‘Esops’ not best staff incentive

ISEE that, in yet another example of the culture of entitlement, empowerment is being conflated with profits and benefits.

There really cannot be any other interpretation to the claim, covered in this newspaper yesterday, that employee share ownership plans (Esops), notably in the mining sector, “have all but failed, with minimal benefits flowing to lower-end employees now that the schemes have begun to vest”.

The original purpose of empowerment was to enable those South Africans denied the opportunity to share in the economy by previous regimes to access their place in the scheme of things.

However, simply to assume, as now seems the case, that empowerment share schemes axiomatically equal money in the pocket is foolhardy. The value of shares is gov- erned by factors, many of which are beyond the control of shareholders, managers or employees.

So since, as Gavin Hartford of the Esop Shop eloquently put it to me, schemes were constructed at the height of the commodity boom and with high expectations of full dividends, the end result has been disappointing, with the exception of Kumba. But that is, of course, exactly how an economy works.

If the purpose of empowerment is nothing more than to put money into employees’ pockets, there are many other ways of doing it.

Hartford says international research shows conclusively that share option schemes don’t really work unless the quantum available to managers and employees is substantial and management methods are dramatically changed.

So are Esops, as presently con- structed, appropriate as instruments for employees? Hartford’s concern is that they do not provide a clear line of sight to productivity and performance. They simply become another cost for shareholders and companies, and may be of little interest to employees, many of whom, as Marikana showed, are deeply demoralised and angry.

Better to choose a combination of instruments that identify and align common interests, ones that are “socially and economically sustainable”. The requirement should be twofold — to enhance operational efficiency and to build longer-term savings.

Hartford is clear that shares and share portfolios can play meaningful roles, no doubt alongside profit sharing, in a process that provides for capital realisation when it is appropriate.