HBOS workers lose millions in staff loyalty scheme

A SHARE savings scheme for employees of HBOS is being investigated by union leaders, as thousands of staff have seen savings worth millions of pounds almost entirely wiped out after being pressured into buying the bank's shares.

Alan Steel: 'Heads should roll, and not just in boardrooms'

As many as 15,000 HBOS employees had been putting some, if not all, of their annual cash bonuses into the scheme buying HBOS shares.

But the value of the shares fell more than 90 per cent between the beginning of 2008 and when the bank was formally taken over by Lloyds TSB last month.

Accord, the trade union which represents HBOS staff, is looking into the Sharekicker scheme as some employees have claimed they were pressured into investing their bonuses.

Some staff said questions about their commitment to the company were raised if they did not participate and they feared it would harm their prospects at the bank.

The union is investigating to see if this amounted to mis-selling and has put a case to its solicitors. In a letter to members, which The Scotsman has seen, the union said the matter had been referred to its legal advisers.

A bank spokesman denied the company sanctioned pressure on employees to buy, or misrepresented the risks of buying shares.

He said: "We have at all times communicated to our colleagues the fact that share prices, including ours, go up as well as down. It has always been a matter of personal choice as to whether a colleague participates or not in any of our share schemes.

"We are proud of the fact that so many HBOS colleagues have chosen, over the years, to invest in HBOS shares."

Last month, employees were told the Sharekicker scheme would no longer be provided following the official takeover of HBOS by Lloyds TSB, which was completed on 19 January.

Annual bonuses – on average about 4,000 – could have been translated into shares worth 6,000, but would now only be valued at around 600.

One former employee told The Scotsman that he had seen the value of his share pot go from 250,000 to "much less" than 25,000.

Jim Shields, 60, from Edinburgh, said he felt "misled" by the bank and its management following the disastrous collapse in the value of his nest-egg.

"They have let us down every way you can think of," he said. "We are extremely disappointed."

The scheme worked by buying HBOS shares with the bonus, then after three years 50 per cent more free shares would be added to the investment.

In a letter to employees in 2006, Sharekicker was described as "a great deal".

The letter added: "With Sharekicker, buying shares is low-risk – because you get matching shares for every two you hold, the share price would need to fall by a third for you not to get your original investment back. And if the share price rises, so does your gain."

As shares in HBOS are no longer being publicly traded, employees were paid a cash equivalent for their Sharekicker shares.

Encouragement from bank bosses promoting the Sharekicker programme was labelled "emotional blackmail" as well as bad investment practice by one independent investment manager.

Alan Steel said bank employees he had dealt with had experienced pressure to buy more shares.

In addition, many were relying completely on HBOS shares for their savings and pensions, an investment strategy he described as being risky.

He claimed HBOS may have neglected its responsibility to staff as senior figures were likely to be more aware of the risky nature of the bank's operations than employees.

Mr Steel said: "The basic, simple rule of investment is don't put more than 10 per cent into anything. Spread it. It is basic common sense.

"If the employees did not take up these issues, it was regarded as a black mark.

"The people in the organisation, surely they have a responsibility to their staff? Why are they putting emotional blackmail on to staff to take the shares rather than getting the bonuses they deserve? Why the pressure to buy the shares? Increasingly, they must have known this business was at risk."

When the bank began issuing free shares to employees in 2005, it claimed to have "the largest incentive scheme in the FTSE 100" based on its cash and shares bonus scheme.

Accord admitted "the prospects of success do not seem great" for any Sharekicker challenge because there was, as yet, little evidence the bank had breached Financial Services Authority procedures.

A union source said: "I am fairly sure HBOS would have already checked anything it has produced was on the right side of the line.

"But whether some managers went ahead and encouraged people more than they should have done, that is always a possibility."

BACKGROUND

IN 2005, HBOS claimed to have one of the best employee incentive programmes among FTSE 100 companies, thanks to its generous staff share packages.

Some employees – many of whom were on average salaries – made HBOS shares the focus of their savings or pension arrangements.

The Scotsman has confirmed reports of staff with long years of service building up a 300,000 pot – only to see this dwindled to 30,000 – following the bank's disgraceful share performance in 2008.

Free shares were an added bonus for those employees that took advantage of the bank's other share programmes.

In addition to a "share save" scheme, in which employees could buy discounted HBOS stock monthly, it also operated a Sharekicker plan, whereby staff were encouraged to transfer a cash bonus into shares. The annual cash bonus could be worth 10 to 15 per cent of an employee's salary, subject to agreed targets.

In 2007, the last year HBOS published annual results, employees were awarded an average of 4,000 each after the bank revealed record profits of 5.4 billion.

It is estimated that more than 15,000 staff put cash bonuses worth thousands into shares via Sharekicker.

Many employees made HBOS shares the focus of their savings or pension arrangements, but, in 2008, the value of the stock fell by more than 90 per cent.

"With HBOS's track record, we thought our savings were secure"

"YOU are talking to a very angry man," says Jim Shields, left, a former HBOS employee who is now retired and who has seen the value of his share pot go from 250,000 to "much less" than 25,000.

Mr Shields, 60, says he feels "misled" by the bank and its management following the collapse in the value of his and his wife Lynn's nest egg.

"They have let us down every way you can think of. We are extremely disappointed. I don't know of any of my former colleagues who took up any of the subsequent share issues, we just don't trust them anymore.

"We have completely lost faith in the bank's management. They were good payers in terms of salary, but not the best. When you did receive the bonuses, you thought, 'That is a little boost to the salary'.

"By other standards they were good employers. The terms and conditions of employment were good.

"But I feel we were misled – 'Put your money into this and nothing can go wrong with us', that sort of thing.

"As and when things did start to go wrong, no-one in their right mind knew how quickly it would deteriorate. It has been devastating these last 12 months."

Mr Shields worked for HBOS's Intelligent Finance online bank for five years. His wife worked in various roles in bank branches and head office in a career spanning 25 years.

They considered their investment in HBOS shares a "big part of their financial planning".

Together they had a 250,000 nest egg of HBOS shares – now worth far less than 25,000.

As a result, the couple have had to give up their holidays, but they are still just managing to stay in their house, a modest semi in south Edinburgh.

Mrs Shields, 54, has had to go back to work as a recruitment consultant. Her husband is looking for work, but at 60 is finding it difficult.

"The things that we used to look forward to, a couple of holidays a year, we can't anymore," he says.

"We are holding our own in terms of being able to live in our house, but our savings have been completely eroded."

The Shields paid all of their annual cash bonuses into the HBOS Sharekicker scheme. He points out the bank told its employees "investing in Sharekicker is low risk".

Mr Shields also invested 20 to 100 a month in HBOS share options and, as a result of a banking administrative error regarding the time he was allowed to cash these in, he is out of pocket a further 7,000.

"At the end of the day I think the fault lies with ourselves. But we never expected to be let down by the bank like this. With the track record they had we thought our savings were completely secure."