Every little helps, says Tesco, but its latest spend is far from little. The business has said it will payout £30m to staff through its employee share schemes, called Save As You Earn.
More than 20,000 Tesco employees will benefit from the windfall, which comes after Ken Murphy was awarded a CEO salary of nearly £10m in April. The jackpot will largely go to shop floor assistants and warehouse teams. Both roles were also given a pay rise this year.
Save As You Earn is not exclusive to Tesco. It’s a type of share scheme that any company can sign up to. Below, we explain how the scheme works, as well as why Tesco has awarded the payout and what the payday means for Tesco workers.
What is a Save As You Earn (SAYE) scheme?
SAYE is a type of employee benefit scheme. It enables staff to purchase shares in the company they work for by sacrificing a proportion of their salary.
Workers will put a certain amount of money into savings, up to a maximum of £500 per month. After either three or five years, the scheme reaches maturity, at which time employees can buy tax-free shares, or choose to have the money returned.
Once they have purchased the share options, staff members can choose to sell them immediately for a profit, or hold onto them in the hope of generating greater returns in future.
Tesco has shared details about how much its workers can expect to earn from the sale.
Employees who saved the maximum of £500 per month for three years would have generated almost £10,000. If they have been saving for five years, they stand to take home £20,000 from the jackpot; equalling nine months’ salary for workers on the living wage.
The average monthly investment by employees was £68, which means the majority of Tesco’s team members will earn profits of around £2,560.
Could my company pay out £30m?
It’s rare that a company can afford to offer a SAYE scheme, unless it is a publicly-listed organisation selling publicly traded stocks, such as Tesco.
That’s because, in order to calculate a staff payout, the share price must be publicly valued. Today, Tesco’s share price is 303p, a 20% increase in the past year. Because the firm knows this market price, it has been able to sell shares to employees at a discounted rate of 188p.
Private companies that don’t have readily available market valuations on a stock exchange can’t easily value their shares, so it is much harder for them to engage in an SAYE scheme.
There are some alternative routes for small employers, however, including the Enterprise Management Incentive (EMI) scheme for firms with fewer than 250 employees.
An EMI allows workers to purchase shares up to a total value of £250,000 over a three-year period. The value of each share will be agreed with HMRC prior to the scheme being set up.
There is also the Company Share Option Plan (CSOP), which permits employees and directors to buy £60,000 of tax-free options after three years at the company.
CEO pay backlash prompts payout
It’s possible that Tesco has made the decision to reward employees following backlash over senior staff salaries. Share schemes help workers to feel valued, and ensure teams feel they are being fairly rewarded for the success of the company.
CEO Ken Murphy was given £9.9m in pay and perks, the most ever for a Tesco boss, and a move described as a ‘slap in the face’ for workers by unions. Tesco was also one in a group of retailers accused of failing to pay third-party workers the real Living Wage this week.
Emma Taylor, Tesco’s Chief People Officer, said the payout “is a reflection of [Tesco employees] hard work and the brilliant job that they do serving our customers every day.”
