Are employee share schemes worth it?

immuno

Hi everyone,
I've just been offered a new position and they kept advertising their share scheme. I don't even know which scheme they use, or the terms, but would you typically say they're worth it? I've tried to read about them, but I still don't understand how much people would make, on a typical basis. Obviously it depends on many factors, but still...And do such companies normally offer lower salaries? Also, I assume it will tie me in for at least 3 years?

Thanks!

Linton

Depends on the terms of the scheme. They can be very good, but on the other hand if the company gets into difficulties you could lose some or all of your investment and your job, so dont invest too much.

I know of no reason why such companies should offer lower salaries. Perhaps the reverse, if they care enugh about their employees to set up a good share scheme they could be more likely to pay more in salary as well.

cashbackproblems

I had an amazing one at GE Capital, every share you buy gets matched up to £250 pm. If its a strong company and such a scheme i.e. even a 50% fall in share price which would be unheard of for such a firm but still you are break even, is not bad. Divi reinvestment, growth in value and over a few years you are sitting on a nice pot

AndyT678

Is it a "Save As You Earn" (SAYE) share option plan? They're good and I've had those with 2 different employers.

At the start of the scheme they fix an option price per share then you contribute a set amount from your salary each month for 3 - 5 years. At the end of the scheme you have a choice of whether or not to buy the shares at the option price. If current share price > option price then you take the shares (and sell them immediately IMO), if current share price < option price then you just take your money back.

All you can possibly lose is whatever you could have made on the contributions if you'd done something else instead. It's the only time anybody is ever going to give you a no lose gamble on the stock market.

The first scheme I was in stopped and returned everybody's money after 2 years because the share price had gone from $45 to about $15.

Schemes that I had more recently with a different employer have grown 60% - 100% over 3 years.

It could also be a SIP plan which comes with some risk of losing money. I have no direct experience of those but would do it if I had enough faith in the company.

gingercordial

If the company's a good one and you think you'll stay there for a while, yes they can be worth it.

My company did a one-off scheme recently and I put £50/month into it and because it was an approved HMRC scheme that means it only cost me £29/month as that's what I'd have taken home after tax/NI if I hadn't invested (higher rate taxpayer). We were allowed to do it for five months, and then the company took the pot, matched it themselves, and gave us shares. So I paid 5 x £29 = £145, and received £500 of shares.

That means the share price would have to fall by 70% before they're worth less than what I paid for them. If that happens I have worse problems in terms of still having a job...

In the meantime I've already had my first dividend of £15, so that's also got to be factored in, especially as it is tax-free. Assuming the company is in a position to pay dividends, and understanding this can vary.

I didn't put more in because I want to buy a house in the next couple of years so did not want to tie up too much cash, no matter how good the investment.

It does mean I have to stay with the company for (I think) five years to avoid the tax being charged, but that's OK as I'm not planning to leave. I did get hit by this once before in a company which insisted on you having half your bonus in shares, and I left and had to sell half of them to pay the tax. But I still have the rest and they still pay me dividends.

PeacefulWaters

I've made significant sums out of the schemes over 20 years.

Just don't hold on to a shedload of single company shares when they're freed up to you.

Anonymous101

As other have said it very much depends on the scheme.

My company offers a 3 year saving scheme through YBS that at the end of the 3 year term allows you to buy at an option price of 20% discount on the share price the day before the start of the 3 year term. If you decide not to purchase you receive your savings back in full.
The risk therefore is the potential loss of growth on the investment you could have earned within the 3 years.

Novice_investor101

I'm in my company's share matching scheme. The shares are worth about £5 each & for every one share I buy I get two free. I have to be in it for 3 years before I can sell the free shares (& pay tax/ni) or after 5 years I can sell them all & keep the full sale value. I intend to keep paying in £25 from my gross pay (£75 once matched) permanently. Then in 5 years time I'll have a nice share pot to sell off every year to pay for a holiday etc. If the share price has risen, then even better.

However, I do know a lady who has worked for tesco all her life & bought shares as well as getting free staff ones. The value of tesco shares has halved in the last 5 years...

GazHol

My employer had three schemes, unfortunately the ShareSave one closed two years ago (an indication that it was good value to the employee but not the employer). After five years of post-tax saving, you got the shares at the price fixed at the beginning, or your savings plus tax free interest. In 27 years I only took the cash twice. In the early days the shares were discounted by 20%, and ended up trippling in value over five years.

ShareBuy is good value as it is via salary sacrifice, however you take the risk as you own the shares from day one. As they are tax and NI free, you have to keep them in the scheme for five years before you can take them out without paying the tax & NI. You also get dividend shares, these have to be kept for three years to be tax free on withdrawal.

Shares is the new scheme and is post-tax/NI, matching at one "free" for every three that you purchase. However, at the three year anniversary when the shares become yours, the tax & NI for the "free" and dividend shares gets deducted from your pay packet. So be aware that matching shares are not always free.

I saved the max in ShareSave and still put the max into ShareBuy. As they mature, I transfer them directly into my ISA to avoid any taxes (which can be done with the maturity certificate as proof).

ricky_v

I pay £150/month (the maxinum) into my employer's scheme. It's salary sacrefice so tax and NI saving (32% in my case as I pay basic rate of tax, so basically a 32% discount on the shares), it will be a larger discount for folk on higher tax rates.

My employer is an large and established pharmaceutical company so unlikely to go kaput (although the share price does go up and down as with the rest), plus it currently pays a dividend of about 5%. The shares have to be kept for 5 years otherwise you'll have to pay the tax and NI and you have to sell them if you leave. In the case of voluntary/compulsory redundancy there's no tax/NI due at all.

It's not as good as schemes other posters are/have been in (my scheme is literally buy shares at maket value via salary sacrefice and that's it, no buy 1 share get 1 free, etc) but personally I think it's worth it for the tax/NI saving.

And do such companies normally offer lower salaries

I don't think so, I think the pay (around £23k/yr) is very good where I work, my line of work is mostly from min wage to £20k/yr. Employers offer these schemes as I guess there's an NI saving for them, the employee is less likely to leave if they're going to be presented with a tax bill of many thousands and the employee *might* work harder as they've invested their cash with their employer and effectively part own the company.

Here's a link to several different type of share schemes, your employer will offer one of them

https://www.gov.uk/tax-employee-share-schemes/overview

george4064

In short, YES. Get involved.