Asda Staff Buy £515m Of Cheap Shares

Published in Company Comment on 7 March 2012

This splendid savings scheme has made thousands of Asda workers richer.

According to supermarket chain Asda -- part of giant US retailer Wal-Mart (NYSE: WMT) -- its employees have saved £515 million into its headline share-saving scheme.

SAYE, what a deal!

Asda launched its first SAYE (Save As You Earn, or Sharesave) scheme 30 years ago, in 1982.

Since then, its workers -- from shop assistants to top directors -- have put away a total of £515 million in SAYE contributions. On average over the past five years, 25,000 workers have contributed to Asda's SAYE schemes, contributing a total of £49 million last year.

Asda's SAYE scheme allows any permanent employee to save between £5 and £250 a month for three years. This accumulated cash pot of between £180 and £9,000 can then be used to buy Wal-Mart shares at a 20% discount to the share price three years earlier.

When their SAYE schemes mature, Asda workers have three choices:

1. Take their cash, plus a tax-free bonus, and walk away;

2. Swap their cash for discounted shares and sell them immediately; or

3. Buy and keep these discounted shares.

Given that Wal-Mart shares are roughly a fifth (20%) higher than they were three years ago, sensible SAYE savers will use their cash to buy shares in their employer. Those who are risk-averse can sell these shares for an instant 50% gain -- thanks to buying shares at 80% of their market price and then selling them in the market for 120% of the original, undiscounted share price.

What's more, as any gains will fall within the Capital Gains Tax personal allowance of £10,600 for the 2011/12 tax year, these profits will be completely tax-free.

Where's your SAYE?

Although Asda's Sharesave scheme was a runner-up at the Employee Benefits Awards 2011, it's less flexible than other large companies' SAYE plans.

As I wrote last May in 'The Best Investments In Britain', most Sharesave schemes allow members to save over three, five or seven years (with contributions stopping after five years). By offering only a three-year scheme, Asda may have restricted the long-term profits savers could make.

Nevertheless, I am a huge fan of SAYE and similar employee share schemes, all of which boost workforce remuneration and strengthen the bonds between employer and employee. However, thanks to its no-risk guarantee to return your cash in full, SAYE remains my number-one favourite savings plan.

Alas, as a self-employed freelance writer, I cannot contribute to any such schemes. Likewise, public-sector workers and those not working for companies with traded shares cannot share in these rewards.

Then again, my wife works for a huge global corporation and contributes the maximum allowed to three different employee share schemes. In more than two decades at her firm, Mrs D has made six-figure sums from steadily buying shares in her employer.

In summary, why not get on the road to riches by applying to join your company's next SAYE scheme? I guarantee you won't regret it!

> Get the latest on investing and the markets, direct from the desk of David Kuo. You'll also receive a special free report on '10 Steps To Making A Million' if you join The Motley Fool Collective today.

More from Cliff D'Arcy:

Share & subscribe

Comments

The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

lukemg 07 Mar 2012 , 3:24pm

One note of caution, this can lead to a farmbet for some people on one company, especially if they hold onto the shares. I know someone at a bank who lost a 6 figure sum in this way.

Kwild53 07 Mar 2012 , 3:32pm

Same as Tesco then? It could swing in the right direction for them.

BrnzDrgn 08 Mar 2012 , 12:48pm

And this is the type of company I try and avoid investing in, I love for the employees to get shares but it waters down the normal share holders investment in the company.

Jimi97 08 Mar 2012 , 6:34pm

There is also the problem that if the company goes feet-up and you have a large part of your savings in its shares, you lose both your income and your savings. Ideally, employees ought to have a good idea of the prospects of their employer, but employees are often the last to appreciate the significance of any warning signs.

CunningCliff 08 Mar 2012 , 8:19pm

BrnzDrgn, "And this is the type of company I try and avoid investing in, I love for the employees to get shares but it waters down the normal share holders investment in the company."

Er, almost all members of the FTSE 350 operate SAYE schemes (and/or other share-related savings plans) for their employees, so you simply can't avoid them, BrnzDrgn!

Cliff

Join the conversation

Please take note - some tags have changed.

Line breaks are converted automatically.

You may use the following tags in your post: [b]bolded text[/b], [i]italicised text[/i]. All other tags will be removed from your post.

If you want to add a link, please ensure you type it as http://www.fool.co.uk as opposed to www.fool.co.uk.

Hello stranger

To add your own comment, please login.

Not yet registered? Register now.