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The report Tax-advantaged employee share schemes: Analysis of productivity effects examines the impact of tax-advantaged share shcmes on UK company performance.  

"Many companies reward their employees by granting them shares – or share options – as a complement to their earnings, thereby giving employees a personal stake in the company’s future performance. By offering tax advantages to employees involved with such schemes, it is hoped that participation can be increased leading to growth in employment and productivity," the authors say.

"Such employee share schemes are a subject of public policy concern - in particular, is the cost of these schemes warranted in terms of the benefits to the economy? On the one hand, tax-advantaged schemes are costly to the government - the cost of the schemes to the Exchequer was estimated at around £800m per annum in tax and National Insurance relief in 2002/03. On the other hand, such incentives are currently deemed to be warranted because share schemes are associates with increased productivity and employment in the firms concerned." 

The report concludes that the results indicate that the tax advantages of these share schemes are not sufficient on their own to increase company productivity.

There is no significant effect from having an approved share scheme on gross value added for either listed or non-listed companies, the report found.

"Tax-advantaged share schemes implemented on their own do not appear to improve performance. Companies with only a tax-advantaged scheme do not appear to have significantly higher productivity. However, if companies implement non-tax-advantaged share schemes at any point in time and a tax-advantaged share scheme, there is weak evidence - at the 10 per cent confidence level - that productivity increases by around 6.1 per cent in the long run.

When disaggregated by industry, productivity increases significantly by 7.2 per cent for manufacturing and 28.9 per cent in wholesale and retail when companies have tax-advantaged share schemes.

"It seems unlikely that a share scheme on its own would generate such a large increase in value added; as such, this result should be treated with caution until verified by other studies on the wholesale and retail industry."

The effect of a tax-advantaged share scheme increases as company size increases, with firms only in the upper quartile, i.e. those with an annual turnaround of greater than £36.3m, experiencing a statistically significant productivity effect. 

"The results indicate that the use of a tax-advantaged share scheme is not sufficient on its own to increase company productivity. However, there is some evidence that SAYE schemes in larger companies may have an effect. For tax-advantaged schemes to be effective in increasing productivity, other factors, such as schemes that are not tax-advantaged, company size, and being a listed company increase the probability of a significant productivity effect," the report concludes.