Many companies offering Sharesave Schemes to their employees are taking IFRS2 in their stride – there have been very few companies choosing to stop offering this all-employee benefit as a result of having to account for Sharesave through their P&L, writes Cathy Browne of Yorkshire Building Society (YBS).
Several of YBS’s Sharesave clients have undertaken detailed analysis of Sharesave participation, and have proven a link between participation in Sharesave and a reduction in labour turnover. Employees have an appetite for this low-risk savings vehicle, and they feel to take such a benefit away would be extremely detrimental to employee morale and motivation, particularly in companies where Executive options are common and equally, if not more, costly. Other clients ask for regular employee feedback on workplace benefits, and Sharesave is often ranked as employees’ second favourite benefit (usually the runner-up to hard-cash items such as staff discount).
Although the share plan industry was initially divided in its reaction to IFRS2, companies have accepted the consequences and are now getting on with the business of complying. YBS has seen a marked increase in requests for information surrounding leavers this year, and has available to clients a report suite to assist with this.
To date, three clients have decided to postpone offering Sharesave this year and have cited the change in accountancy treatment of Sharesave options as their reason. All have implemented a Share Incentive Plan (SIP) as a replacement, however, Sharesave may be re-introduced at some point in the future. Another three clients have said they are considering reducing the 20% discount normally given on the option price to a lower level, although none have said they will dispense with the discount entirely.
One fly in the ointment still remains – IFRIC’s D11 interpretation of changes in contributions to employee share purchase plans. This interpretation imposes a form of double charging when a participant chooses to cancel a Sharesave contract that is underwater and subsequently joins a new contract in a future year with a lower option price. YBS believes (along with many industry practitioners) that the completion of the savings contract is a vesting condition, and therefore a decision by employees to cancel their savings contract is a non-market condition, which should allow the company to ‘true up’ and thus avoid the double charges. YBS has already discussed with the Revenue the possibility of increasing the maximum savings under Sharesave from £250 a month to try and minimise the D11 effect for companies.
One client has suggested they may reduce the frequency of invitations to once every three years to avoid this double accountancy charge. The IASB confirmed in May that companies will have to recognise the whole of the charge at the time of cancellation, which IFRIC has subsequently agreed with and no further guidance is likely.
This article is an extract from the Chiltern, Reward and Consulting Team, which provides you with an update on the latest hot topics:
If you wish to read the above articles please click on the following link which will take you to a PDF of the complete newsletter:
Reward Newsletter (PDF, 201KB)
For more information contact our Business Development team:
Louise Drake
Tel: 01274 263 101
Email: lndrake@ybs.co.uk
Andrea Cunliffe
Tel: 01274 263 109
Email: Amcunliffe@ybs.co.uk
Yorkshire Building Society is one of the largest building societies in the UK. We offer a range of financial products and services including: savings & investment accounts, insurance products, credit cards, loans, mortgages and more.
Get in touch with us:
Yorkshire Building Society is authorised and regulated by the Financial Services Authority (FSA).
