher and workers need to understand how valuable they can be. They have to be one of the safest and simplest ways that someone can acquire capital through their job without being in a highly paid role.
As investors, we should feel well-disposed to companies that operate schemes like this. A significant degree of employee share ownership is very much a plus point in my book when I'm analysing a stock. It suggests management pays more than lip-service to treating staff well and engaging with them.
One way to narrow the gap without resorting to tax
So will employee share schemes solve the inequality problem? Not on their own, obviously.
But I'm much keener on narrowing the gap by making ordinary workers richer; rather than by slapping extra taxes on the wealthy.
And share schemes are clearly one way of doing just that.