EurWORK European Observatory of Working Life

HBOS, UK: Make work pay – make work attractive

About

Country: 
United Kingdom
Organisation Size: 
Large
Sectors: 
Financial services
Category: 
Making work pay

HBOS is one of the largest financial institutions in the UK. HBOS places considerable emphasis on the ‘Total Reward’ package that it offers its employees, which has been negotiated with the trade unions. Essential to this package is a range of share-ownership schemes that provide an opportunity for all employees to have a stake in the company and benefit from its profitability and stock market performance.

Organisational background

HBOS is a major UK financial institution with over 69,000 employees. Last year, HBOS earned pre-tax profits of £4.81 billion. The company was formed in 2001 from the merger of two banks –Bank of Scotland and Halifax PLC. Halifax was formerly a building society but started trading on the stock exchange in February 1997.

The company recognises and negotiates with two trade unions, Accord (formerly the Independent Union of Halifax Staff) and Amicus.

The Labour government has been keen to promote wider share ownership among employees. It stresses that such systems increase employee commitment and loyalty to the employer and can help boost productivity. In order to encourage companies to extend share ownership among their employees, the government introduced relevant legislation in 2000. Schemes set up in accordance with the legislation could offer employees savings on tax and national insurance contributions when buying and selling shares in the employing company.

Description of the initiative

Employee share ownership within Bank of Scotland had grown steadily from the early 1980s, primarily through Profit Sharing and Save As You Earn schemes. Within the Halifax Building Society, however, employee share ownership was much less embedded. Prior to 1997, the legal structure of a building society was such that it was not possible to devise similar schemes.

In the years since the formation of HBOS, the focus on employee share ownership continues to play a significant part in employees’ ‘Total Reward’ package. Both the company and the unions recognise the potential that shares can offer. Commitment and loyalty are increased by allowing employees to share in company profits above and beyond any increases to pay negotiated as part of the normal collective bargaining process. By becoming shareholders at advantageous prices, employees can potentially receive dividends from the company and benefit from any capital gains due to a rise in share prices.

The company regularly reviews its Total Reward package in conjunction with the unions. Consequently there exists a wide range of share ownership mechanisms available to employees.

These currently include ‘Sharesave,’ ‘Sharekicker’ and ‘Free Shares’ schemes; a ‘Share Option Grant’ scheme has also been used in recent years.

The Sharesave scheme allows employees to buy shares at a discounted price. Employees can invest between £5 and £250 a month of their salary. The decision is made by the employee and the period for the savings must be for three, five or seven years. An employee can stop at any stage and withdraw their cash from the scheme, but they can only take their shares after the savings period has concluded. The scheme follows a standard format, but HBOS, supported by the trade unions, have devoted considerable time and effort to boost enrolment.

There are no restrictions on who can join the scheme. Staff on temporary contracts can join the scheme, although they are not be able to claim any shares if their contract does not extend beyond the minimum three-year period, set by legislation. Over 50% of HBOS employees invest up to £250 a month in the Sharesave Scheme.

The Sharekicker scheme is an HBOS initiative to tie share ownership to its performance-related bonus scheme. Different sections of the company have different targets and are awarded bonuses if they meet those targets. The performance measurements vary across the different sectors, with some being workplace based and others being business-wide.

Retail banking branch targets, for example, will be linked to sales figures and customer satisfaction. The unions are kept closely informed of performance statistics across the company and can intervene if they believe that assessments are not benefiting specific workplaces or businesses within the company.

Set proportions of this bonus can be taken as shares: 12.5%, 25%, 50%, 75% or 100%. If the shares are kept for three years, HBOS will add 50% extra in shares and will pay the employees’ income tax and national insurance contributions due on the extra shares. There is no discount on the share price. They are allocated at the prevailing market price.

Between 20% and 25% of staff are in the Sharekicker scheme, although the bank concedes that there tends to be a higher enrolment among higher income grades as lower-paid staff tend to take their bonuses as cash.

The company also had a Share Option Grant scheme that gave all employees the option to buy shares. The number of share options awarded was based on 20% of the employee’s salary. After three years, the individual would have a period during which they could exercise those options. This meant that, if the share price was favourable, they could buy the shares and then sell immediately to make a profit. It was a no-risk scheme, as individuals could simply let the options lapse if the share price dropped below the price at which the options were offered. The company offers a buy-and-sell facility. This allows employees to claim their shares and immediately sell them at a profit without having to spend the money to buy the shares.

In response to an employee survey in 2004, however, HBOS decided to take a different approach and all UK employees were invited to apply for Free Shares. In 2005, around 95% of employees applied for and shared in a total award value of around £54 million. This was in addition to the bank’s annual bonus payment to employees worth £222 million on top of normal pay. Each employee is entitled to Free Shares based on 5% of salary with a value ranging from £500 to £3,000 (the annual maximum allowed under the share plan rules).

Analysis

HBOS values its share scheme initiatives and is willing to be both innovative in its approach (the Sharekicker scheme) and responsive to employee demands (moving from the share options to the Free Share distribution). The share schemes are seen as part of a ‘Total Reward Package’ and are linked to the performance of the company. They are above the normal pay and conditions arrangements negotiated with Accord and Amicus.

Enrolment in the Sharesave scheme, at over 50%, has been good. This has been because of the risk-free benefit and because it is fairly embedded in the company. More higher-paid employees have participated in the Share Kicker scheme.

In March of 2006, employees who were granted share options in March 2003 were able to cash in their share options or retain the shares. HBOS estimates that 44,000 employees stood to gain a total of £86 million.

It has also been important that the unions have been provided with statistics about the schemes and particularly about the bonus arrangements that are linked to the Share Kicker scheme. This allows the unions to monitor the award of bonuses and to ensure that no groups of workers are discriminated against.

Exemplary and contextual factors

HBOS has taken a lead in developing share schemes, making them available to a wide range of employees, with at least one scheme open to all employees. HBOS has been flexible about changing and improving these schemes, in consultation with the trade unions. The company has raised the profile of the share schemes and achieved a high enrolment in the main scheme, while ensuring that it is clearly seen as a benefit on top of normal pay.

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