IDS HR Studies Update 795, April 2005

SAYE schemes

• Describes the rules on eligibility, savings contracts and exercising share options
• Sets out the key Inland Revenue requirements including annual savings limits
• Highlights the tax advantages for employees and employers
• Gives examples of typical employee gains at scheme maturity
• Includes details of the SAYE schemes offered by 25 companies

The Save-As-You-Earn (SAYE) scheme is an Inland Revenue-approved all-employee share option plan (sometimes referred to as Sharesave). It offers employees a risk-free opportunity to invest in the success of their employer by acquiring an option to buy company shares for a fixed price at a later date. The shares are purchased at the end of a special savings contract that can last for three, five or seven years.

For employees, there is the prospect of significant gains if the company's share price rises substantially higher than the option price, which is fixed at the beginning of the contract. And there is no risk involved, because employees can simply take a refund of their savings if the share price has fallen by the time the contract matures. There are also tax advantages for employers and employees including a tax-free bonus for scheme participants at the end of the savings contract.

Within the legislative and tax approval framework, there is scope for companies to make decisions about eligibility requirements, the length of the savings contract and the amount by which the option price is discounted. This article takes a detailed look at how SAYE schemes work and includes details of the SAYE plans operated by 25 companies. It reports on the participation rates for these schemes and the average amounts being saved by employees each month. It also gives examples of the typical gains made by employees in some recent scheme maturities.

This in-depth article is the lead feature in the IDS HR Studies Update for April 2005.