Profit-linked pay `fails to motivate'

Share ownership schemes and profit-related pay operated by the UK's top 100 companies often fail to deliver benefits in terms of greater employee participation and understanding of their firms' aims, according to a new report, writes Nic Cicutti.

Even where the value of such schemes was recognised by companies on an intellectual level, few of them communicated the benefits to staff before implementation.

"Fewer still attempt to integrate financial participation into a wider company philosophy or strategic process," says the report, sponsored by Bacon & Woodrow, the pay and benefits consultants.

The study, by Rachel Sloan and Niki Jackson, two MBA students at City University in London, comes after Kenneth Clarke, the Chancellor, announced plans in last week's Budget to phase out profit-related pay (PRP) within the next four years.

The survey, carried out before Mr Clarke's announcement, shows that about 60 per cent of companies in the FTSE 100 share index will be affected by the abolition of PRP.

The report says: "All of the companies interviewed in this research recognise that PRP is a Government-backed fiddle and as long as it available most do not see why they should not take advantage of it."

Not one company in the survey gave motivation of employees as the reason for introducing PRP.

Ms Sloan said yesterday: "If the UK continues to encourage capital gain over Social Charter initiatives to motivate people at work, companies need to pay more than lip service to the schemes they initiate.

Employee share schemes also come in for some criticism by the authors. Approved profit-sharing schemes were used by about 58 per cent of companies in the report, while save-as-you-earn schemes were used by 93 per cent of firms.

Although many firms introduced such schemes because it was felt that employee ownership was a "good thing", no reason was given for such a belief.

Richard Greenhill, a partner in Bacon & Woodrow said: "Compared with most other countries, there is a lot of equity share participation in the UK. It is often the case that even though companies are doing the right thing, they are not aware of why they are doing it."