Shortening the holding period for SIP shares: A win for employees, businesses, and the UK economy

Recently, Cytec joined more than 50 UK employers in supporting ProShare’s call to update all-employee share plans. A key element of the proposal is to reduce the mandatory holding period for Share Incentive Plan (SIP) shares from five years to two. The aim is to broaden participation and help more employees share directly in the value they create.

ClearScore’s CEO, Justin Basini, recently told City AM that encouraging wider share ownership is key to strengthening the UK’s capital markets and long-term investment culture. His comments reflect a broader view: enabling more employees to take part in share plans is not only positive for individuals but also supports stronger and more resilient UK businesses.

Benefits for employees and shareholders

Share Incentive Plans are designed to broaden employee ownership. To achieve this, they need to work in line with the realities of today’s workforce. The current five-year holding period can act as a barrier, especially for early-career employees or those in roles with shorter typical tenure. A two-year holding period brings the benefit within reach for a far wider portion of the workforce.

Aligned with modern employment patterns

A two-year timeframe reflects how long many employees stay in a role today. This alignment increases the likelihood that employees can take part and stay engaged throughout the holding period.

Clearer link between contribution and reward

When ownership feels achievable in the near term, employees are more likely to feel connected to business performance. This can support higher engagement and a stronger sense of shared purpose.

Shared value and earlier wealth-building

A shorter holding period allows more employees to benefit from equity growth, not just those with long tenure. This helps broaden access to long-term value creation and reinforces a sense of collective stake in outcomes.

Benefits for businesses

Employee share ownership is not only a reward mechanism. It can play an important role in strengthening culture, performance, and organisational alignment. Reducing the SIP holding period from five years to two helps businesses realise these benefits more effectively.

Higher uptake and clearer relevance

A shorter holding period makes SIP participation feel achievable for more employees, allowing organisations to position the scheme as a meaningful part of their reward and engagement strategy.

Modern retention support

Retention is increasingly influenced by purpose, culture, and meaningful benefits rather than long lock-in periods. A two-year holding requirement provides a positive incentive within the window where most career decisions happen, without relying on extended tenure-based commitments. This can lead to stronger alignment with business goals that ultimately will benefit the business.

A competitive and inclusive reward proposition

A two-year SIP structure is simpler to communicate and easier for employees to understand and act upon. For employers, particularly mid-sized organisations, this offers a competitive advantage when attracting and retaining talent.

Simpler communication and administration

“Hold for two years and benefit” is clear and easy to communicate, supporting higher and more consistent participation. This reduces drop-off and supports more consistent scheme participation, helping organisations realise the cultural and performance benefits of shared ownership.

Benefits for the government and wider economy

Reforming the SIP holding period is a measured economic adjustment that aligns directly with the Government’s wider priorities: boosting productivity, broadening wealth ownership, and strengthening long-term growth.

Broadens wealth ownership

A shorter holding period opens participation to groups who are less likely to remain in role long enough to benefit, providing a more balanced opportunity to build long-term financial value.

Strengthens a long-term investment mindset

Wider employee ownership can support increased engagement with company performance and a more long-term approach to value creation. This aligns with ongoing efforts to encourage broader participation in UK capital markets and long-term savings behaviours.

Improves organisational and household resilience

Businesses with wider employee ownership have been shown to demonstrate stronger stability during periods of change. Similarly, even a modest asset ownership can contribute to greater financial confidence for households. Increased SIP participation can therefore support resilience at both organisational and individual levels.

Objections and considerations

Whilst there is broad support for reducing the SIP holding period, there are some considerations raised by policymakers and remuneration committees. These are reasonable points and can be addressed through plan design and clear communication.

Retention and long-term alignment

The five-year holding period was originally designed to support retention. However, average employee tenure in the UK is now typically two to four years. As a result, the current holding period can limit participation rather than support it.

Organisations that want to encourage longer-term alignment can still do so through phased matching performance conditions or linking SIP participation to development and progression frameworks.

Impact on tax revenues

SIP tax relief is already an established feature of the UK tax system. Reducing the holding period doesn’t introduce a new cost, it simply ensures that the existing relief reaches a broader segment of the workforce. In doing so, it increases the overall effectiveness of the policy. Wider employee ownership has been shown to lead to improved efficiency and business growth, which in turn expands the tax base through higher earnings, profits, and consumption. Over time, these gains can then offset the initial fiscal impact, making the reform both economically and fiscally sustainable.

Shareholder dilution

Employee share plans operate within Investment Association dilution limits, ensuring that overall shareholder value is protected. In practice, SIP allocations account for only a small fraction of total share issuance. Where participation in a SIP helps improve productivity, retention, and company performance, the resulting growth in business value can outweigh any minor dilution, benefitting the shareholder and company in net terms.

Implementation considerations and best practices

If the SIP holding period is reduced from five years to two, the legislative change itself would be straightforward. The impact for each organisation will come from how the plan is communicated, positioned, and administered.

Communicate clearly and early

Employees should be able to understand:

Short, plain language explanations and regular engagement tend to be more effective than one-off announcements or policy documents.

Linking participation to culture

SIPs are most effective when they reinforce the principle that everyone contributes to the organisation’s success. Positioning share ownership as inclusive and relevant across roles and levels helps strengthen internal alignment and shared accountability.

Balancing early accessibility with longer-term alignment

For organisations that want to encourage longer-term ownership, matching shares or phased incentives can be introduced beyond the two-year point. This allows a shorter horizon for accessibility whilst maintaining scope for extended alignment where appropriate.

Ensure administration is efficient and scalable

Higher participation can increase the administrative workload. Reliable record-keeping, insider list checks, lever processes, and participant communications should be supported by systems that can automate workflows and provide clear audit trails. A platform that offers employee self-service can also help maintain clarity and consistency.

Cytec’s perspective

At Cytec, we support this reform because we see first-hand how participation in all-employee share plans strengthens governance culture, boosts employee engagement, and supports long-term sustainability. Reducing the holding period is a practical step that helps organisations unlock these outcomes sooner and more consistently.

Conclusion

Reducing the SIP holding period from five years to two is a practical and proportionate modernisation. It maintains the purpose of employee ownership whilst ensuring the structure reflects how people work today. This adjustment would allow more employees to benefit from the value they help create.

By making SIPs more accessible, the reform strengthens governance culture, supports long-term organisational success, and contributes to a more resilient and productive UK economy.