Managing Employee Performance and Reward Concepts, Practices, Strategies

In this chapter, we examine employee share ownership as an example of collective long-term incentive. Employees may acquire equity in their company by two distinct means: either by being granted shares in lieu of a cash bonus, or by purchasing the shares over time using their own funds or funds provided by the company. The mechanism through which employees acquire shares has implications for the take up rates of shares, impact on employee behaviours and organisational performance. We examine three main types of plans: (1) share grants, (2) share purchase plans and (3) share option plans.

We begin with an overview of the general nature and extent of employee share ownership in developed countries. Next we consider the potential and possible pitfalls of equity-based rewards for organisations and employees. We review major theoretical perspectives on how share plans might influence employee attitudes and behaviours. We then turn our attention to the nature and incidence of the three main share plan types, as well as considering the strengths and weaknesses of each. Finally, we consider the strategic alignment options for employee share plans.

Overview of employee share ownership

An employee share plan is any type of plan that allows some or all employees to acquire shares in the organisation that employs them. Such plans have a number of key features. First, rewards accrue in the form of share dividends and share price appreciation rather than in the form of a direct cash payment. Second, because share plans measure and reward organisational performance over longer time frames, they are appropriately categorised as long-term incentive (LTI) plans.