More Employees to Share in IPO Profits
Trend signals a major departure from the region's traditional employee compensation practices
A growing number of Middle Eastern companies going public are planning to offer share allocations in their IPO to their management and employees, according to a study just released by GulfTalent.com.
The finding marks a major departure from traditional employee compensation practices in the region which generally exclude any form of employee share ownership. With over 100 of the region's most prominent companies planning to go public over the next two years, the new trend could have wide-reaching implications for employees, shareholders and regulators.
GulfTalent.com's report, entitled "Employee Participation in Middle East IPOs" was based on interviews with a representative sample of CFOs, HR Managers, investment banking professionals and regulatory authorities across the GCC. [See full report
]
According to the study, the recent surge in IPOs across the Gulf and Middle East markets and the heavy oversubscription of these offerings has created an opportunity for companies to reward their employees with a preferential allocation of shares in the IPO. Under this, employees would subscribe to the shares with their own funds and at the same price as other retail investors, except that they would have a certain number of shares reserved for them.
Given the current pattern of heavy oversubscription of IPOs, such an allocation would mean that, while ordinary investors may receive just 1-2% of the shares they bid for, the company's own employees can potentially receive all or most of the shares they can afford to purchase. According to GulfTalent.com, with share prices typically surging on debut, such an allocation in itself would represent a significant reward to the employees, at no cost to the company or its shareholders - since the employees would be paying the same price as any other investor in the market.
A common practice in the developed markets of Europe and North America, and increasingly being practiced in emer...Continue Reading on GulfTalent.com
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