What you should be doing/considering?
- Be careful when granting new executive awards and attempting to compensate for lower stock prices – plan for scenarios and business costs in the event stock markets recover.
- Review your current executive performance targets. Make sure they are achievable in the current climate and do not run the risk of becoming a demotivator.
- Consider communicating with employees about the performance of the share plans and signpost risks and opportunities in the current climate (without giving financial advice, of course).
These are certainly challenging times for share plans as an employee benefit or reward.
Plunging share prices will be a concern for your people, whether they participate in executive awards or all-employee arrangements. (Let’s not forget though that not all companies are suffering on the stock market, and with unprecedented demand for things like hand sanitiser, online grocery shopping services, and home entertainment services, some companies are doing record levels of business.)
Here we’ll take a look at how COVID-19 may be impacting your executive and all-employee plans; both for your business and your people.
Executive awards
The impact may very well depend on where you are in your annual award/vesting cycle.
For any soon-to-be granted awards, you may now be granting many more shares as a result of a lower share price. Beware this could lead to significant costs further down the line when satisfying your exec awards, should the markets recover. How do you hedge the cost of your awards, and should you consider purchasing the shares at grant via your Trustee? If not, consider reducing new awards to protect against significant price increases over the vesting period, should that option be available to you.
Individual performance measures are also a key consideration; they may be out of kilter with the new world we find ourselves in. Awards with unachievable targets could have an adverse impact with regards to incentivising and engaging your key employees. Do you need to revise these performance targets considering current economic climate?
You may also have awards coming up to vest, which may too require some careful handling. With the likely reduction in share price, your plan participants may be more inclined to hold on to their vested shares for now, so consider what vehicles are in place to accommodate this. A corporate sponsored nominee account is an excellent means of supporting share retention post vesting and removes the need for individuals to open personal dealing accounts.
If options were awarded at grant, there is a good chance they may now be underwater, and so companies will need to think carefully about communicating with their employees on this subject.
All-employee plans
Generally speaking, with all-employee plans, your plan participants will already have a shareholding, and so there will be the obvious concerns around the potentially significant reduction in overall value. They may even be down on their investment-to-date, especially where the company doesn’t offer a generous purchase discount or matching ratio or free shares.
With share purchase plans, there is a silver lining opportunity. Shares being purchased now will typically be at a lower price. When markets bounce back the gains on those shares could be significant.
Communication is again a key consideration. This may be real challenge for employees who work in factory environments, who have currently ceased production. Are those companies equipped to communicate with their staff whilst at home, and how will those employees submit their share plan instructions for key events such as an SAYE maturity, or an annual invitation, should an accumulation period structure be in place?