The UK recently unveiled a controversial “share for rights” scheme (plan) that would allow employees to receive tax-exempt company shares in return for giving up common employee rights such as unfair dismissal, the right to request flexible working, redundancy pay and time off to obtain additional job training. Female employees would also be required to give the company at least 16 weeks notice of return to work following maternity leave (rather than the standard 8 weeks). I understand that some employees in the US would simply love to have some of these rights, much less being able to voluntarily give them up for a tax benefit. Think of the employment rights that your employees have. Which of them would they be willing to give up (and for how long) in return for equity in your company, even with a tax benefit?
This proposed scheme has received mostly negative comments from the UK business community. It has been communicated that the purpose of the program is to help relieve the stress on entrepreneurs of dealing with both start-up capital and employee law issues. The initial questions are: 1) Will any company actually roll this out to their employees? 2) Will employees be willing to give up their rights for a stake in the company? The longer-term questions are a bit more interesting.
Let’s start with what happens when people leave. The company can create the right to repurchase the shares at a fair value, but will this actually end up costing more than the rights given away? Do companies want to create a “contractor culture” for their entire company? Can they afford it in cost, alignment, motivation and attraction? It would pit your company’s stock price against another companies’ total compensation and rights package. Imagine the complexities in communication.
How would this sort of program impact other more traditional forms of equity compensation? If your company was already giving up significant chunks of equity through a program like this, would you still feel motivated to offer stock options, restricted stock or an employee stock purchase plan?
Lastly, what is the price of employee rights? The UK scheme would allow the exchange of these rights for a minimum of £2,000 and allow a maximum tax exemption on £50,000 of gain. The value of these shares would, of course, move with the underlying stock price. If the company fails, the employee has neither rights nor compensation.
If a program like this was introduced in the US, what rights should it include and what value would you attach to them? More importantly, would you be, like only 5 of the 209 companies that responded to the UK government when consulted on this scheme, in support of this idea or would you be in the 98% who did not express direct support (or expressed negative opinions)?