Features

Warning to employees: the value of your employer can fall as well as rise

If we are to make employee share ownership more widely available – as we should – we have to educate workers on how equity markets behave, says Merryn Somerset Webb.

181008-royal-mail

Royal Mail employees are not quite as financially sorted as they thought they would be

© 2017 Bloomberg Finance LP

Last week I wrote about the generally accepted benefits of employee ownership schemes in the wake of Labour's apparent plans to confiscate 10% of all listed companies with more than 250 employees and redistribute any future income from that 10% to workers and to the state.

However, in the same piece I also mentioned the downside of owning shares in your company they can go down. You might think that doesn't matter, but the point is that no one should ever have too many eggs in one basket (this is why we worry when people tell us that property is their pension, by the way).

If the shares in the firm you work for are doing badly, there's a fair chance the company is also doing badly and if that is the case, it might not just be your savings at risk, it might be your job, too.

A nice (or nasty) reminder of this comes from shares in Royal Mail. When the firm listed in 2013 all post workers were awarded 613 shares. Those who signed up for more will now have 913 shares. They could sell them at any time but doing so within five years would have triggered a tax bill. Most waited and the five years are up this week.

The problem (such as it is) is that if they sell now they won't get quite as much cash as they had hoped. At their peak, the shares were worth £5,770. Ten days ago, they were worth £4,480. On Friday, after the company issued a profits warning, they were worth only £3,132.

Experienced investors will shrug there's always risk in owning individual shares and if you can't afford that (financially or emotionally) you shouldn't own individual shares. But most people included in employee ownership schemes aren't experienced investors. Their shares may be the only equity investment they are aware of (most people will also have a pension on the go via auto-enrolment, of course) and they may have little sense that the only way is not up.

Read some of the comments from Royal Mail staff and you will see the problem. We "relied on our free shares to pay for this" says one worker who had been planning a cruise to New York. He wasn't alone. The "collapse", says The Guardian, has forced staff (who will get £895 less than they expected when they signed up to sell their shares) to "cancel holidays and has upended plans for other spending and debt repayments".

The point here is that if we are to extend employee share ownership (the Labour plan doesn't do this, by the way, but the Conservative Party is keen on the idea) we have to combine its rise with some education on how equity markets behave (of the type I bet Northern Rock employees who often took bonuses in shares wish they had had). Without that, the risks of disappointment are too high.

Recommended

The cost of petrol in the UK compared with the rest of the world
UK Economy

The cost of petrol in the UK compared with the rest of the world

The price of petrol in the UK went through the roof last year, but has since settled. We look at how UK petrol price compares with the rest of the wor…
5 Jun 2023
What makes up the price of a litre of petrol?
Budget

What makes up the price of a litre of petrol?

The cost of filling the average car with fuel is falling. Here’s what makes up the price of a litre of petrol.
1 Jun 2023
Will energy prices fall 2023?
Personal finance

Will energy prices fall 2023?

Falls in wholesale energy prices have fed through into a lower energy price cap, but will that continue?
25 May 2023
UK inflation slides to 8.7% - what does it mean for your money?
Economy

UK inflation slides to 8.7% - what does it mean for your money?

Inflation has dropped below 10% for the first time in months, but with food prices at a 45-year high, is this good news and what does it mean for your…
24 May 2023

Most Popular

How much will it cost you to retire early?
Pensions

How much will it cost you to retire early?

The pre-state pension income gap means couples may need an extra £136,000 if they want to retire at 60 – can you afford to retire early?
6 Jun 2023
Best debit and credit cards to use while travelling abroad
Personal finance

Best debit and credit cards to use while travelling abroad

If you’re going on holiday or travel abroad regularly, it’s worth knowing what the best card is to avoid hefty fees. We weigh up the charges and any p…
6 Jun 2023
Best easy access savings accounts – June 2023
Savings

Best easy access savings accounts – June 2023

Rising interest rates have boosted the returns on instant-access savings accounts and we're seeing some of the highest rates seen in years. We look at…
8 Jun 2023