Member Article

15% of UK Small Businesses Plan to Cut Pay in Reaction to Pandemic Driven Recession

A report out today on HR trends in 2020 has revealed the huge impact of COVID-19 on the state of small business in Britain and the likely impact on the economy.

The Employee Equity Trends 2020 report was compiled by Vestd, the share scheme and equity management platform. It highlights the struggle many SMEs are currently facing.

The research found that 14.9% of SMEs are planning to cut the pay of their employees, with a further 16.7% undecided. 48% said there would be no pay rises in the next 12 months.

The study of 500 UK-based business founders, owners, partners and C-level executives also revealed that nearly half were rethinking how they run their business, and as part of that would be looking at sharing ownership with their team.

Ifty Nasir, the Co-Founder and CEO of Vestd, explained: “Some employers are in a very difficult position, they either cut their staff numbers and struggle to remain productive, or they have to cut pay, which risks losing the best employees. Pay cuts for this many people is unprecedented and, without their agreement, is illegal. It would seriously deplete spending power and that could trigger an even deeper recession.”

“Our research shows that the more progressive companies are turning to sharing equity, as it can be used to offset short term pay issues. In the long run it could be worth many times more than any gap in salary growth.”

COVID-19 has been challenging for most businesses but, encouragingly, almost half of SMEs reported that the pandemic had demonstrated the value and importance of their team. One in four small employers already share ownership with at least one person in their team.

However, there is confusion and disparities when it comes to shared equity schemes. While 60% of SMEs said that it leads to improved employee retention and one in three reported that the share scheme has increased the value of their business, many employers are reluctant to consider them.

Of the reasons for not considering sharing equity, most are down to a lack of understanding of what it actually involves. The top are:

Perception of cost (30%). It is expensive if you use a lawyer or an accountant who don’t specialise in this area. However digital platforms, like Vestd, are only a tiny fraction of this cost and greatly reduce the risk of making the kind of mistakes that have major value and tax implications.

Dilution (24%). There are ways to manage this and of course having a slightly smaller share in a very successful business (as a result of more productive and loyal staff) is worth more than having all the shares in one that does not reach its full potential. The report also revealed that a significant number believe it will be too complicated to introduce an equity share scheme or don’t know how to do it (24% when combined), or they have other priorities (21%). However, by using an expert partner, it is now very quick and straightforward to do.

Ifty concluded: “Incentivising and rewarding people with equity has proven business benefits and is becoming the norm among progressive start-ups and SMEs. During the COVID-19 crisis we have launched a number of share schemes for SMEs that wanted to compensate employees, who have in some cases been asked to reduce their salaries and / or hours. It answers a dilemma for small businesses around how to afford and retain great people on a small company budget.”

This was posted in Bdaily's Members' News section by Katherine Adams .