Employee Share Schemes in Detail

Employee share schemes, sometimes known as Company share schemes or employer share schemes, have become an increasingly common part of remuneration packages.

They give employees the opportunity to own part of the company by which they are employed, often through discounted share purchases, stock options, or restricted stock units (RSUs). 

In some cases, there can even be tax benefits for participating in these schemes. In the UK, for example, certain approved plans offer favourable treatment if the shares are held for several years prior to selling.  

Useful to a point

Employee share plans can be a valuable addition to your overall financial plan, but like any investment, they come with both potential rewards and limitations. However, they are typically only useful to a certain point, as the advantages below will tell you, and it is likely that you should consider disposing of your employer shares where possible. You should talk to Patterson-Mills before making any decisions here.

Advantages

• Potential to receive/buy discounted shares. 
• Can compensate for lower salaries. 
• A valuable way to share in the potential success of the company. 
• Potential for significant capital growth beyond a traditional bonus. 
• Encourages interest in personal investing and broader wealth building.

Disadvantages

• Vesting periods can limit flexibility, tying employees to the company until shares become available.
• Share values can fluctuate significantly, creating uncertainty over the eventual benefit received.
• Overexposure to one company stock is incredibly high risk.
• A falling share price can undermine morale, motivation, and long-term engagement with the company.

The risk of concentration risk

The concept of concentration risk should not be taken lightly. This risk occurs when a large portion of your total assets is allocated to a single investment, sector, or region. The more concentrated your holdings, the greater the impact that any single event or decline in value can have on your overall wealth, even if other markets remain stable. 

A common reason employees choose to retain company shares comes down to familiarity bias.

This is the tendency to feel more comfortable investing in something known and trusted. While this can feel reassuring, it often leads to a highly unbalanced portfolio with the employee taking on far more risk than they would were the risks explained at outset.

Even strong, well-managed companies can experience setbacks, and relying too heavily on employer shares can leave your overall financial position far more volatile and vulnerable to downturns. 

Managing rules and making decisions

Each company has its own rules on vesting, holding periods, and potential incentives for long-term ownership. In some cases, retaining shares for slightly more time may prove to be more beneficial, especially where additional tax benefits apply.

However, investment decisions should be made strategically rather than emotionally.

As an employee, your view of your employer’s company will naturally be influenced by your role and proximity to its operations, but that represents only one small part of a much broader global market.

Regularly reviewing how much of your portfolio is concentrated in employer shares and considering diversifying the funds once they vest / can be sold helps maintain balance and reduce overall risk.

Integrating employee shares into your financial plan

How you manage employee shares should at a minimum reflect your broader financial objectives, investment horizon, and expected time with the company.

It is also worth considering the tax implications of selling or retaining these shares, and how you can manage risk effectively while keeping your overall strategy focused on long-term goals.

Patterson-Mills work closely with a number of clients with employee share schemes and help to identify where their portfolios may be overexposed and where we can create strategies that strengthen long-term growth and stability. Our focus is on delivering clear, practical planning that helps you feel comfortable with the financial decisions you make.  

If you would like to review your employee share scheme or explore how to reduce risk while maintaining growth potential, get in touch with us today and book your initial, no-cost and no-obligation meeting.