Royal Mail staff to get £5,000 in shares

£3bn bail-out for postal operator. Workforce will own 20%. Funds to plug pensions deficit

The Government is poised to hand 20 per cent of Royal Mail to its workforce by giving each of the organisation's 195,000 employees £5,000-worth of free shares.

The move follows the announcement yesterday of a £3bn bail-out of Royal Mail to resolve its pension crisis, modernise the letters business and fund the loss-making network of rural post offices.

The employee shares will be controlled by a special trust so no outside investors can buy a stake in Royal Mail. Employees will be able to trade the shares between themselves and will receive an annual dividend but they are not expected to be allowed to keep them if they leave the company.

Details of the scheme, which Royal Mail's chairman, Allan Leighton, regards as central to his recovery plan for the business, are still being worked on but are due to be finalised in the next three to six weeks. The package announced yesterday by Alastair Darling, the Trade and Industry Secretary, is designed to put Royal Mail on a secure financial footing and involves:

* The release of £850m of Royal Mail reserves into an escrow account to help reduce the pension deficit;

* access to a £900m credit facility to fund new investment, particularly in sorting offices; and

* up to £1.3bn of support to cover the post office network's losses and future closures.

The Communication Workers Union has already vowed to fight the employee share scheme, viewing it as a backdoor route to privatisation. Its annual conference this weekend is expected to vote against any reduction in the Government's 100 per cent ownership of Royal Mail.

But Mr Leighton is confident of receiving the overwhelming support of Royal Mail's employees for the scheme, which will give the workforce a direct stake in the company for the first time. A spokeswoman for the DTI refused to comment on the employee share offer saying no decision had been made and no timetable agreed for an announcement.

In the past 12 months Royal Mail's pension-fund deficit has risen by £1.6bn to £5.6bn, mainly due to people living longer. It plans to close the shortfall over the next 17 years by increasing its annual payments from £140m to £250m. This is in addition to the regular employer contribution, which will rise from £340m last year to £500m in 2006/07.

Royal Mail's 14,400 post office branches lost £111m last year. About 1,000 of them survive with fewer than 50 customers a week. Over the next two years the Government has agreed to provide subsidies of £300m to protect the rural network. But it will continue to need massive support beyond this as the amount of benefit payments work carried out for the Government shrinks from 70 per cent of revenue to just 10 per cent by 2010. Operating profits last year rose 17.5 per cent to £355m. This triggered a £454,000 bonus for Royal Mail's chief executive, Adam Crozier, taking his salary for the year to £1.02m. However, £248,000 of the bonus has been deferred into a long-term incentive plan and is not payable until next year. There was a further "share in success payment" of £418 for staff totalling £100m.

Royal Mail's report and accounts also show that the former head of the post office division, David Mills, received a £486,000 pay-off while its previous finance director Marisa Cassoni got £379,000 compensation for loss of office. The improvement in financial performance was driven by a 37 per cent increase in profits at Royal Mail's overseas parcels business, GLS, and a first-ever profit of £5m in its Parcelforce division.

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