'Crazy' accounting proposals will hit profit share schemes

Many companies will abandon employee profit-sharing schemes that pay bonuses in shares if they have to follow the Accounting Standards Board's “crazy” new accounting proposals, say solicitors specialising in the schemes.

Representatives of around 70 solicitors belonging to the Share Scheme Lawyers Group have written to the Accounting Standards Board asking it to scrap proposals put forward by its Urgent Issues Task Force (UITF) for companies to charge the cost of their share schemes to their profit and loss accounts.

Patrick Moone, head of employee benefits at Nabarro Nathanson and an SSLG member, said: “When share issues are allotted at less than market value, existing shareholders lose out, not the company.

“An issue dilutes the shares of the existing shareholders, but they are the ones who vote and approve new issues. The company is a separate legal entity from the shareholders and its profit is not affected.

“The UITF apparently regards the issue of shares at a discount to employees as some sort of wheeze that ought to be eliminated. It seems to us the proposal is just crazy. Normally with draft regulations we find ourselves tinkering at the edges, but here we came to the conclusion that the only possible response was that the whole thing ought to be thrown out.”

He said that of the 1,000 companies that run save-as-you-earn profit share-schemes for a total of around one million employees, nearly all of them offered shares at a discount of up to 20 per cent and thus nearly all would be affected.

“I spoke to one major retailer that operates a scheme; it said that if it had to charge it to the profit and loss account, it would be around £10m off its profits.”

The UITF, which is meant to tidy up anomalies in accounting procedures, gave interested parties only four weeks, until 7 November, to comment on its draft.

It meets later this month to decide whether to make its proposals a standard accounting procedure, which auditors will be obliged to check before signing off accounts.

Moone called for a wider and longer consultation.