Digital Policy

Chancellor's Shares for Employee Rights Swap is not as mad as it sounds...

... But is ripe for abuse

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A pretty contentious policy was announced today by the Chancellor.  Employees will be able to forfeit some employment rights in exchange for a stake in the firm they work for.

The BBC's Robert Peston was quick to point out:
Note that G Osborne's new owner-employee contract, where employment rights are traded for tax-free shares, can be forced on new hires

If owner-employee contracts become legal, I can't see any City firm hiring on any other basis

All this dovetailed into one of my own blogs where I questioned why tech start-ups were looking to new crowd funding platforms and not old crowd-funding platforms (stock markets).  

Relevant because if employees were handed shares in unlisted private companies their worth was highly subjective.  In many cases, shareholder agreements limit how such shares can be traded, meaning the only realistic chance of sale is back to the company.

This lead Channel 4 News' Krishnan Guru-Murthy to muse:
So you would have to negotiate with the same boss who is sacking you about what your shares (in a company not listed) are worth? Hmmm.

To call this policy half-baked would be a compliment (ht @JimHacker) but it's not as mad as it seems when applied to many of the UK's smaller tech companies.

Three in four start-ups fail - job security is worthless if the company goes under

Life in a typical tech start-up will be quite alien to many employees used to the established notions of job security and EU employee rights.

Cash is tight for many such companies, and that includes the one I'm helping launch right now.  

I know the investors might pull the plug at any moment, and my reward is a job that's rarely dull, reasonable fees and share options should the company be successful.

So how is it that we're contemplating hiring staff?  Is it fair to risk raising someone's expectations of employment only to dash them a couple of years down the line with redundancy?

The answer to that question lies partly in a corollary: we can't ever build a stable organisation that offers a reasonable amount of job security without hiring staff.  Someone has to be first.

And partly by considering how even large, well-established companies behave towards staff. Many make redundancies *despite* being profitable.  They offshore work to save cash; in the process wreaking havoc to many whose livelihoods are affected.

Would I feel bad if I had to fire someone because the company failed? Yes, but morally I'm on a surer footing than many larger organisation who put profit before livelihoods.

The best I can do is be honest about the company's position at the time of hiring.  Even without degrading the employee's legal rights, working for a start-up carries added risk, and being able to offer shares tax free is a useful tool to help rebalance the risk/reward equation.

We'll have to wait and see whether the Chancellor's plans will encourage UK job creation by entrepreneurs in innovative sectors like tech, or cause unemployment to head in the wrong direction as large companies fire staff with no legal fallout for less than a month's salary in shares.

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