Exploring Fractional Solutions: Employee Equity

This blog post has been co-authored by Nigel Watson (Partner, Burges Salmon) and David Edwards (Head of Corporate Secretariat & Shareholder Services at NatWest Group*).

In today's dynamic business environment, the concept of "fractional" has become increasingly popular. From fractional C-suite jobs to fractional shares and ETFs, these innovative approaches offer flexibility and accessibility. While fractional shares are used by some companies in delivering their employee equity plans, they are not prevalent. This blog post explores these fractional solutions and considers whether fractional employee equity could be a viable option for modern businesses.

Traditional Employee Equity Structures: Time for Reinvention

In a world where fractional access is transforming executive talent and investment platforms, is now the time to re-imagine traditional employee equity?

Fractional C-suite Jobs

Fractional C-suite jobs involve hiring executives on a part-time or project-based basis, allowing companies to access top-tier talent without the financial burden of full-time salaries. This model is particularly beneficial for startups and SMEs that need strategic leadership but lack the resources for full-time executives.

Fractional Shares

Like buying a slice of cake rather than the whole thing, fractional shares allow investors to purchase a portion of a share rather than a whole share, making high-priced stocks more accessible. This approach offers several advantages:

• Accessibility: Start investing with smaller amounts.
• Diversification: Spread investments across multiple stocks.
• Flexibility: Invest specific sterling amounts rather than whole shares.

Fractional ETFs

Fractional ETFs enable investors to buy portions of Exchange-Traded Funds, facilitating portfolio diversification without significant capital. Many retail investment platforms like Fidelity and Vanguard offer fractional trading, making it easier for new investors to enter the market.

Fractional Employee Equity

Given the success of fractional shares and ETFs, could employee equity plans become more inclusive by allowing employees to purchase fractional shares?

Benefits:

• Demographically Relevant: For a whole new generation, fractional ownership is becoming a way of life.
• Incremental Gains: If pennies can be diverted from someone’s salary to acquire fractional shares, over time those pennies will make pounds.
• Increased Participation: Makes stock ownership accessible to all employees, irrespective of their level of income or financial caution.
• Enhanced Engagement: Employees feel more invested in the company's success.
• Meeting Expectations: Increasingly, we see the expectations of employee equity holders aligning with services and experiences offered on widely available retail and FinTech investment platforms.
• Talent Attraction and Retention: Competitive advantage in attracting and retaining top talent.

Challenges:

• Administrative Complexity: Managing fractional shares requires robust systems. Companies would need to ensure that their payroll and share administration systems can handle the intricacies of fractional shares, including accurate tracking and reporting. Some do this already, so it can be done.
• Regulatory Compliance: Ensuring compliance with relevant regulations. International companies must often navigate complex securities laws and tax regulations, which can vary by jurisdiction. In some jurisdictions, fractional shares are somewhat of an alien concept, but this will undoubtedly change.
• Communication and Education: Some employees may not fully understand the benefits and mechanics of fractional shares. Clear communication and education would be essential for ensuring employees appreciate and take advantage of these types of arrangements. This is common to all employee benefits and incentives, and we would suggest the concepts here are no more complicated or challenging to communicate than a SIP or cycle-to-work scheme.
• Perception: There may be a perception that fractional shares are less valuable or meaningful than whole shares. Companies might need to address this perception and highlight the benefits of fractional ownership. Again, this is down to communication and education.
• Liquidity and Valuation: Companies would need clear policies for valuing fractional shares or facilitating their sale on the secondary markets. That said, some administrators can and do already offer real-time liquidity in fractional holdings.

Rethinking Ownership: Why Fractional Shares Deserve a Second Look

Some (lucky) companies with very high stock prices or companies where corporate actions like stock consolidations have created fractions have had to look at this out of necessity, probably not strategy. We think all companies should take a thoughtful look.

In the world of employee share plans, size has always mattered, and we’ve been conditioned to think in whole numbers. You get 1,000 options. You exercise 1,000 shares. You sell 1,000 shares (minus tax, of course).

But what if ownership didn’t need to come in such neat, indivisible units? What if a slice of a share, a fraction, could deliver more flexibility, broader participation, and even deeper engagement?

Fractional shares are already transforming retail investing. Now it’s time to ask: could they do the same for employee incentives?

The Hook: Ownership Without Thresholds

Here’s the problem: most employee share plans still operate on a one-size-fits-some model. If shares are priced at £50 each, lower-paid employees, or junior joiners, might struggle to build meaningful holdings or, more to the point, struggle to start to create any level of holding. The data tells us so, and anecdotally we see countless examples of the impact early career share plan participation can have on career-long wealth creation and financial resilience.

Fractional shares remove that barrier. You don’t need £50 to own a share. You might just need £5. And when it comes to incentivisation, participation (not perfection) is what matters.

A £5 shareholding might not sound like much, but it could:

• Spark an interest in equity and company performance
• Build financial literacy
• Enable earlier participation, even during probation periods
• Deliver proportional dividends and value in real time

New Use Cases for Fractional Shares in Share Plans

1. Instant Rewards and Micropayments: Tie small, real-time achievements and recognition (like completing a training milestone or hitting a team target, or participating in wellness programs and activities) to immediate equity, even if it’s just 0.01 of a share. It’s gamification meets ownership. This could even work via AI-powered performance tracking (although that is probably another blog on its own).
2. Employee Savings Plans with Real Impact: Instead of saving up to buy a full share, employees can drip-feed into ownership from day one. Round up payroll deductions to purchase tiny equity stakes every month.
3. Post-termination Portfolios: Leavers often find it hard to retain tiny holdings, especially after tax withholding. But fractional shares enable proportional retention and continued alignment post-exit.
4. Democratise Participation Globally: In jurisdictions where share limits or currency conversion make equity distribution difficult, fractional shares make equity accessible without breaching thresholds.

High Stock Prices: A Barrier to Participation

High stock prices can make a significant difference in employee equity plans. For example, the average FTSE 100 share price is £21, the average FTSE 350 share price is £11.30, and the average S&P 500 share price is $225.

These prices can be prohibitive for lower-paid employees or those just starting their careers. Fractional shares offer a solution by allowing employees to purchase smaller portions of these high-priced stocks, making equity ownership more accessible and inclusive.

But What About the Admin…?

Yes, implementing fractional shares comes with operational and legal considerations. Registry systems, trust mechanics, tax accounting, and brokerage platforms will all need to adapt.

But here’s the good news: fintech has already solved this for retail investors. Platforms offering fractional ETF and equity trading have done the heavy lifting. It’s now a matter of adapting those principles to the corporate context. Share plan providers and some companies have already proved this is very doable.

And with the growing demand for tailored, inclusive benefits, fractional share plans could offer a uniquely modern solution.

Conclusion: The Whole Value of a Fraction

Employee engagement isn’t just about big numbers -it’s about connection - and connection can start small.

Fractional shares offer a radical rethink of what it means to ‘own’ part of a company. They make share plans more accessible, more flexible, and more human.

In a world of fragmented careers and global talent, maybe fractional ownership is exactly what we need to create a greater sense of belonging. One tenth of a share at a time.

*Views and opinions shared are the personal view of the author and not that of NatWest.