Six Myths About Share Plans, Debunked Over a Beer in Edinburgh

Teuchters Bar, Edinburgh. Two practitioners with careers built inside share plans. Nigel Watson heads the incentives practice at Burges Salmon, a full-service law firm. David Edwards has spent 15 years managing equity at NatWest, through a financial crisis, a share price that hit 20p, and a long recovery to £7.

The conversation on Season 3, Episode 1 of Stock 'N Roll was not a panel session. Nobody was managing a position. The result was a set of views you do not often hear said plainly. Six of them are worth putting on paper.

Myth 1: It's tax efficient, so it's good.

Tax efficiency is often how plans get evaluated internally. A plan with a favourable tax treatment gets a tick. Advisory conversations tend to start there too, because much of the technical side of the industry is led by tax lawyers and CTA-qualified practitioners. The question of whether the plan is well-designed for employees can get less airtime than whether the structure is efficient from a tax perspective.

Nigel Watson's view is direct: somebody once told him that a good plan is one that pays out, and a bad plan is one that doesn't. That's almost regardless of the tax wrapper.

Tax efficiency is an optimisation layer. It turbocharges returns when a plan performs. But it doesn't rescue a plan that doesn't deliver value to the participant. There's a secondary problem too: many participants don't actually understand the tax treatment, so the efficiency you've built in often arrives as a quiet bonus rather than the headline benefit you planned for.

If you had to choose between a tax efficient plan and a simple, well-understood one, the simple plan probably does more for employee engagement, even if it leaves a little more with the taxman.

Myth 2: We have clawback, so we are protected.

Clawback became standard in remuneration policy after the 2008 financial crisis, when the G20 agreed new principles underpinning financial sector pay regulation. The idea: if an executive's performance later turns out to have been built on something that unravelled, the company can recover what it paid out.

In practice, Nigel is clear about what clawback is really doing for most boards. He recalls a conversation with a RemCo chair: "He said to me, 'I'm going to want it, aren't I?' I said, why is that? He said, 'Because if it's on my watch, I want to be able to say to the press I've done everything I can to stop this happening.'"

That is the honest version. Clawback protects against the optics as much as the outcome. The legal mechanics are often imperfect. It doesn't always travel across borders. Enforcing it is harder than having it.

None of which means it's worthless. The governance signal is real. But "we have clawback" is not the same as "we are protected." The plan still has to be designed well, governed well, and communicated honestly. Clawback doesn't compensate for any of those things going wrong.

Myth 3: If we communicate it, people will understand it.

David Edwards puts this plainly: "You could have the best comms suite in the world, but if people aren't reading it or listening to it, it doesn't make any difference."

Nigel goes further on the language itself. A lot of people in the industry reach for the word communication when they should use comprehension. They are not the same thing. Communication is what you send. Comprehension is what lands.

The gap is larger than most organisations want to acknowledge. Even with simplified materials, multiple channels, and regular touchpoints, the basic mechanics of a plan can stay opaque to most participants. David gives an example from NatWest's SAYE: employees who didn't realise their savings were returned if the option expired underwater, believing they had lost their money. A fundamental feature of the plan, clearly communicated for years, still not understood by everyone who needed to know it.

Part of this is human nature. Employees are busy. Equity is not their day job. The bandwidth they bring to a share plan communication is a fraction of what the team that wrote it assumed. Building a comms strategy around comprehension means accepting that reality and designing for it.

Myth 4: Give everyone ownership and you've done your job.

Both David and Nigel are broadly in favour of wider equity ownership. Nigel goes so far as to say every employer above a certain threshold should probably be required to offer employees a stake in the business. David points to the gap between UK and US levels of individual stock ownership and sees real opportunity.

But the myth isn't that broad ownership is bad. The myth is that issuing equity is enough.

Nigel describes companies that treat equity as almost self-executing: "You throw out the word ownership, you throw out alignment, and somehow magically these things will take care of themselves." They don't. Without the story, the context, the ongoing education, and a genuine attempt at comprehension, equity is a transaction. The participant holds a share but doesn't feel like an owner.

The story has to hang together end to end: why we're offering this, what it means for you, what the realistic outcomes are, and what happens when things don't go to plan. Companies that skip that work usually find out what they missed when the plan is under pressure.

Myth 5: Best practice is best practice.

Market practice gravitates to the median. What the industry calls best practice is what most organisations of a similar type are doing. It is a useful starting point, not a mandate.

The example in the episode is vesting periods. The standard in many markets is a one-year cliff followed by monthly vesting. One company in the conversation wanted something different: three years to first vesting, four to full vesting, because the person being hired wouldn't materially contribute until year three. The argument for deviating from market practice was substantive. The economics only made sense on a longer horizon.

Nigel's framing is worth keeping: "Every situation is different, every circumstance is different. If there's an overall aim for a particular organisation, you've got to be able to say market practice is great, but it's not suitable for what I'm trying to do."

The risk of defaulting to best practice is the median outcome: a plan that is broadly acceptable to most types of company, adequately understood by most types of employee, and optimally suited to none of them. The organisations that get the most from their equity plans tend to do the harder work of understanding their specific situation before reaching for the template.

Myth 6: A plan that works in a bull market is a good plan.

This is perhaps the most important myth, and the one least often interrogated in advance.

When things are going well, when the stock is rising and the plan is paying out, most plans look fine. The real test, as Nigel puts it, is when it doesn't go to plan. That is when you find out whether you have something that can adapt and flex, or whether the foundation was thinner than it appeared.

David's 15 years at NatWest are a useful reference point. A share price at roughly 20p, a financial crisis, a long road back to £7. That journey shaped how NatWest approaches equity today, with what David describes as a more conservative approach than some organisations might take, but one they feel is justified by what they went through.

The implication for plan design is straightforward: build for the difficult scenario, not the comfortable one. What does communication look like when the share price drops? What does governance look like under pressure? What is the message to employees when a poor quarter might be a harbinger of something worse? These questions are easier to answer in advance. Companies that build the playbook before they need it tend to handle adversity better than those that start from scratch when it arrives.

The remedy is the same each time.

Six myths that surface regularly in boardrooms, RemCo meetings, and plan design conversations. None of them are malicious. Most start from sensible premises that get overextended. The remedy for each is roughly the same: more honesty, earlier, about what a plan is actually doing and for whom.

The second article in this series covers the practical side: six things to take back to your own plan from the same conversation.

To hear the full conversation, listen to the Stock 'N Roll podcast episode. If you're ready to pressure-test your own plan design, get in touch with the experts at Optio Incentives today.

"Please note: This podcast content is for informational purposes only and is not intended as professional advice. Always consult qualified legal, tax, and financial advisors for guidance specific to your situation."

Stay tuned for more episodes of  Stock 'N Roll as we continue exploring the world of equity compensation: from theory to practice.