Are share schemes ineffective?

Using shares in reward aims at taking a more holistic view of an organisation’s “value” rather than using a one- dimensional criterion of profit increase or a specific performance metric. However, basing rewards on shares has its drawbacks. With the share prices volatile in the current economic climate, any future pay out looks rather unpredictable.
That may explain why the study of 1,100 executives by PricewaterhouseCoopers and the London School of Economics found that the majority would rather have money in cash than up to 3 times that cash, paid into a deferred bonus scheme using shares!
The question is: why don’t executives appreciate share schemes?
One would have thought that true wealth generation comes through share schemes. The whole idea of share schemes is that the risk is higher but rewards may be much greater than in a typical cash scheme. There would be much fewer millionaires if it wasn’t for executive share schemes. The Silicon Valley would not have grown into a massive industry without the use of stock to attract talent to fledgling start ups.
The answer may be a lack of information. The first thing is the scheme is not explained properly on implementation or induction. People are not explained the tax and lump sum benefits. I have seen it happen in front of my eyes. Shown some basic calculations the share option holders were amazed at the extra money in their back pocket even if the company grew marginally.
Some managers may not know how they could actively and positively create value for both the business and themselves. These could be helped by training, coaching or mentoring. Many managers do not know the up-to-date value of their incentive plans and how they are affected by the changes in the company or stock prices. Ideally, such information should be easily available and supported by regular briefings. Instilling a feeling of being “in control” will help executives see the wealth they can generate as a result of a share scheme as more achievable. Being well informed and in control they are more likely to appreciate the scheme.
Should they be unappreciated and ignored by executives, share schemes will become an expensive reward tool for businesses. Expensive due to setting up costs and diluting the business’ ownership but offering no return on investment in terms of attracting, motivating and keeping talent.
To conclude, executive share schemes carry the best chances for true wealth generation but can easily become inefficient if executives are not adequately informed.

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