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Employee Ownership – The employee perspective

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Employee Ownership – The employee perspective

By , July 24, 2020
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Did you work in another company before you built your business?  Dream of going out on your own and escaping the corporate mindset, for instance? Did you have a terrible boss and promise yourself that you’d never be like that?  Was there any form of employee ownership?

Are your employees in the same place?  What are they thinking, and how do you know?

We hear is business owners say “No one cares about my business like I do”. There is a simple solution.  Treat employees with more trust and transparency and you’ll see them think and act like owners.  Whilst it’s simple to say, it is not so easy to implement.

Employee Ownership – Ownership Mindset

Employee Share Ownership Plans allow employees to own a form of equity in their company. The express intention is that they will think and act like business owners. This creates an incentive structure which aligns employees’ lifestyle and financial goals with business objectives. This results in a cohesive and committed team. Working toward and sharing the benefits of a successful and profitable business.

Employee owned companies improve performance. They generate higher profits and better staff retention than other businesses. It leads to attracting and retaining business. It is a major source of competitive advantage that is often the difference between success and failure.

Imagine if your employees were as focused, driven, and as motivated about your business as you are. What if they came up with new ideas and cost savings? How about if they were as interested in profit as you?

This happens with businesses that use Employee Share Ownership Plans.

ESOPs are a great way to:

  • Attract, keep and motivate key employees
  • Improve business performance — profitability, staff retention, productivity
  • Build an internal succession plan for staff and business owners.

“Employee ownership is a different way of thinking about business. It targets long-term sustainability by recognising that employee/owners are more committed to developing innovative products and processes. The result is competitive advantage and lasting success, in good times and bad.”

— Sir Stuart Hampson, former Chair of the John Lewis Partnership (the largest ESOP in the world with over 80,000 employees in the plan)

 

And the benefits?

ESOPs appear to increase sales, employment and sales per employee (Drs. Joseph R. Blasi and Doulas L. Kruse School of Management and Labor Relations Rutgers University)

Ladder to Equity

A simple mechanism to manage the transition through various stages is the challenge. Giving away equity is not simple or smart.   There are several methods available to UK business owners that also come with tax benefits for both the business owner and employees.

Research shows an increase in employees looking for equity in the business they work for. According to recent UK and USA statistics, a little over 30% of employees have some kind of equity interest in the business they work for.  SME’s enjoy great benefits from having employees motivated to think and act more like business owners.

As Warren Buffet says “Employees are keen to climb the ladder to equity. But someone needs to provide the ladder.”

When a business owner shows the employees how they can benefit from the increase in profitability and capital value of the business, they see a step up in performance and attitude.  It’s not “giving it away”.  It’s sharing part of something that is bigger because everyone is part of it.  Employees feel more valued when they are part of the rewards of their labours.  Having clarity on what they need to do to improve value leads to the actions necessary to achieve the outcomes.

Transparency and Consistency

Sharing long term goals and vision with everyone is a scary notion because you have to make it public.  Plans that have remained in the business owners head have to be exposed.  Often this is the first time that they have been documented.

It is easier to work towards the goals because actions are linked to outcomes and rewards.  Transparency of the vision and goals leads to genuine improvement in productivity.  It results in complete alignment of every part of the organisation.  Consistency of leadership fosters greater trust.  Your employees will stick with you through the bad times because they understand what needs to happen to achieve the desired results in the long term.

To find out more:

  • watch our webinar where we look at ownership from an employee perspective
  • For more details on individual employee ownership schemes, down load our white paper “Building Value Through Employee Ownership”
  • Read the next article in this series
  • Give us a call to find out more about how to take the first steps
Christine Nicholson

Christine Nicholson

Partner

Christine is a Chartered Management Accountant with a Law degree who brings 25 years of wisdom, know-how, and experience of working with SME’s. Her long and varied career has included working overseas, rescuing technology companies, building a healthcare business from scratch and running a zoo.

She started her first successful multi-million turnover business in 2002 and has grown business ventures for others including a bankruptcy to 8-figure exit in 18 months. Christine’s engagement consistently gets her clients increasing their turnover with improved profitability and fewer working hours.

She has saved clients thousands and increased the value of their businesses by millions. Since 2008 she has generated over £100m of crystallised value in business exits.

Christine is also an author of 3 books on Finance, Business Management and Technology businesses. She is a seasoned speaker and Professionally Accredited Member of the Association of Business Mentors.