Employee 'share-save' scheme: a good idea????

tempuscat · 7 May 2005 at 11:20AM

Any help from experienced posters would be much appreciated, as follows:

Our son (21 years old) works for Staples UK. His salary is in line with the rest of that employment sector -- i.e., not especially high (slightly above the minimum wage). He enjoys working there, however, and has no immediate plans to leave.

He has just received an invitation to join the company's ShareSave scheme, under which participants elect to save between £5 and £250 a month for three years from June 2005. At the end of the period, Staples will add a tax-free bonus equal to 1.9 times one month's contribution. (For example, if he saved £50 a month for three years, he would save £1,800, to which the company would add £95, equal to £50 x 1.9).

His invitation letter is slightly confusing in that it says that at the end of the three-year term he will have the option to use his savings+bonus to buy Staples Inc shares at 15% discount of the then market rate. However. . . the letter also says 'we are pleased to confirm that the employee option price to buy the shares in three years' time has been set at US $ 16.29' -- which makes me wonder if the company is being psychic???

He can't afford, on his income, to save more than £10 a month on this scheme, so would have £360 plus 1.9 x £10 = £19 = £379 total at the end of three years. On the face of it, he would then be able to buy the dollar equivalent of £379'sworth of Staples Inc shares at $16.29.

He has asked for our advice but, candidly, we're a bit lost here. This is not because of our own inability to predict what the share price will be in three years' time, but what the £GBP - US $ exchange rate might be -- if it's the same as now, then fair enough, but if the $ strengthens against the £, then that would surely impact adversely on the outcome?

We've always thought that employee sharesave schemes were a great idea in principle, but with this one, we're at a loss to know what to advise. Our question, then, to any 'old hands' here is:

If this was a member of your family, what would you advise?

Participate in the sharesave scheme and save £379 over three years with an option to buy that may, or may not, be affected by international exchange rates?

Or save the same monthly amount through a UK building society???

Any advice would be greatly appreciated. Many thanks!

Al_Mac · 7 May 2005 at 11:48AM

The company effectively buy the shares now and offer them at 10% off, but you pay for them over the next three years. I think the money is taken from gross pay, saving on tax and national insurance. The best bit is if the shares have gone down, he can just have his money back, plus the bonus.

So generally a win situation, so long as he can afford it.
:beer:

tempuscat · 7 May 2005 at 12:17PM

Al: Many thanks for the fast response from just to the left of Mars -- much appreciated. Could I add a supplementary, then, given your view of this scheme, viz:

Would it be sensible, in a situation such as this, for him to stop saving into his building account scheme and instead switch his investment into this particular sharesave programme?

Point being, if you reckon this is "generally a win situation", then perhaps it would be prudent to commit as much as can be afforded to it, which in our son's case would be £50 a month, giving him a total investment of £1,895 (including tax free bonus) at the end of the three year term. . .??

tempuscat · 7 May 2005 at 12:21PM

Whoops. . . just noticed the following in the scheme's terms:

'Your chosen savings amount will be deducted from your net salary each month'.

So no, it's not from the gross.

dunstonh · 7 May 2005 at 3:38PM

These schemes are win/win. I made an absolute packet in the late 80s, early 90s when i had one available to me. Even if the share price goes wrong, there is the bonus available as mentioned above.

Contriubtion should be as much as affordable. However, the term of the savings should be considered. At age 21, there is the future potential for house purchase etc and if your son puts too much in at the start, it may prevent or hold back future goals.

The ideal solution is to do a bit each year and then when they "mature", you get a maturity a year.

These schemes are inland revenue approved and most of the big UK companies run them. So there is no concern there.

tempuscat · 7 May 2005 at 3:46PM

Thanks dunston -- well, guess we'd better encourage our son to go down that route then (you're right about the house purchase thing though: guess it ought to be a separate thread, but I'm horrified at the way the so-called booming 'Brown' economy has led to an average UK house price now way, way beyond that which can be afforded by our son. Trouble in store surely, somewhere along the line??)

Jay-Jay_4 · 7 May 2005 at 3:55PM

I always did share saves at my last employers and found them a great way to save.

I stuck £20 a month into the scheme, enough to build up a nice pot of savings but not too much that I ever noticed the money.

At the end of the three years you get the money or the share certificates. I chose the share certificates which I still have. They're my own little pot of savings but the thing with shares is that you can't just 'dip in' to your savings and fritter them away as you need to pay a fee to sell them, great for me.

You have a PM

david78 · 7 May 2005 at 4:52PM

He must do this if he can afford it. They are brilliant schemes. Staples' share price should do well over next 3 years too.

tempuscat · 8 May 2005 at 2:50PM

Thanks Jay-Jay -- and for the pm, too!

tempuscat · 8 May 2005 at 2:52PM

David -- many thanks for the encouragement! I guess that's decided it now, though without all the helpful advice offered here I doubt we'd have been able to figure this one out for ourselves.

(Hope you're right about Staples share price, too!)

Twopints · 9 May 2005 at 11:46AM

I agree with the previous posts that these are usually win/win.

The OP states that the shares will be offered at a discount to the price in 3 years time, but also states a fixed price (except for exchange rates). Normally these schemes offer a discount to the market price at the time that the certificates are issued i.e. when you join the scheme. So in 3 years time you will be able to buy the shares at today's price. If they have gone up you can take the option to buy the shares, if not, take the cash.

Employee 'share-save' scheme: a good idea????

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