How we overcame barriers to launch an equity plan in Russia
Hiring new staff is a time consuming and costly task, so motivating and retaining existing employees is important. For us at EVRAZ, offering our top employees equity is a great way to do this.
Many governments around the world support the implementation of employee share plans and create environments which make both offering and participating in these plans attractive. The UK, for example, introduced a policy last year to allow employees to contribute larger amounts of money each month to UK tax advantaged plans. However, not all countries are at the same stage of development in regards to their equity compensation culture.
Russia is certainly an emerging market in the share plan landscape. Of Russia’s ninety largest companies surveyed by PwC and E&Y in 2014, only 30% of these were offering equity. And where employers do offer a share plan, because employees generally haven’t experienced them before, a low level of understanding tends to result in low take-up rates.
At EVRAZ, we felt we could do more to promote the benefits of employee ownership within this market and decided to implement a Long Term Incentive Plan (LTIP) for our senior employees.
In an environment with limited infrastructure to efficiently hold and trade stock, this was always going to be a complex task – one that would present challenges for us at every stage of its implementation.
What were the key challenges?
Firstly we had to overcome the legislative barriers around share plan administration. Russian banks require additional payment details to complete transactions and tax authorities ask for specific layouts of dividends and contract notes. These specifications are not needed for any other country, so would require extra time and attention in order to comply.
We were also faced with social challenges. In Russia, online trade is still developing and companies that do offer share schemes will often administer them in-house. This means that individuals are cautious when placing any sale instruction online, particularly for large amounts of money, as it is still relatively unknown to them. To reassure participants that our share plans website is trustworthy, our online trading facility would have to be simple and easy to understand.
So innovative solutions were put in place...
In 2012, we moved our share plan administration to Computershare – an important decision towards improving our participant experience and overcoming these international barriers.
Together we created an online portal to capture the additional information required by banks, and spent time designing statements that would meet local requirements. The whole plan was moved to an online trading solution, maximising efficiency and enabling participants in eight different countries to trade through an EVRAZ-branded website.
To reassure employees, we put together a set of detailed participant communications (available in both English and Russian language) guiding participants through each stage of the process. We made this process clear and easy to use.
This successfully paved the way for a larger take up of all-employee share plans in the Russian market
We now have 150 senior employees participating in our executive share plan. In 2015, we received a GEO award for ‘Best use of a share plan in an emerging market’ and were globally recognised for our commitment and efforts within this challenging region. The programme is continuing to grow from year to year, which really shows the level of engagement and the growing appeal of being a shareholder in Russia, and has created even more potential for the future. We’re really pleased with the success of our LTIP.
Founded in Russia as a small metal trading business in 1992, EVRAZ has since expanded and is now a vertically integrated, steel, mining and vanadium business. They employ approximately 105,000 people with operations in eight international jurisdictions. The headquarters are based in London; however they operate mainly in Russia.