THE GOVERNMENT’s PLANS for ‘shares for rights’ scheme is a potentially dangerous move in that it is asking employees to give up their rights in return for shares – inviting them to put all their eggs in one basket.
It means that their salary, shares and pension are all dependent on one source and that if the company fails, employees could lose everything.
There are many unanswered questions around the scheme and how it would work. For example, how would shares be valued and by whom? For unlisted companies the valuation would be very subjective.
There also seems to have been no thought given as to how it could affect a business when raising funds or inviting injections of capital or in a sale or reconstruction. Small shareholdings will create an administrative burden for owner-managed businesses. While for the employee they will need assistance in the tax implications of holding shares and accounting for future dividends and gains or losses.
Surely the whole point of offering employees a stake in the business is to build loyalty and a strong working ethos, an investment that is more than financial. Yet taking away employee rights would damage relationships and, by implication, the business itself. It also seems predicated on business success, yet doesn’t take into account what would happen if the business was struggling and the shares end up worthless.
Ironically this scheme may present an opportunity to those seeking to avoid tax in a climate when the government attempts to tighten up the tax system. The reality is that performance-related bonuses, cash, good internal communication, recognition and job security make much more sense to employees than a vague promise of a share of success tomorrow.
These proposals have been poorly received and not been welcomed by industry, HR professionals or the TUC.
Fiona Hotston Moore is a senior corporate tax partner at Reeves
The Shares for Rights proposals will be considered by the House of Lords on 22 April
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