Tesco staff share windfall – but payouts are dwarfed by chief executive’s £10m package

Some 20,000 Tesco employees have enjoyed quite a windfall from the company’s share save scheme, each getting a little piece of a £30m payout.

Telling the world about this is smart on the part of Tesco’s PR team, coming just a few weeks after quite the kerfuffle about chief executive Ken Murphy’s £10m earnings package, which was more than double his payout from the previous year and represents a record for the group.

It means Mr Murphy received roughly a third of the entire sum shared out among the participating 20,000 Tesco employees.

Nevertheless, it is quite a generous scheme. Anyone saving through it is given the option to buy shares at a sharply discounted price after three or five years; the price is based on the market valuation at the time the scheme starts. If the shares have increased in value, members can either use their funds to buy and keep the cheap shares or sell them at a handsome profit.

A Tesco worker who invested the average of £68 a month for the last five years stands to net £6,640 from their original £4,080 investment – a profit of £2,560. Anyone able to invest the maximum of £500 a month will realise a personal profit of almost £10,000 from the three-year scheme and nearly £20,000 from the five-year version, assuming that they opt to sell the shares immediately.

What if things don’t go so well? The risks are strictly limited because the scheme member gets their money back. It means they will have lost any interest they might have received through putting the cash in a savings account, but it’s still essentially a one-way bet.

Despite heavy internal promotion, take-up is low. Tesco has around 300,000 employees in the UK, so fewer than one in 10 will be surveying holiday brochures or planning home improvements from the scheme’s windfall.

This is one of the criticisms raised by the High Pay Centre over this sort of scheme. “I’m sure it’s well-intentioned but the drawback with it is that it doesn’t involve the entire workforce so it potentially creates inequality,” says director Luke Hildyard.

“It is also very difficult for low-paid workers coming out of a cost of living crisis to save and it is not done at sufficient scale to allow a worker voice in the company.”

This is quite true: given that most will simply sell, the number who opt to remain as employee shareholders is going to be very low.

Indeed, the number of companies with share schemes that involve all employees, as opposed to opt-in schemes, is low (around 16%, according to the Chartered Institute of Personnel & Development). Performance-related bonus schemes that offer free shares or cash, or a combination of the two, are generally restricted to management, professional and technical staff.

This is true of Tesco, although the company says a “thank you payment” of around £300 for full-time workers not in its performance bonus scheme has been paid out to thank employees for their “excellent” work. And the variable pay in the form of bonuses is not all that popular with lower-paid staff, who understandably tend to prioritise the security of higher, guaranteed basic pay in hard cash.

Schemes such as Tesco’s – and the similar one operating at Sainsbury’s – are still to be welcomed; they provide a facility for workers to opt into the company’s success if they wish. But they aren’t going to put a lid on the debate over an ever-widening gap between Britain’s boardroom top earners and those lower down the corporate food chain.

And if the next government wants to increase employee share ownership – something both the main parties have mooted – it will require a different approach. Not everyone can afford to save.