Capdesk Insights: Xtrac on Employee Share Plans [Q&A]

Xtrac is a world-leader in the design and manufacture of high-performance transmission systems and driveline components, supplying virtually all the world's top motorsport teams. Its Employee Benefit Trust, established in 1997 continues to impress today. After winning the ESOP Centre's 2018 'Best All-Employee Share Scheme' award Xtrac's Finance Director, Stephen Lane, talks to Capdesk about why employee share plans matter, what can make or break them, and what the future of employee ownership holds. 

Xtrac speaks to Capdesk about Employee Share Plans

When was Xtrac’s employee share plan first established? 

In May 1997.

What is the main goal your employee share plan is aiming to achieve? 

To provide the opportunity for employees to hold equity in Xtrac and therefore increase motivation in their work performance.

Why do you think it’s important to give equity to employees? 

It helps to create a culture whereby everyone feels that Xtrac is ‘their company’. Whilst an intangible benefit, it is important in developing a strong and positive feeling of ownership within the workforce.

How many employees are currently participating in your plan? 

Approximately 220.

You just won the ESOP Centre’s 2018 ‘Best all-employee share plan’ for companies with fewer than 5,001 employees and participants in no more than two countries. Can you tell us a bit more about the plan and why you think it worked so well?

The Plan has provided equity participation for many employees over a long period.  And there have been corporate restructuring events over the years, which have enabled participants to benefit financially from their shareholding. This financial opportunity has been important, but the culture created by employees owning shares in their own company is equally compelling and a significant contributory factor to the enduring success of Xtrac.

From a managerial perspective, what have been the main benefits of having an employee share plan so far?  

The share plan has been a significant part of creating the Xtrac culture which is vital in any team environment. It has also been a contributory factor in the company’s low employee churn rate; also the loyalty employees have towards the company, which helps managers plan their resource requirements.

What are some challenges you’ve faced when implementing or managing your plan? 

The plan is complex and administratively burdensome. Annual distributions have increased this complexity, and corporate transactions have needed to be subject to some detailed structuring discussions to manage the plan and preserve its status.

How do you ensure the plan is communicated effectively to employees? 

All new employees have received a Trust Booklet which outlines how the plan operates. Trustees are available to deal with any questions as they arise from members, and it has always been an agenda item at regular factory meetings. 

Are you planning any changes or new initiatives regarding your current options plan? 

Since the Inflexion buyout employees have rolled forward some equity, which was important in maintaining the culture of employee ownership. 

What would you advise other companies considering the use of an employee share plan? 

Be clear as to its objectives. Understand the implications of how much equity the company allocates to employees. For example, in an owner managed business there may be a desire to retain more than 50% of ownership. Seek competent legal and tax advice. Ensure the trustees fully embrace the concept and communicate effectively the 'what, why and how' to staff. It's particularly important to ensure that there is an understanding that value from equity ownership is part of a corporate transaction. Provided it is well-structured and given sufficient thought when setting it up, an employee share ownership plan can be hugely beneficial to employees and the organisation as a whole; but it does require plenty of details to be thought through beforehand plus on-going strong management and administration.

What developments do you think we’ll see in employee equity sharing in the next few years? 

I think many companies are beginning to see the on-going benefits of employee share ownership, which is to be encouraged. Simpler administration, however, would be helpful. I think the future will see an increase in the incentivisation of companies to offer employee plans to their staff.

 

Anastasia Valti
Anastasia Valti

Anastasia holds an MSc in International Marketing, and is currently our Marketing Associate at Capdesk's London office.