Employee ownership: attract, incentivise and reward
15 January 2020
The war on talent has conventionally been waged with an armoury of salary and benefits including healthcare, extra pension contributions, gym membership and more recently offerings like free canteens and coffee machines.
As the new decade shepherds in the era of millennials (those born between the early 80s and the mid 90s, aka Generation Y) becoming the dominant force and Generation Z emerging in the workplace with their particular attitude to work, we look at models of employee ownership that companies should be considering to attract, incentivise and reward employees in 2020.
Respected research on workplace trends, including Gallup’s, ‘How Millennials Want to Work and Live’, Deloitte’s ‘Millennial survey 2019’, and KPMG’s ‘Meet the Millennials’ chart an increasing departure away from the traditional focus on pay and a move towards finding purpose and meaning at work. The research consistently shows that millennials prioritise culture and communication; they want to work in conditions that foster teamwork and morale, and they want to feel that their opinions and output are contributing to a bigger picture. Gallup’s report explains in particular how the millennial approach differs from the values that employees have held in the past as follows:
|My payslip||My purpose|
|My satisfaction||My development|
|My boss||My coach|
|My job||My life|
Research into employee incentives, including ‘Ownership at Work: Equity for all’, ‘The Ownership Dividend’ and the Employee Ownership Association’s Employee Ownership Impact Report shows that a company’s readiness to meet these needs can be facilitated by employee ownership. Employee ownership, whether direct or indirect, helps achieve the goals in the ‘future’ column of Gallup’s table, since incentivising employees by way of a ‘significant and meaningful stake in the business’ means responsibility and influence for employees; engaging in management and development of the business, including them in decision-making processes and bringing clarity of organisational structure.
The business case for employee ownership is persuasive; there is a strong evidential correlation between employee ownership, high employee engagement and strong economic performance (particularly in times of economic downturn). The research shows that employee ownership models (particularly Employee Ownership Trusts (EOTs)) act as enablers of innovative and entrepreneurial thinking, transform the way employees participate in business and provide increased opportunities for self-determination. The reciprocal expectation of high behavioural standards amongst employees, and a high level of both inclusion and accountability foster a culture which allows individuals to thrive. This complements Gallup’s finding that ‘more so than ever in the history of corporate culture, employees are asking, “Does this organisation value my strengths and my contribution? Does this organisation give me the chance to do what I do best every day?”
A millennial’s initial choice of employer, and the subsequent degree of loyalty to that employer, is influenced by the extent to which they feel the company’s interests are aligned with their own. Benchmarks like giving organisations and individuals a sense of purpose and meaning; of operating ethically, fairly and transparently are important to employees; and the evidence shows that they are increasingly so. For example, Deloitte’s 2019 Global Human Capital Trends report found that 44 percent of business leaders surveyed said social enterprise issues are more important to their organizations than they were three years ago, and 56 percent expect them to be even more important three years from now. When Deloitte asked CEOs to rate the most important measure of success for their companies, ‘impact on society, including income equality, diversity, and the environment’ was ranked as the number one issue.
It is thought that this trend is one of the reasons that employee ownership has received unprecedented attention in recent years: there is growing interest in the societal impact of a more equitable business model that transcends the focus on profitability for a few shareholders and instead supports wider and more equitable distribution of profit based on the principal of employees getting out what they put in. The Employee Ownership Impact Report found there are other societal advantages that flow from the business model, including ‘an increase in jobs and job security within communities’, ‘improved and sustained local employment’, a ‘stronger local supply chain’, ‘stronger community empowerment and responsibility’ and more ‘diversity of organisational ownership leading to greater resilience’.
Another reason that employee ownership, and in particular EOTs, has received greater attention is unquestionably the tax relief afforded by the government to shareholders who are prepared to sell a qualifying interest into an EOT and to the employees of companies which are employee owned. Shareholders can settle their interest into a qualifying EOT free of Capital Gains Tax. Employees of companies owned by EOTs are able to receive a qualifying bonus free of income tax of up to £3,600 per year.
This being the case we look forward to the number of employee owned businesses in the UK continuing to rise into the new decade.
If you are interested in finding out more about the benefits of employee ownership for your business, or you would like to learn more about the models for employee ownership and would like to discuss next steps, please contact Lisa Hayward, Head of Employee Incentives at Birketts.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at January 2020.