Up to a million employees could lose out if new accounting rules for share options, about to be unveiled by the International Accounting Standards Board (IASB), have to be adopted by UK companies. So says ProShare, the leading UK organisation that promotes employee share ownership, following a survey of UK finance directors released today.
The ProShare survey obtained the views of nearly 100 public companies on the current proposals being discussed by the IASB. The headline results reveal that:
- Two-thirds (63.2%) of respondents are against these proposals
- The typical estimated reduction in pre-tax profits will be 5%
- If implemented, 42% of respondents say that their company would be unlikely to carry on with their all-employee option schemes as before
- A quarter of companies (25.7%) would stop granting options under their all-employee option schemes (such as Sharesave) and would not use other share plans
ProShare believes that the main casualty will be employees who benefit from the highly successful Sharesave (or SAYE) scheme that has been used for over 20 years. This is the most popular scheme in the UK and there are currently 1,200 Sharesave schemes with a million employees participating in these. Generous payouts under Sharesave schemes have provided a valuable top-up to retirement pensions and savings as well helping people to meet everyday expenses and repay their debts.
An exposure draft of the final rules is expected to be released by the IASB early next month. This will be open to consultation before the EU decides whether to endorse its use for all companies quoted on a stock exchange in the EU. This could come into force as soon as 2004.
Chief Executive of ProShare, Diane Hay, comments, "The IASB thinks all share plans are another form of pay and therefore should be accounted for as such. In reality, however, evidence shows that most companies have a Sharesave or one of the other all-employee schemes because they want to increase employees' feelings of involvement and commitment to the business, not to reward actual services performed. The result is not part of pay and is not seen as such by companies, employees or stakeholders."
"Moreover, as we are seeing with pensions, the result of these proposals seems to be that companies may downgrade or even cancel share option schemes for the workforce because of the hit on the profit and loss account. This just simply isnât fair."
Diane continues, "Both the UK Government and the European Commission want to increase financial participation by employees. The IASB proposals if adopted in their current guise go against this policy. We would strongly urge the IASB to reconsider their position and include an exemption for all-employee schemes such as Sharesave."
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