Northern Rock is in the midst of an employee education programme, explaining what nationalisation means for members of its employee share schemes. Those in as yet unmatured SAYE schemes are expected to get their money back, but those who have kept shares after maturity, a majority across most schemes, may get nothing.
More than 85 per cent of employees at the troubled bank were members of its employee share schemes, both Sip and SAYE plans, which have been up and running for more than 10 years. A year ago shares distributed to staff through the share schemes over the last decade were worth £80m when the company’s share price stood at over £11. On the day the Government nationalised the bank in February they stood at just 78.5p.
Employees, a third of whom are threatened with redundancy, are now in the same position as ordinary shareholders who are hoping that a Government valuation of the company will give them some compensation, although this is by no means certain.
Experts say the situation, which carries echoes of similar problems at Enron and Bear Stearns, underlines the contradiction between employers’ desire for employees to become shareholders in their companies and employees’ needs to diversify their equity savings.
Ifs ProShare, the not for profit body that represents the share plan sector, says employees should be explained the benefits of diversification.
Fiona Downes, head of employee share ownership at ifs ProShare says: “Employees need to understand risk and have the opportunity to build diversified share portfolios. We would not encourage employees to put all their savings into a single savings scheme and this view is shared by our member companies.”
A spokesman for Northern Rock says: “We are currently going through an internal communication process on this whole issue. Until that process is complete we are not disclosing such details publicly.”