BRITISH AIRWAYS has announced an offer of share awards to its pilots in return for salary cuts. This is a prime example of how share schemes can be used creatively by employers, but it's not just a solution for listed PLCs. Private companies can also get in on the act., writes NORA WARD

Most of us are painfully aware of the recession and its impact. Salaries are down. Taxes are up. Cash strapped businesses have been forced to cut wage costs and employees are struggling to cope. The business environment has changed and companies need to consider new approaches to employee remuneration.

Employee financial involvement has been a part of Irish business for some time. An ESRI/National Centre for Partnership Performance (NCPP) survey conducted in 2003 (and reviewed in 2006) showed that 14 per cent of companies interviewed operated some type of employee profit share, including one in six small companies. However, given the weight of evidence supporting the benefits of profit share – for example a major review of international studies by the Organisation for Economic Co-operation and Development (OECD) found higher productivity levels in every case where profit sharing was introduced – it is perhaps surprising that employee financial involvement is not more widespread.

Profit-sharing and employee share incentives make good business sense at any time, but there are particular reasons why they can provide real solutions in a recession.

Employee share awards can provide employers with a cost effective way of remunerating, incentivising and rewarding their staff. Share awards can be made at minimal cash cost to the employer, but providing a real benefit to the employee. Listed companies typically operate a number of different share schemes for their employees, but share awards don’t have to be confined to PLCs. There are a broad range of schemes to choose from and private companies have even more flexibility than listed companies when it comes to designing their schemes. Share awards can be tailored to meet the bespoke requirements of any business.

The benefits in a recession for an employer operating a share scheme include:

• Share schemes provide an incentive for staff that's designed to deliver increased productivity (awards can even be structured to include performance conditions).
• Share awards align the interests of the employee with those of the business owner.
• Benefits in the form of shares involve minimal cash costs to the employer.
• Costs which are associated with share schemes are generally tax deductible for the employer.
• There is no employers' PRSI payable.

The evidence shows profit-sharing is popular with employees (the ERSI/NCPP survey in 2003/2006 showed that where schemes were available, 73 per cent of employees opted to participate). Benefits for employees in a recession include:

• Receipt of potentially valuable share awards.
• Awards made at the bottom of the market can maximise long term gain and reduce taxation.
• Share awards can be structured tax efficiently for employees.
• Awards can be designed so they are low risk for the employee, eg options.
• In addition to financial rewards, profit-sharing can deliver increased job satisfaction and cohesion in the workforce.

It’s not possible here to set out in detail the pros and cons of any particular share scheme, but it may be of interest to note recent trends show a return to the grant of options.

Employers are also particularly interested in pursuing the tax efficient schemes available, especially in the context of changes to tax legislation and practice.

The recession is upon us, but share schemes can provide a real solution to pay issues for employers and employees alike. If the BA deal goes ahead, pilots will have a real stake in the service they are providing to the public. Hopefully, the deal will ensure there is less turbulence in everyone’s future.

Nora Ward is senior associate with A&L Goodbody