Money: Payouts are not just for bosses

Share option schemes allow employees to get a piece of the action too, writes Pamela Atherton

More than 4,000 Asda workers are celebrating this weekend after getting a pounds 34m payout. They haven't won the Lottery - the employees each got between pounds 2,700 and pounds 69,000 after saving for five years through the supermarket's Save As You Earn (SAYE) share option scheme.

Many of those with share payouts have been saving modest amounts. Penny Llewellyn, 44, is a personnel clerk at Asda's Killingbeck store in Leeds. She put pounds 20 a month into the scheme for five years and now has almost 3,000 shares, worth about pounds 5,500. "A lot of people have benefited this time - there are a lot of us rubbing our hands together," she says. She plans to save some of the shares in an individual savings account (ISA) and sell the rest to pay for a cruise to celebrate her silver wedding this summer.

With the stock market booming, staff at many other public companies are enjoying similar returns. The schemes ask you to save between pounds 5 and pounds 250 a month over three, five or seven years in a tax-free building or bank society account.

Joining up gives you the right to buy shares several years down the line at a price fixed in advance. The Asda scheme granted share options in 1994 at 47p. (The price you are quoted as a scheme member is generally 20 per cent below the share price at the start of the scheme.) Assuming the company does well in the long term, you cannot lose. Asda's trading price last week was 188p, a 300 per cent increase.

To get a payout you have to save for the full term of the contract and be an employee of the company at the end of the savings period. You don't have to use the money to buy shares - if the shares are trading below the offer price you can have your money back.

Someone entering a share option three-year contract today will get a fixed rate of interest on their savings, currently 4.83 per cent a year (equivalent to 6.04 per cent for a basic-rate taxpayer and 8.05 per cent for a higher-rate taxpayer). Rates on a five-year plan are slightly lower.

If, at the end of the savings period, the company's price has risen above the share option price, you will clearly be better off exercising the option. If the share price has fallen below the share option price you can just take out your savings.

When you exercise the share option you receive a share certificate stating how many shares your cash fund has purchased. The shares can then be held as an investment or sold. If you hold on to the shares you can keep them tax-free by transferring up to pounds 7,000 into an individual savings account during the 1999-2000 tax year (pounds 5,000 after this).

You can also cash in shares worth up to pounds 7,100 and pay no capital gains tax (providing you have no other gains from selling assets). The CGT allowance is per person, so a you can transfer ownership of some shares to a spouse and sell up to pounds 14,200-worth without paying CGT.

As an example of just how lucrative these schemes can be, a pounds 250-per- month investment in 1991 in the Pearson seven-year SAYE scheme would have produced savings of pounds 15,000 over five years. After another two years, a bonus equivalent to 30 months' contributions, or pounds 7,500, would bring the building society account to pounds 22,500. (For schemes starting now, the equivalent bonus would be 13.5 months' contributions.)

With a share option price of pounds 2.99, the pounds 22,500 would buy 7,525 Pearson shares (in practice only 7,511 shares because of an internal adjustment). Pearson shares were trading at pounds 13.15 on 16 April 1999, giving the 7,511 shares a value of pounds 98,769 if sold on that date.

Even saving just pounds 50 per month over seven years gives staggering returns. In the same scheme a total of pounds 4,500 saved would have been worth pounds 19,725.

Martin Korn, a senior partner at Blick Rothenberg, chartered accountants in London, says these schemes are a good introduction to the stock market. "This really is an ideal vehicle for inexperienced investors because they can gain exposure to the equity market on a risk-free basis."

If you work for a large FT-SE quoted company, ask the human resources department whether there is a SAYE share option scheme. This is an investment designed for those who intend to stay with their employer for several years - but even if you leave, you have still made savings and can transfer them to an ISA when you leave the firm.

Suggested Topics
News
people

Actress sees off speculation about her appearance in an amazing way

Arts and Entertainment
Serge Pizzorno of Kasabian and Noel Fielding backstage at the Teenage Cancer Trust concerts
musicKasabian and Noel Fielding attack 'boring' musicians
Arts and Entertainment
Julianne Moore and Ellen Page are starring together in civil rights drama Freeheld
film
Voices
'Irritatingly Disneyfied': fashion vlogger Zoella
voicesVicky Chandler: Zoella shows us that feminism can come in all forms
PROMOTED VIDEO
News
ebooksAn unforgettable anthology of contemporary reportage
Sport
nflAtlanta Falcons can't count and don't know what the UK looks like
News
i100
Arts and Entertainment
High notes, flat performance: Jake Bugg
music

Review: Despite an uphill climb to see Jake Bugg in action, his performance is notably flat

News
The Putin automaton will go on sale next month in Germany
videoMusical Putin toy showing him annexing Crimea could sell for millions
News
news

Powerful images of strays taken moments before being put down

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: The SThree group is a world le...

Trainee Recruitment Consultant Birmingham

£18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...

Trainee Recruitment Consultants

£20000 - £25000 per annum + OTE £Competitive: SThree: SThree Group and have be...

Helpdesk Analyst

£23000 per annum + pension and 22 days holiday: Ashdown Group: An established ...

Day In a Page

Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

A new American serial killer?

Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

Sting to trap paedophiles may not carry weight in UK courts

Computer image of ‘Sweetie’ represented entrapment, experts say
Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

Return to Fukushima – a land they will never call home again

Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
Wildlife Photographer of the Year: Intimate image of resting lions claims top prize

Wildlife Photographer of the Year

Intimate image of resting lions claims top prize
Online petitions: Sign here to change the world

Want to change the world? Just sign here

The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?
Ed Sheeran hits back after being labelled too boring to headline festivals

'You need me, I don’t need you'

Ed Sheeran hits back after being labelled too boring to headline festivals
How to Get Away with Murder: Shonda Rhimes reinvents the legal drama

How to Get Away with Murder

Shonda Rhimes reinvents the legal drama
A cup of tea is every worker's right

Hard to swallow

Three hospitals in Leicester have banned their staff from drinking tea and coffee in public areas. Christopher Hirst explains why he thinks that a cuppa is every worker's right
Which animals are nearly extinct?

Which animals are nearly extinct?

Conservationists in Kenya are in mourning after the death of a white northern rhino, which has left the species with a single male. These are the other species on the brink
12 best children's shoes

Perfect for leaf-kicking: 12 best children's shoes

Find footwear perfect to keep kids' feet protected this autumn
Anderlecht vs Arsenal: Gunners' ray of light Aaron Ramsey shines again

Arsenal’s ray of light ready to shine again

Aaron Ramsey’s injury record has prompted a club investigation. For now, the midfielder is just happy to be fit to face Anderlecht in the Champions League
Comment: David Moyes' show of sensitivity thrown back in his face by former Manchester United manager Sir Alex Ferguson

Moyes’ show of sensitivity thrown back in his face... by Ferguson

Manchester United legend tramples on successor who resisted criticising his inheritance
Two super-sized ships have cruised into British waters, but how big can these behemoths get?

Super-sized ships: How big can they get?

Two of the largest vessels in the world cruised into UK waters last week
British doctors on brink of 'cure' for paralysis with spinal cord treatment

British doctors on brink of cure for paralysis

Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
Ranked seventh in world’s best tourist cities - not London, or Edinburgh, but Salisbury

Lonely Planet’s Best in Travel 2015

UK city beats Vienna, Paris and New York to be ranked seventh in world’s best tourist destinations - but it's not London