Employee share ownership has a mantra for the 1990s. The message goes: if you want to increase shareholder value then you’ve got to link the interests of not only senior executives to stock value, but all employees. ‘We strongly believe that true and sustainable success for Aventis can only be achieved through motivated and skilled people who are committed to delivering excellent results. Therefore, we wish to associate all employees more tightly to the potential value increase of our group,’ commented Aventis chairman Jurgen Dormann on the launch of the company’s new stock purchase program last year.
The Aventis plan, under which employees are entitled to buy the company’s shares at a 15 percent discount up to a limit of a quarter of their annual gross salary, is open to about 95 percent of the company’s 95,000 or so employees. In return, employees are required to hold these shares until April 2005. So far, the scheme has been taken up by about 30,000 employees in 50 countries around the world.
Other companies have similar programs in place. Deutsche Bank, for example, invites every employee (who has been with the company for at least a year) to buy 60 shares at a discount paid for by the company. What’s more, if the employee holds onto them for five years or more, they come tax-free. Last year a new feature was added to the scheme whereby for every share bought, an option was given away free. ‘We firmly believe that creating an employee investor base will help increase shareholder value. The idea is to harmonize the interests of employees and shareholders as much as possible and then everyone’s a winner when the company performs well,’ explains Wolfgang Schnorr, Deutsche Bank’s deputy head of investor relations.
Apathy and disinterest
But does the introduction of shareholder schemes for employees really make them behave differently? Derek Scott, company secretary of UK bus and rail company Stagecoach, says they have been over-hyped. Stagecoach has been giving employees shares since the 1980s. Then, when the company was floated in 1993, it started a profit share scheme whereby each year 3 percent of the company’s profits were used to buy shares which were then given away free to employees. And in 1996, the company introduced a save-as-you-earn scheme, with Stagecoach agreeing to match each employee’s contributions to a share scheme. ‘These plans have been around for years so I think we’ve had time to see whether they affect people’s behavior or not,’ comments Scott. And his answer is a disappointed no. ‘We’ve had a very low take-up. In terms of the voluntary schemes, around 20 percent tend to take the opportunity and 80 percent don’t. And those who do buy shares are in the main pretty apathetic.’
Scott continues: ‘In the early 1990s we were convinced that the introduction of such schemes would bring about a radical change in the nature of employee-management communications and in the way employees felt about the company. We were wrong on both counts.’ Very few employee shareholders attend the company’s annual meetings or vote by proxy and those who do are unlikely to ask challenging questions of management. ‘The challenge always comes from the institutions.’ says Scott. ‘Individuals, employees or otherwise, they just don’t seem particularly interested.’ Indeed, Scott says that employee shareholders behave much like other individual shareholders. ‘I’m not sure whether it’s apathy or fear of not understanding the issues, but individuals just don’t seem to be very interested in what’s happening to their stock.’
Unusually for a UK company, Stagecoach has a European Works Council which, Scott says, should be an ideal forum for discussing shareholder issues with management. The council is made up of five management trustees and ten employee trustees. But on the contrary, explains Scott, it has not been a great success. ‘The discussions that go on are pretty sterile and I don’t think it’s done anything to make employees feel particularly empowered. They’ve got to understand, though, that if they don’t use the power they do have, it’s no good to them,’ he comments ruefully.
Currently Stagecoach has a dedicated telephone number for employee shareholders, answering queries about their holdings. There is also a bi-monthly newsletter for employees that has a section on the company’s stock and how it’s faring. In general, however, Scott says the company has been reluctant to spend money on IR initiatives that cater specifically for employee shareholders because of the apathy. ‘We’re talking about introducing electronic communications as a tool for reaching out to employees as we do get some e-mail queries and so forth but to be completely honest I’m not sure if there is enough demand to justify developing more sophisticated services.’
Small fry
Employee shareholder apathy is obviously not the only issue. The size of staff holdings also plays a large part in determining the degree of IR resources put aside to cater to them. Indeed, even at companies with substantial employee shareholder bases, the proportion of stock they own is tiny in comparison to institutional holdings.
Take UK supermarket giant Tesco, for example. Although over 80,000 employees belong to the company’s various share-saving schemes, they own just 3 percent of the stock compared to 89 percent owned by institutions. At Deutsche Bank which, according to deputy head of investor relations Wolfgang Schnorr, has had a clear policy over the last 15 months to increase the share of stock owned by employees, the figure currently also stands at 3 percent. Consequently, says Schnorr, the company has not ‘discovered’ employees as a special target group. ‘If you have limited resources – time and money – you’ve got to make a decision as to how and where to use them. For us, the decision will usually come down on the side of foreign institutional shareholders.’ Schnorr continues: ‘Employees are very close to us, they have a great deal of internal information available, the best information resources they could have.
And there’s the simple fact that they own only 3 percent of the stock. They certainly get more than 3 percent of our IR time.’
IR or PR?
Alan Cathcart, senior VP of IR at Philips, agrees that employee shareholders are not an investor relations priority. ‘One has to recognize that there are individual shareholders out there but very few IR departments are set up to deal with them. Employee shareholders are a subset of individual shareholders and a very inactive one at that.’ Cathcart says that his department is unable to do anything extra to address employees as a specific segment of the shareholder base. ‘If you’re looking for bang for your buck you’re not going to get it spending your time dealing with employee shareholders. The only way I can address them and stay within my budget is to communicate via our web site. I try and make the widest possible information available to them but that’s as far as it goes.’
Indeed, Cathcart bemoans the fact that employee shareholders come under the IR remit at all. ‘You can try and sweep everything into IR. I had a request the other day from a broker trying to get children to invest and he wanted me to organize a day to tell them about the company. When you’ve got a department of three or four people you don’t have the luxury to spend your time carrying out such requests and if you did you wouldn’t be fulfilling the company’s remit to enhance shareholder value. Somewhere you’ve got to draw the line between IR and PR and human resources and internal communications and whatever else.’
For some companies, individual shareholders – with employees as a significant subset – make up a larger part of their shareholding base. Take BT for example, where individuals hold over 17 percent of the company’s stock. BT has the usual array of programs open to employees from profit share schemes to share save schemes which have proven very popular with staff. At the end of the last full financial year, almost 99 percent of the company’s employees owned shares under the profit scheme, with roughly 85 percent participating in the share save. Perhaps because of the larger percentage of holdings, BT says it directs quite a lot of energy toward keeping these individuals informed and aiding their involvement in corporate affairs. The company’s annual meeting, for example, is moved around the country to make it easier for shareholders to attend. And the night before the meeting is a special evening for employees, their partners and families, to have a drink and a bite to eat with senior management and ask the hard questions of the chairman. But, according to a representative from BT’s IR department, these evenings relate much more to employees as employees rather than to them as shareholders. ‘You’re more likely to get someone asking the chairman, I hear you’re selling this part of your property portfolio, how is this going to impact our jobs? than to get a question about the share price.’
BT employee shareholders also have a constant news flow from the company. There is a staff newspaper distributed monthly; the company intranet has daily updates on the share price, so staff can check on what’s happening with their share save; daily e-mail lists with news of resignations and hirings; and an internal business TV channel. Consequently, according to BT’s IR department, a real shareholding culture exists at the company. ‘If you go around the country visiting BT offices and sites, you’ll hear people talking about the share price. Everyone is interested in it. Everyone is looking at the market, looking at what our competitors are doing, and worrying about the level of debt we have. Everyone from the top to the bottom of the company.’
However, almost all communications with individual shareholders – employee or otherwise – are handled by departments other than investor relations. Take Tesco, where the IR department makes a lot of use of the internal communications department. ‘IR is mainly about dealing with the institutions, analysts and brokers,’ comments Tesco investor relations officer Steve Butler. ‘One of our priorities at Tesco is to have a sound and comprehensive communications system. So, for instance, as soon as our annual results come out notes will be sent to all our stores and staff will be briefed by their managers about the performance of the company. Whether they’re a shareholder or not they’ll get all the news, so obviously that’s not an investor relations issue.’
Some employee services are geared specifically toward shareholders but again, these are usually handled by the internal communications department.’They bring out a monthly magazine for employees, help prepare the annual report and deal with a lot of the everyday issues that employee shareholders may have. We certainly take a lot of calls but many issues are more the remit of the communications department,’ says Butler.
Aventis takes a three-pronged approach to its employee shareholders. Explains Carsten Tilger, ‘We have an IR team of about five or six people which is mostly focused on institutional shareholders. One person, however, takes care of individual shareholders.’ In general, says Tilger, the company does not target employee shareholders in a special way: ‘They are looked after by the individual shareholder IR person in the same way as other individuals are catered for. We also have an internal communications program for all employees, handled by human resources, which they are privy to. And then they are targeted as part of our ongoing financial communications process. It’s a cross-department approach and even if they don’t get special attention as a specific shareholder group, we feel their needs are catered for in all their different guises.’
