Corporate Fat Cats earning enormous sums have been heavily criticised as late, and much of the blame lies in the Boardroom and shareholder reticence to combat the rising salaries of CEOs.
There’s a backlash, thank goodness; it goes against my principles when a CEO of a housebuilding firm earned £47 million in 2017.
One answer is shareholder democracy and empowering the workers to own shares and exercise their rights in the Boardroom and Annual General Meeting. The Labour party, to their credit, have jumped on the bandwagon on this recently but there are already two excellent ways in which workers can buy shares in their firm.
Also known as Save as You Earn (SAYE). Workers choose a term to save their money into the scheme – either 3 or 5 years. They invest between £5 and £500 each month. They also know the price of the shares when they begin saving and its this price, less 20%, that they have the option to buy at the end of their term.
There are two outcomes at the end of the term. The pessimist says they might remain “underwater” and when the time is up, the price of the shares is less than the original price. So there’s no point exercising your right to buy otherwise you’ll be sitting on a loss. You might as well take your money out of the scheme.
The optimist prefers to think that at the end of the term, the share price has risen and can then be bought for much less than the current value. So for example, the cost of your shares less 20% was £5, and at the end of the term, the price has climbed to £10. You’ve accumulated the maximum, i.e. £30,000 and use this to buy the shares at £5 – so you have 6,000 shares, result. The shares are worth on the market £60,000, so you’ve practically doubled your money with no Income Tax or National Insurance charge.
Cash them in, and you could be in for a Capital Gains Tax charge so be careful. You’re better off popping them into a pension scheme, best a SIPP – self-invested pension, or at least an ISA to avoid the CGT.
Share Incentive Plans
Workers can buy shares from their gross salary, before tax is deducted, so very similar to paying into a pension plan with full tax relief. Shares usually have to be held for a minimum of five years before selling; this avoids Income Tax and Capital Gains Tax
Sometimes supermarket gambits are used to enhance the number of share owned. BOGOF – buy one get one free. Some employers give them away for free – up to £3,600 per year.
These schemes allow employees to invest a maximum of £1,500 or 10 per cent of their salary (whichever is lower) a year. However, the advantage of this scheme is that it does shield savers from CGT on any subsequent gain.
There is a final scheme which probably pricked Jeff Fairburn’s ears. The Company Share Option Plan. CSOPs are not available to all employees and are used to tie senior employees into a company. Employers can give up to £30,000 worth of shares, which the employee can buy at the original price after three years of employment. Although with Jeff’s salary and benefits package, £30,000 is mere pocket money.