Fancy £175,000 off the price of a new holiday villa?
How would you like £175,000 off the price of a new holiday villa? Or a 10% saving on the price of a flight? These are just a couple of the perks that shareholders in some companies can receive.
Many companies like to make their products and services available to their owners at a discount, and it often makes sense commercially, as free or discounted samples can helps the owners understand the business and provide feedback. It can also increase shareholder loyalty, making holders less keen to sell, but I'm not convinced that's a good motive.
Big ticket items
By far the biggest shareholder discount that I found was available to shareholders of Minoan Group (LSE: MIN), a small property development company building holiday homes in Crete.
The company has a sliding scale of discounts, starting at £7,500 off the price of a two-bedroom apartment for people holding a minimum of 5,000 shares for at least a year, up to £175,000 off the price of a four- or five-bedroom coastal village villa for those who have held a minimum of 500,000 shares for at least three years.
Shares in Minoan currently trade around 20p, so availing of the maximum discount would tie up £100,000 for three years, and who knows how the market for Greek holiday homes will look in three years' time. Before rushing in, you also need to consider that the company is tiny (a real minnow … sorry, I couldn't resist it). With a market capitalisation of just £12m, buying £100k worth may not be so easy, and only one of the directors owns a stake that large.
Closer to home, several builders also offer discounts on the prices of new houses:
- Barratt Developments (LSE: BDEV) gives a discount of £500 per £25,000 on the price of a new house to owners of 1,000 shares, currently worth £1,300;
- Persimmon (LSE: PSN) gives a 2% discount on the price of a new house, up to a maximum of £4,000 in any year, to those who hold 1,000 shares (currently worth about £4,500) for 12 months; and,
- Bellway (LSE: BWY) requires a holding of 2,000 shares, currently worth more than £15,000, in order to qualify for a discount of £625 per £25,000, or "pro rata on part thereof" -- wouldn't it be easier to call it a 2.5% discount?
Most of us don't buy houses very often, so are more likely to benefit from reductions on day-to-day expenditure. Moss Bros (LSE: MOSB), Mulberry (LSE: MUL) and Next (LSE: NXT) offer discounts of 20% or more on clothing. Alternatively, you could wait for the sales.
One potentially very attractive perk for shareholders in Legal & General (LSE: LGEN) is a discount of 25% off the cost of home insurance, and there is no minimum shareholding.
Are perks worthwhile?
Conventional thinking, rather predictably, says that we should ignore perks and concentrate on the investment decision -- allowing perks to influence our decisions, especially the decision to sell, is a mistake. But I take a different view: I think investors should take account of perks but should be careful to evaluate them correctly.
The original shareholders in Eurotunnel, for example, had the right to travel at £1 per trip, unlimited, for life, and this was worth far more to them than the return on the shares. Things got very messy when the company tried to remove this perk during the restructuring.
I'd ask myself some basic questions before getting too excited about perks:
- Could I negotiate a similar discount anyway, without being a shareholder?
- Is the perk a genuine benefit to me -- is this something I would have bought anyway, or something I will really be able to use?
- How much risk am I taking if the shares fall?
- Apart from the financial aspect, is it really worth my time to do the paperwork?
You'd also need to understand the small print, find out if the perks are available to nominee shareholders, and bear in mind that the company can usually withdraw these benefits with little notice.
Several companies maintain lists of perks that you may find useful, but I'd suggest checking with the company before making any decisions:
Our own discussion board dedicated to perks has become a bit neglected, but you might find it a useful place to discuss your experiences and swap ideas.
More from Padraig O'Hannelly:
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