Published: 24 May 2018
Area of Law: Employee Ownership
Employee ownership: here’s what you need to know
Employee ownership can benefit businesses of all shapes and sizes, encouraging members of staff to take an active role in the running of the organisation and allowing owners to relieve some of the pressures of succession planning.
Whilst aligning the interests of companies and their employees helps the whole business focus on long-term sustainable growth, other evidence has shown that employee ownership can also increase wellbeing and productivity amongst the workforce.
So, what are the main considerations around employee ownership schemes?
Start with the end in mind
While empowering the workforce to make decisions about the future of the business is a great concept, organisations must put a plan in place which will create a corporate structure set for future growth. Business owners must carefully think about how much they want to stay involved going forward as even though employees may have a controlling interest in the company, Boards and senior management teams will still be responsible for making high-level decisions.
Sell the benefits across the business
One of the main challenges for businesses considering switching to an employee ownership model can be convincing everyone of the long-term benefits. Depending on the level of seniority, worries will differ and so different approaches will be required to take the opinions of different groups of employees into account.
For instance, senior managers are usually just below Board level and are often used to getting on with the job at hand. The switch to employee ownership can make them more accountable to stakeholder groups, mainly the wider employee network, and may mean an increased involvement in higher-level, more strategic decisions. Consequently, some more senior-level staff members can feel they are being examined more than they were before and this should be taken into consideration.
Don’t forget about ‘Gen Y’
Generation Y at the beginning of their careers are often wrongly stereotyped as being ‘flighty’ and ‘disloyal’, however just like with any sweeping statement, this simply isn’t true. Research has shown that having the ownership, responsibility and influence within a business that EO structures can bring is often more important to graduates than salary and so employee ownership can play a pivotal role in talent attraction.
Consider the financials
EO models can also bring financial benefits. The disposal of shares which result in a controlling interest in a company being transferred to an EO trust are exempt from Capital Gains Tax and income tax breaks are available on future profit-related payments to employees.
The transition can be flexible
The transition to an employee ownership model can be managed in stages, or by way of deferred payments, to relieve any pressure on cash flow or bank finance. This may involve initially purchasing a proportion of the shares and placing them in an Employee Ownership Trust which leaves the remaining shares to be purchased later if needed.