Fair share: Can employee equity plans deliver the ‘S’ in ESG?

If the corporate world has taken one thing from the past few years, it’s that business isn’t just about the bottom line. People and planet are now as important as profit – and employee share ownership is one way for firms to embrace their social responsibilities. 

Pressure for companies to demonstrate purpose-led leadership is coming from all angles. How we do business has never mattered more.

Increasingly, consumers are choosing brands based on their environmental and social credentials, while investors are taking a harder line on top-tier remuneration. As a result, more than 90 percent of FTSE 100s have built ESG metrics into executive incentives to link reward with the right behaviours [i].

There’s also a growing sentiment that the benefits of the boardroom should be cascaded to the wider workforce. And so, all-staff equity plans are accelerating up the corporate agenda.

Why now?

The employees who helped firms survive – and thrive – during COVID are now facing another challenge.

Just two years on from the first lockdown, as the cost of living soars and inflation hits a 30-year high, many people are making tough decisions about where their money goes.

Equity plans are a way for business to give back. And this isn’t solely a consideration for large PLCs; offering a share in a company’s future can be part of any corporate strategy.

What are the benefits?

There are several, both for employees and employers. 

In the current climate, giving people a capital investment that might not otherwise be available to them shows a company is being guided by its moral compass. But it’s also about building a better place to work – and that makes business sense.

• A chance to invest: This may be an employee’s opportunity for the kind of capital investment that can provide a buffer in times of hardship. 
• Inclusion: Wealth generation through employee share plans can help boost social inclusion. Greater uptake can also increase gender parity by reversing past trends – traditionally, men were more than twice as likely to be offered shares by their employer [ii].
  
• Financial education: Often, alongside share ownership plans, companies provide financial education, which improves people’s financial literacy and resilience.
• Motivation: Having a stake in a company can create a sense of belonging and encourage brand ambassadors. Staff are aligned to the same goals and know they can play a part in – and gain from – the firm’s future success. They get back if they put in.
• Talent attraction and retention: Everyone’s vying for the best people – and the best people can afford to be picky. Businesses with a strong sense of purpose, that offer staff incentives, will have an advantage.
  
  And research shows that stock ownership makes existing employees work harder and stay longer [iii]. This could cushion the blow caused by the ‘Great Resignation’, as record numbers of people are expected to leave their jobs post-COVID.
• Company performance: If employees are motivated, corporate goals, including environmental and social KPIs, are more likely to be met. It’s now common for executive remuneration to include ESG targets in the design of share plans. Will this trend spread to broader staff plans, particularly where more firms are making free share awards to employees based on overall company performance or underpins? 

What else?

Equity plans can be tailored to a company’s needs and targets, and the ‘S’ can be amplified as firms see fit, such as through generous stock awards. For example, a large financial services provider has launched an initiative to give all its roughly 5,500 employees five per cent of their salary in shares.

And the broader the offering, the bigger the potential impact. One multinational offers shares to all staff across 115 countries, down to its tea-pickers in Kenya. This helps to create sustainable futures for the workforce and the wider community. 

So, can employee equity deliver the social element of ESG? It can certainly help form the foundations of a purpose-driven culture and show investors that firms are listening. 

If it isn’t already a focus in the boardroom, it could be time to start the conversation. 

Find out more

Join us for a webinar on 29 June 2022, where we will be exploring this topic in more detail.

[i] From a Deloitte Academy webinar on ESG and executive incentives (11.5.22).

[ii] Refers to Schroders, as reported in the FT on 21.11.21 - LGIM ends feedback on executive pay after finding it mostly ignored | Financial Times

[iii] Why giving your employees a piece of the pie could boost your business | US small business | The Guardian