Tesco is one example of a household-name company with a long-term record of profit-sharing and save-as-you-earn (SAYE) schemes.
More than 100,000 Tesco employees in Britain shared a £38 million sterling (€58.8 million) pay-out at the start of this month. The pay-out was the result of a three-year profit-share scheme that had reached maturity. It was not just a one-off gesture.
This year, Tesco in Britain put shares worth £48 million into a new three-year profit-share scheme that will mature in 2005, while new SAYE schemes have been introduced annually since 1981.
Under the profit-share scheme, Tesco's board of directors allocates a set percentage of profits to the scheme.
This cash amount is expressed as a percentage of each employee's salary and used to buy the equivalent amount of shares for an employee.
The shares are held in trust for the staff for up to three years when they can be cashed in. In the case of the recent Tesco pay-out in Britain, every Tesco worker who had completed two years' service received shares worth just under 4 per cent of their salaries.
When the shares were put in trust in 1999 they were worth £1.88 each and had risen to £2.58 by the time the scheme matured.
British Tesco workers who cash in their shares will be able to do so without paying income tax.
Since the Finance Act 2001, similar schemes in operation in the Republic will also not attract income tax. Any gain on the sale of shares over their allocation value may be liable for capital gains tax at a rate of 20 per cent.
Tesco Ireland does not have a profit-share scheme in operation but it does have an SAYE scheme, giving check-out, storeroom, office and supermarket aisle workers with one year's service the chance to buy shares in the company at a discounted rate.
Under the scheme, Tesco Ireland staff choose to join either a three-year or a five-year savings scheme, putting away anything from €12.70 to €317 a month. The savings are boosted by an income-tax-free cash bonus at the end of the scheme, and the total amount is used to buy Tesco shares at a discount price, which is set at the beginning of the scheme.
With SAYE schemes, the discount share price can be up to 25 per cent lower than the market price of the shares. Savers completing the full term of the five-year scheme will receive a bonus equivalent to six instalments. The bonus stands at two instalments for the three-year scheme.
The first SAYE scheme was introduced in April 2000, so staff who took the three-year savings option will see the plan mature next year. At this time, Tesco workers in the Republic will be given six months to decide whether they want to sell their shares at the prevailing market price, paying only capital gains tax, or hold their shares and receive dividends.
"It's a very flexible method of saving and employees can decide their own pace," says Ms Sara Morris, spokeswoman for Tesco Ireland. "Share prices can go down as well as up, but Tesco's are doing well, so there should be quite a sizeable profit."
Some 6,500 Tesco Ireland staff were eligible to take part in the 2000 scheme, and 40 per cent of these, persuaded by the success of Tesco's performance in the British market, took their employer up on the offer. SAYEs are seen as a risk-free way of promoting employee share ownership, because if the company's shares fail to perform, the employee can opt to take all of their savings plus interest in cash. The length of time the SAYEs take to mature means that, like other forms of employee financial involvement, they encourage savings and loyalty to the company, reducing staff turnover. At the introduction of the initial 2000 scheme, the Tánaiste, Ms Harney, called the scheme a "serious step in the right direction by private industry" and said SAYE schemes would help facilitate a move away from confrontational models of industrial relations.
Tesco Ireland has offered two similar SAYE schemes to staff since this initial scheme.
"The schemes are very much tied into the company's culture of rewarding as many staff as possible. People participate in and feel part of the success of their department and their own store. The schemes make them feel part of the global company, Tesco plc," says Ms Morris.
