IPOs to boost stock-for-staff plans



The UAE’s sluggish take-up of company share ownership plans for staff will receive a much-needed boost in the wake of this year’s wave of initial public offerings (IPO), experts have predicted.
Employee Stock Ownership Plans (ESOPs), which offer staff the chance to buy into their own company, could also help UAE companies as they struggle to retain talented workers.

As IPO activity increases in the region, more companies will consider offering their employees salaries that are linked to the option of buying shares, according to Marcus Wallman, Senior Associate in the Corporate Commercial Department at Al Tamimi & Company.

He said his law firm, which oversees the implementation of ESOPs, has been approached by firms considering a listing and are keen to explore the opportunities of share ownership plans.

“Most companies that look to an IPO are very interested when we raise the issue of ESOPs. When you have people who want to list their company its something they start looking at very carefully because the directors want to link executives’ performance to share market performance. Also because the executives are looking to get in on the upside of positive share performance.

“As securities and capital markets develop, executives are becoming more focused on the possible upside of asking for their renumeration in this form, and the boards and shareholders are becoming more focused on linking the renumeration to share market performance,” he added.

Wallman said the take-up of these schemes in the UAE is in its early stages because the capital markets have been established relatively recently. “There hasn’t been a very high level of listings from companies that are managed and run from the UAE although that is accelerating and has done so over the last couple of years.”

A recent study found that stock ownership by employees in the GCC region – where the majority of privately held companies (about 70 per cent) are family-owned and run largely by expatriate management – is still extremely rare.

The adoption of ESOPs could improve company profitability by up to 2.4 per cent, according to the School of Management and Labor Relations at Rutgers University in the United States.

Wallman said: “Because you haven’t had companies listed here, the whole idea of providing executive renumeration packages to include a component relating to issued securities hasn’t been one that is widely used or understood here because it is not part of the market practice.”

To boost awareness of these schemes Al Tamimi &  Company will host a stock ownership seminar in Dubai at the end of April.

Richard Lamptey, a principal with global consultancy firm Mercer, said: “In the UAE, there are some legal restrictions that should be addressed in regard to getting an ESOP approval and the fact that the expat employees in the Gulf are not allowed to own stock in UAE national-owned companies.

“I think there is an urgent need to increase the degree of legal flexibility available in the creation of an ESOP, which will allow employers to establish plans to best achieve the defined objectives for which they are established,” he added.

The UAE’s apathy towards ESOPs contrasts sharply with the take-up in the US, where the number has grown substantially over the past 10 years, and the money held in the schemes is estimated at more than half a trillion dollars in assets.

Rutgers University research found that 82 per cent of companies polled indicated that their revenue increased after applying ESOPs while 72 per cent indicated that they saw an increase in their profitability.

Standard Bank is among the first financial institutions in the GCC to administer ESOPs. Lynda O’Mahoney, Senior Manager for Corporate Fiduciary Services at the bank, said: “As demand in the Gulf for talented and experienced staff increases and retention strategies become ever more critical, the benefits to companies of ESOPs and other long-term incentives is more evident.

“We are seeing unprecedented demand for these types of products, and their adoption in this marketplace will surely contribute to the success of the firms offering such schemes,” she added.