A new phrase emerged during the global banking crisis. A powerful phrase that incited so much outrage it prompted an entire industry to reconsider how it remunerated its staff.
Banker’s bonuses were rarely away from the headlines and, even today, the first thing a journalist is likely to look at when a bank issues its annual report is the amount set aside for salaries and bonuses.
Banking is traditionally a heavily incentivised industry, with significant bonus payments used to motivate people to improve their performance. But one-off cash payments can be seen to encourage irresponsible behaviour and so banks needed to find another method of motivating their staff in a way that was more sustainable.
This is one of the reasons why vested shares have become more popular. A lot more popular. Executive search firm, Armstrong International said that investment bankers in Wall Street and the City of London had up to 70% of their year-end bonuses paid in shares rather than cash during the crisis and this is a trend that hasn’t been reversed.
Vested shares are shares made available to employees over a staggered period of time, as long as the employee still works for the business at the time of the ‘vesting’. This has the dual benefit of encouraging staff retention and a more long term, more sustainable approach to building the business.
And vested shares are not the preserve of the banking industry. They are increasingly popular among business start-ups and growing businesses.
So, why should you care?
The average house price is now £204,000, which is higher than it has ever been and so it is increasingly important for anyone considering a mortgage application to be able factor in every element of their income as part of their affordability calculation. While a cash bonus is more difficult for a lender to include in its affordability calculation than someone’s salary, vested shares layer another level of complication on top of this.
But it is possible for a lender to include vested shares within affordability. As Kensington has experienced underwriters to assess every application we are able to take a look at any vested shares earned by your client and we will include up to 50% of vested share income as part of our affordability calculation if it is a regular part of their remuneration package.
Many customers may not even know that they can include vested shares as part of their income within a mortgage application, so make sure that this is a question you ask if you think there is a possibility it may be part of their remuneration package. And, for those customers who do want to include vested shares, make sure you speak to a specialist, like Kensington, that is able to include all elements of their earned income.
