Despite being a popular concept in HR and management circles, the term ‘employee engagement’ is often misunderstood. It tends to be mistaken for either employee job satisfaction or happiness.

Employee satisfaction is about meeting your employees’ fundamental needs so that they feel content with their job and working conditions. Employee engagement, by contrast, is more about how connected your people feel to your organisation, and whether they are willing to go ‘above and beyond’.

Discovering how to improve employee satisfaction in an organisation is certainly important. However, implementing effective employee engagement strategies could prove invaluable for your company. Below, we explore why, before outlining some ways that your company could increase employee engagement.

Employee engagement is a win-win for both companies and their employees. According to one expert, “People who are highly engaged at work not only provide greater value to the organisation but also experience a better quality of life at work.”

As it turns out, engaged employees create a significant amount of value for the companies they work for. In 2016, researchers at Gallup reviewed existing employee engagement studies and found that “engaged employees produce better business outcomes than other employees do – across industries, company sizes and nationalities, and in good economic times and bad.”

More specifically, the Gallup researchers identified that, compared to their less engaged counterparts, engaged teams had:

• 41% lower absenteeism;
• 17% better productivity;
• 24–59% less turnover;
• 10% better customer ratings;
• 20% more sales; and
• 21% higher profitability.

In short: the research found that employee engagement significantly affects almost every business success metric.

Knowing all of the potential benefits of increasing employee engagement is one thing. Actually making it happen can be more complex (and the best strategy can vary for different companies). To help your company find the right approach, here is an overview of some of the latest trends in employee engagement strategies:

An Employee Share Option Plan (also known as an Employee Stock Option Plan) gives employees the option to purchase company shares at a future date for an agreed price. ESOPs differ from Employee Share Plans (including ESASs and ESPPs) in that they only give employees the future option to buy shares. In an ESAS or ESPS, employees either receive fully paid-up shares or can purchase them outright.

One of the fundamental mechanisms behind the success of ESOPs as an employee engagement tool is the concept of ‘ownership culture’. Essentially, ESOPs allow employees to become part-owners in the company they work for. As a result, employees tend to feel valued at work and become invested in the company’s long-term success, which in turn increases their share prices and dividend payments.

Beyond increasing employee engagement, ESOPs can also help to improve staff retention and wellbeing. In 2020, a Rutgers University analysis of employee attitudes towards ESOPs found that “employees with greater psychological ownership are less likely to leave and experience burnout.” A second, subsequent study found that companies with ESOPs had “dramatically outperformed” non-ESOP companies during the pandemic in job retention and maintaining employee work hours and salary.

In short, ESOPs can create a win-win for both employees and their companies. They are a great way to reward and compensate employees, which helps to boost engagement while at the same time freeing up cash for your company. And ultimately, better employee engagement could lead to significant increases in profitability.

However, ESOP success relies on how well a company communicates the plan’s value to employees and manages plan administration. Making it easy for staff to accept offers, track benefits, exercise options and sell shares in real-time means they are more likely to find value in an ESOP. One way to give employees this type of ESOP visibility is through a self-serve platform such as EmployeeServe.

Another key strategy to boost employee participation in ESOPs, is to develop a comprehensive staff communication plan. This plan must clearly explain the purpose of ESOPs and their value before the company begins to implement an Employee Share Option Plan. Our experienced employee share plan team can help your company communicate all the ESOP benefits to your staff and answer any technical questions.

In addition, there are a wealth of administrative processes required to successfully maintain an ESOP. You must ensure that your company has adequate resources to administer the plan. Instead of allocating in-house resources to do the time-consuming ESOP admin work, our dedicated employee share plan team here at BoardRoom can take care of it all for you. Our systems and processes are entirely flexible, allowing us to tailor a solution to meet your needs.

While ESOPs have many advantages, they can also be challenging to implement without the right tools and expertise.
Speak to one of our experts today about how we can help your business to implement and administer a successful Employee Share Option Plan.

We have all heard of an employee stock option plan or employee stock ownership plan (ESOP), but how does this scheme work in practice, and how do you determine if it is suitable for your company?

If you are considering implementing an ESOP for your organisation, you may have questions about how it works, the benefits, and the factors to consider. In this article, we will answer these questions and provide the basic guidelines of an ESOP plan, including how it works and how to set up an ESOP, so you can see if it might be a viable solution for your business. We will also show you how BoardRoom can help you with your ESOP needs in Singapore.

An Employee Stock Option Plan (ESOP) is one form of remuneration given to employees by means of retaining them or rewarding them based on their performance. They are usually offered in the form of company shares, which provide the employee with ownership rights as a shareholder of the company. As part of an ESOP scheme, the employee can acquire the shares at a predetermined price, or what we call an exercise price.

ESOPs are designed to align the interests of employees and shareholders, as well as to attract and retain talent. These employee share option schemes are becoming more popular in Singapore, especially among startups as well as Small and Medium Enterprises (SMEs) across multiple industries.

The lifecycle of an ESOP scheme can be broken down into a few events: Offer, Vesting, Exercise, Leaver, and Lapse. An employee will first accept an ESOP option offering, whereby a fixed number of options will be allotted to them. After a certain timeframe, a proportion of the allotted options will vest, meaning the employee can now exercise these options.

To exercise these vested options, the employee will pay the total exercise cost (number of options x exercise price) and receive actual company shares afterward. If they do not exercise these vested options after the expiry date, they will lapse or expire, meaning the participant can no longer exercise these options moving forward. If the employee leaves the company halfway through the ESOP’s lifecycle, in some cases, all their vested and unvested options will lapse completely. This will depend on the particular company’s employee stock option plan rules.

Companies who want to grow their business whilst mitigating costs usually adopt an ESOP plan. This is driven by two primary reasons:

• Employee performance is directly linked to company performance and, thus, employee remuneration. Employees can only benefit from their ESOP when the company’s market price is above the exercise price, which means that a company needs to grow to spur the market price of the share.
• There is no heavy upfront cost to the company. Cost to the company, in this case, is only incurred during the exercise of the Furthermore, the employee will cover the exercise cost, so it’s a win-win for companies looking to grow whilst mitigating costs.

When employees are rewarded with shares of the company, they essentially become part owners of the company. In turn, this directly correlates with employee performance and investment in business performance. The employee’s actions, decisions, and work output are all focused on the greater good of the firm as this is mutually aligned with their own rewards.

To provide an illustration, say on 1^st Sept 2019, Mei San has accepted her company’s ESOP 2019 Offer for 900 options with an exercise price of S$ 1 per share. These options will vest annually across 3 years in equal proportions. The expiry date of the options will be 10 years from the offer date, which will be 1^st Sept 2029.

A few points to take note of in the table above:

• On 1^st Sept 2019, 900 options are allotted but remain unvested, which means Mei San cannot exercise these options
• On 1^st Sept 2020, 300 have vested meaning Mei San can exercise them by paying the exercise cost of S$ 300 (300 Options x S$ 1) to acquire 300 shares of the company
• After 1^st Sept 2029, all vested options will lapse, if Mei San has not exercised them prior to this date she will not be able to do so, they have effectively expired
• If Mei San leaves the company to join another firm halfway through, all vested and unvested options shall expire upon notice of resignation

Other variables to consider:

The illustration above is only one of many examples. Common variables that change include:

• Inclusion of a performance matrix, where the number of options to be vested will depend on the employee’s work performance
• More frequent vesting (e.g. Bi-annual), to entice employees with “more” reward
• Broad-based share option plan where all employees are offered the options plan to encourage ownership thinking across the company
• Some companies may allow retirees to continue to hold on to their vested options until the expiry date

Depending on your company’s requirements, you will need to understand the implications of these variables, and whether they can help achieve your ultimate objective of your employee stock option plan (ESOP).

Check out the following Boardroom articles/resources to find out more on ESOP implementation or employee share plan services.

• Why you should be considering an Employee Share Plan amidst Covid-19
• What is an Employee Share Plan? (ESAS vs ESPP)
• Top 5 key benefits of having an Employee Share Option Plan (ESOP)
• Top 5 challenges with Employee Share Option Plan (ESOP) Implementation and how to conquer them

Or you can also learn more about our Employee Stock Option Plan (ESOP) services here.

In this article, we will be exploring the implementation an Employee Equity Plan as a viable option for companies looking for solutions to survive the economic downturn & long-term employee retention post Covid-19.  As the spread of the Coronavirus curbs we seem to be facing another crisis, a global economic downturn, one in which we are already seeing companies making job/pay cuts across the board. In Singapore specifically Gross Domestic Product (GDP) is expected to shrink by 7% in 2020.

The news has been dominated by stories of blue-chip companies like HSBC who introduced pay cuts to their executives for the next 6 months. Coworking space giant, WeWork, has laid off 2,400 of its employees. Devastating as these stories are, the actions taken are not new measures for coping with an economic downturn. Similar actions were taken both in the 2008 Financial Crisis and the 2000 Dot-com bubble.

We should ask ourselves, are these actions ideal given we’re now 10+ years on and still adopting the same measures for navigating through an economic downturn?

History tells us that taking these cost-cutting measures to keep businesses afloat during times of financial difficulty comes with severe consequences.

Some of these consequences include:

• Voluntary resignations as a result of reducing your current workforce. A 1% reduction in your current workforce can result in a voluntary resignation increase of 31% the following year
• Drops in job satisfaction and performance. When you impose a layoff, survivors will experience a 41% drop in job satisfaction and a 20% drop in job performance
• When you introduce a pay cut, it will adversely affect job performance

The driving factor for these consequences is that it causes employees to lose control over their employment and any survivors will be stretched to fulfil business requirements. This will only further impact job performance and increase voluntary resignation due to plummeting job satisfaction.

So, if we know the current solutions are not having positive long-term effects on businesses then what can be done? An effective solution could be the implementation of an Employee Share Plan.

We’ve detailed below some options and their benefits to companies:

1. Introduce long term incentive schemes. To replace short term cash bonus with an employee equity plan or share option scheme, allowing financial liquidity.
2. Revise current employee share plan. To increase rewards to employees who enhance (or reduce) company’s cost structure and increase operational efficiency during an economic downturn.
3. Revise current performance metrics. Lower the Total Shareholder Returns (TSR) to an achievable level and increase time frame for performance evaluation.
4. Bottom-Up approach. To offer long term employee incentive schemes to lower management people.
5. Adopt a bonus reserve, to fund incentive schemes.
6. For start-ups who are looking to drive company growth an Employee Share Option Plan would be an effective way to incentivise staff towards a common goal and subsequently drive growth.
7. For start-ups with an existing Employee Share Option Plan (ESOP) but are looking to offload administrative burden and maximise the workforce on revenue generating initiatives, should outsourcing their ESOP.

The overarching objective for each of these is to incentivise critical business units to perform at a high level in order to weather any economic downturn.

Like any challenging situation key to success is being razor sharp in everything you do. In the face of an economic downturn it’s not always every sector that is impacted. Industries like Healthcare Services, Technology Equipment, Software and IT Services are expected to benefit from this current pandemic and will continue to perform well.

Don’t get swept up in the emotion of sensationalised media headlines showcasing devastating job losses and pay cuts globally. Stick to the facts. A recent study conducted by AON has shown that only 10% of companies across Asia have implemented pay cuts amid the COVID-19 pandemic.

If you are in a sector that has been impacted and you need to make changes, don’t default to traditional measures (think job/pay cuts) consider your motivations for the changes you need to make and then evaluate if an employee share plan could be a solution for you.

Some key questions to consider when evaluate if and what type of share plan is suitable for you are:

• Is your company looking into rewarding employees based on long-term achievements?
• Are you looking into instilling ownership thinking into your employees?
• Is your company looking into replacing short term cash rewards, with long term equity rewards?
• Are you looking into driving different employees into achieving specific outcomes (i.e. TSR, ROE, Client Retention etc.)?

Remember that an employee equity plan scheme is not a short-term win but a long-term business strategy. Surveys conducted by AON have shown that 75% of companies who adopt a long-term incentive scheme will continue to utilise it. Be Open Minded. Realise the potential from your existing workforce and seek solutions to capitalise their performance and secure a business future.

We have designed an all-rounded encompassing solution comprising of an experienced Share Plan team of practitioners and a digital solution to help you manage your strategic initiative.

Based on reports from a survey conducted by Workday and published on Human Resource Directors, Singapore’s job market currently has an expected turnover rate of 46% per annum, the highest across Asia Pacific. Given this alarming statistic, employment retention is key for companies to grow and maintain a competitive advantage with their best minds running the entity with in-depth, industry specific skills and experiences. To attack this issue effectively, we are seeing a surge in companies adopting an Employee Share Plan (ESP). As a result, not only are employees retained, they are also incentivized to work towards company’s objectives and not of their own.

An Employee Share Plan is essentially a remuneration package, where employees are rewarded with company’s ordinary shares, either by subsidy or free of charge, after certain performance criteria have been fulfilled. Some examples of an Employee Share Plan include Employee Share Award Scheme (ESAS) and Employee Share Purchase Plan (ESPP). In this article we will discuss each in detail to demonstrate their differences.

This plan is usually given to directors or upper level management, where the employee is rewarded with ordinary shares of the company, if they fulfill certain criteria or performance metrics set forth by the company. Initially, the participant (director or senior manager) will be allotted X number of restricted shares. At each vesting period (usually annually), a proportion of the allotted shares will be vested and become unrestricted shares, where the participant can then enjoy the benefits of owning an actual share (i.e. Sell, Voting Right, Dividend Pay-out). The number of shares to be vested and turned into unrestricted shares, will depend on the participant’s performance during their evaluation period.

There are two types of ESAS, namely a Performance Share Plan (PSP) and a Restricted Share Plan (RSP). They can be summarized as follows:

Jack Li (Employee of Jack Manufacturing Company) has recently joined the Jack Manufacturing Company Restricted Share Plan (RSP), where he was allotted 1,000,000 shares on 1^st April 2020. The RSP plan spans across a 3-year duration with 2 vesting periods. The first vesting date is 2^nd April 2022, where 50% of the allotted shares will be vested and become unrestricted shares, based on Mr. Li’s performance from 2^nd April 2020 until 1^st April 2022. The second vesting date is on 2^nd April 2023, where the remaining 50% of the allotted shares will be vested, depending on his performance from 2^nd April 2020 till 1^st April 2023. His results are summarized as follows:

Upon the first vesting period, Jack only managed to reach 95% of his pre-set target, therefore, the Remuneration Committee (RC) decided to vest only 450,000 shares, of the allotted 500,000 shares for that time period. The remaining 50,000 shares will either be placed back in Jack Manufacturing Company’s treasury account or to be evaluated again towards the second vesting period. For the purpose of this example we will assume that the unvested 50,000 shares are being placed back into Jack Manufacturing Company’s treasury account for simplicity.

Upon the second vesting period, Jack performed well and managed to reach his target, thereby having all 500,000 shares vested accordingly.

In conclusion, Jack has a total of 950,000 Jack Manufacturing Company’s ordinary shares by end of 2^nd April 2023, that he can either sell it or keep. If he chooses to keep the shares, he will enjoy voting rights and receive dividend payment as and when due.

Companies who adopt such a plan usually aim to ensure that shorter term (i.e. Annual) goals are being met and satisfied. As opposed to PSP, where longer term goals are the focus, see below for this case study.

Note: As a rule, companies will only allot shares up to 15% of company’s current outstanding ordinary shares at any time, to all its eligible participants, to prevent overpowering of any form.

Sarah Perry (Employee of Jack Manufacturing Company) recently joined the Jack Manufacturing Company Performance Share Plan (PSP), where she was allotted with 1,000,000 shares on 1^st April 2020. On an annual basis, she will be evaluated and will be given a score card. The average of all scores spanning across 3 years, will determine the final number of ordinary shares awarded. It is worth pointing out that the scores she receives in one particular year will not affect her scores of other years.

Her results are summarized as follows:

In conclusion, Sarah has a total of 900,000 Jack Manufacturing Company’s ordinary shares by the end of 2^nd April 2023, that she can either sell or keep.

Note that in some companies, a Claw-back Policy may be introduced. This policy will require the individual to return a certain number (if not, all) of the rewarded ordinary shares, should the performance achieved be deemed unsustainable, for a set number of years post the PSP Plan.

Companies who adopt such plans usually aim to ensure that longer term goals are being materialised, as opposed to RSP, where shorter term goals are the focus. In addition, such policy will incentivise the individual to constantly reflect and improve on the strategies adopted, to ensure sustainable performance for the long haul.

This plan is offered to all employees of the company. The company will effectively subsidize employees in purchasing ordinary shares of the company.

On a monthly basis, a portion of the participant’s (employee) gross income will be automatically deducted and placed in a separate account (sitting with the company) for a minimum period of one year. By end of the year, the participant either has the option to use those funds to purchase ordinary shares, or have it transferred back to participant’s own account. To incentivize participants to partake in this scheme, companies would offer an advantageous interest rate, for the funds being set aside. Therefore, there is benefit to the employee even if they don’t proceed with purchasing the company’s ordinary shares. There are also other cases where companies will subsidize 25% of the total cost spent by the participants when making the share purchase. Some companies would even use their own funds to purchase x ordinary shares, for every x number of ordinary shares purchased by the participants.

Different types of plans will serve companies of different sizes and nature. But the core purpose remains the same, which is to retain the best minds, drive long term growth and be the market’s next game changer.

Find out more on the key benefits of having an Employee Share Option Plan (ESOP) or learn about the challenges of ESOP implementation and how to conquer them.

We have designed an all-rounded encompassing solution comprising of an experienced Share Plan team of practitioners and a digital solution to help you manage your strategic initiative.

The first benefit is perhaps one of the most important but also one of the most misunderstood values of implementing an Employee Share Plan. Simply put, if you align your workforce and your organisation with a common goal it promotes engagement, invites innovation and drives productivity and profitability. All due to ensuring your employees have a sense of ownership. The implementation of an Employee Share Plan ensures that your employees don’t feel like a cog in a machine, but feel they play a fundamental role in business success. That success then becomes tangible when they see the impact to their Employee Share Plan when the company’s stock price improves.

Companies that adopt an Employee Stock Ownership Plan (“ESOP”) have seen much better retention rates due to the long-term benefits associated with having an ESOP. Employee Stock Ownership Plans provide employees with ownership interest in the company. Typically, the longer they stay with the company the greater the benefits which is why they can be used in the facilitation of succession planning.

ESOPs can often have tax benefits for employees and company alike so are typically implemented as part of a corporate finance strategy. This makes ESOPs a desirable piece of any employee package and as a result aide in retention of employees. In addition to this with the right Employee Stock ownership Plan a business can create desire within top talent, ultimately benefiting your business.

If you want to generate liquidity for your business but are concerned about losing the operating control that comes along with selling to a third party then an Employee Share Plan might be a viable solution. With an Employee Share plan in place, owners can choose to sell a minority interest, as little as 20 percent, which will generate the liquidity needed.

The benefits associated are not just for the business owner in this scenario, in the case of employees, it enables investment opportunities that might not otherwise have been viable. Many employees do not have the cash to buy shares, a business who implements an Employee Share Plan changes this through the setup of a trust and selling to their employees. Employee’s will then receive shares over time as a retirement benefit.

Employee Share Plans are often used as a part of a corporate finance strategy for their obvious tax deduction benefits. Many regimes around the world today provides a tax-deductible status for company stock contributions, dividends and cash contributions. Their inception was driven by a need to give employees an opportunity to reap rewards from an increase in the value of the company they work for. In doing so, it also encourages loyalty to a company as well as a vested interest in delivering good work which will grow the company.

It is to be expected that a major benefit of having an Employee Share Plan in place long term is the impact on corporate culture. If you have successfully implemented an Employee Share Plan, strategically aligning your employee and shareholder values, you are bound to see dividends in output due to the sense of ownership. All business operations and interactions will be conducted by a team who is engaged and truly cares about the business beyond their personal monthly paycheck.

This shift in mindset will have long term benefits for the company, fundamentally shifting their corporate culture and creating differentiation in the marketplace. Not only will you become a desirable place to work but your productivity, profits and employee engagement will all increase. Over time, this can become a significant competitive advantage.

We have designed an all-rounded encompassing solution comprising of an experienced Share Plan team of practitioners and a digital solution to help you manage your strategic initiative.

With the world becoming ever more globalized it’s not surprising that our workforce has followed the trend. This globalization of the workforce has posed challenges for companies deploying global Employee Share Option Plans for a variety of reasons. Currently, global participants need to go through tedious administration processes with HR to set up their Central Depository (CDP) account, receive physical offer letters and have near zero visibility on their equity plan information in real time.

As a result, we have seen some global participants go as far as taking leave to travel to the respective equity issuing country to open their share depository accounts with the local exchanges to enable transmission of shares in their name. This process is not only tedious it’s completely impractical and unnecessary with the right partner.

Believe it or not, in this digital age most companies still manage their Employee Share Option Plans on a spreadsheet. Whilst spreadsheets are known to be robust and “excel” (*pun intended) in capturing static information for operational purposes they have a drastic impact on ease and efficiency of implementation and administration of Employee Share Option Plans.

User expectations are shifting drastically, we all demand “relevant and insightful” access to information “anytime and anywhere” at our convenience. In answer to this, it is imperative to find a dynamic solution to capture, process and report information in real-time to enable participant visibility and reach without creating a manual resource drain.

Whilst many companies and employees have seen the benefit of adopting an Employee Share Plan, uptake across ASEAN is slower as employees continue to value cash reward as a variable incentive plan.

The current behaviors from a cultural standpoint are more aligned towards short term instant gratification due to a lack of understanding of how equity is a form of reward and recognition for their efforts. The “cash is king” mentality still reigns supreme, and we all know the risks associated with this mindset.

This is potentially the Achilles heel of successful implementation and administration of Employee Share Option Plans, a mindset that this is a box ticking exercise and no different to periodic transaction activities like payroll.

This can be due to any number of factors, a lack of cultural acceptance within the organisation of equity plans or it’s seen as a cumbersome task. Typical management of Employee Share Option Plans on a spreadsheet can be extremely tedious and, in the more complex cases, a full-time job for 1 full time equivalent. There is a wealth of time-consuming administrative processes that need to happen; the offer management process, vesting management, record keeping of participant information, liaising with participants on plan mechanism, leaver management, regulatory reporting, the list goes on. Many HR Practitioners don’t realise there is an alternative solution to the manual labour currently associated with administrating equity plans.

Most solutions in the marketplace today are designed for functional purposes only, they provide static data and are table driven. This is not surprising given most were designed with the sole aim of record keeping and generating reports for Financial Reporting, Payroll Tax Computation & Reporting.

What is surprising is that there is a global push in nearly every industry sector to focus on user experience. Especially in relation to employee engagement strategies, employees just demand more today, for Share Plans participants need to have real-time information access, share price movement, a one-stop integrated trading platform, and historical information for individual income tax declaration purposes. We live in a digital era and any solution that doesn’t embrace this is considered obsolete very quickly.

We have designed an all-rounded encompassing solution comprising of an experienced Share Plan team of practitioners and a digital solution to help you manage your strategic initiative.