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Colborn’s Corner: A change of culture?


Quentin ColbornSome people may have given a wry smile at the thought of many financial services workers losing their reputedly high bonus payments, with a perception in the media that the ‘fat cats deserved it’. But is this fair? Are we adding to the hysteria? Quentin Colborn examines the issues of bonuses and the much larger issue of share ownership by employees.

If the tabloid headlines and comments were anything to go by, there is little sympathy for what have been portrayed as the overpaid banking executives in our midst. When staff from Lehman Bothers were out of a job with no notice there were few tears shed. Yet while some undoubtedly did receive high bonus payments – some of which may have been justified – there will have been many doing lower level, but still important, roles who receive little or no bonus payments anyway and found themselves out of a job with little or no understanding from others.

I suspect that as we see a transformation within the banking sector, the likes of which has never been seen before, we will see changes that will have a significant impact on our HR strategies.

“As we see a transformation within the banking sector, the likes of which has never been seen before, we will see changes that will have a significant impact on our HR strategies.”

Firstly, there will be a big public emphasis on bonus payments and the type of success and behaviour that they are meant to encourage and reward. I suspect there will, in future, be much more emphasis on long-term results and building sustainable businesses than we have seen in the past.

Secondly, I will be interested to see how the recent events effect employees’ perception of share ownership schemes. The last few years seems to have seen a preponderance of employee share schemes whereby employees either buy shares on a SAYE basis or are gifted shares dependant on the employee remaining with the employer for a period of time.

Overall such schemes have worked well – if you participate in them. Many employees have built up a nice little nest egg providing much needed cash for a holiday or wedding. However with the crash in share values, highlighted by those in the banking sector, these shareholding values will have taken a hammering and the well-regarded nest eggs will have disappeared.

Share ownership schemes

Of course all shareholdings carry the health warning to the effect that values can go up and down – but in reality how many people take notice of them? This is especially true, I suspect, of employee share ownership schemes.

It is of course difficult for employees to divest themselves of shareholding in their own employers. Firstly there may be tax issues in disposing of shares early; secondly, in a few cases, there could be accusations of ‘insider dealing’, while finally there is the matter of perceived loyalty to the business. If a company provides you with your bread and butter, how easy is it to say, “I want out” and sell your holding? Very logical to do, but I suspect never easy.

Remuneration packages have frequently highlighted share schemes as being a positive asset of some companies’ recruitment strategies. Where are they now? How much will share ownership be seen as an attraction to prospective employees?

I know some employers will use the prospect of equity stakes not only to attract good people, but also to justify salaries below the norm. What will become of these now? Will it be that equity schemes take a back seat for a while, only to re-emerge after six or 12 months or are they gone for some significant time? Only time will tell.

What of retention strategies? A popular approach is to assume that tying people in with share schemes will encourage retention in the longer term. Will the changing perception of equity change this, or perhaps linked to the prospective (current?) recession, will retention not be such as issue?

My fear for companies is that when the recession ends those without equity schemes will be at risk of losing good people quickly with nothing put in its place. My prediction is that once the recession is over, people will have short memories and equity participation will be back on the agenda again.

How do you see any changes in perception of equity schemes? Apart from the obvious matters, do you see any impact on employee attitudes resulting from the structural changes that have taken place?

Quentin Colborn is an independent HR consultant based in Essex who works with organisations on strategic and operational HR issues. Quentin can be contacted on 01376 571360 or via [email protected]

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