In a word, “YES”!
It’s a misconception that companies controlled by an Employee Ownership Trust will end up with lots of lazy staff.
Why? Because they have a cushy job, entitled to share of profits, so they’ll never quit…and you can’t fire them either.
Wrong.
Where does this misconception come from?
It’s true all staff in EOT controlled companies are entitled to share of profits. You cannot single out employees and say “your performance has been poor, you’re not getting a profit share”.
So this does mean both exceptional performers and average performers will enjoy the fruits of business success.
Hence if a business is doing well, some staff may be tempted to slack off. Let others take the strain. They’ll still get their profit share regardless. But…
EOT staff care MORE about lazy colleagues
Let’s consider two virtually identical companies A and B. They both:
– Have 10 employees all on salary £1x.
– 5 are “good”, generating £1.4x income each.
– 5 are “bad”, generating £0.8x income each.
– Total income is £11x, less salaries £10x, gives profit £1x.
There’s just one difference between these companies:
Co A is privately owned
Profit goes to the owner. The 5 good colleagues end up with £1x, and the 5 bad ones also end up with £1x.
The above wouldn’t change regardless of whether the bad employees improved. The good employees get £1x salary regardless.
So the good staff are financially indifferent to their 5 bad colleagues.
Co B is 100% EOT owned
The staff get that £1x profit split between them. So including profit share each employee gets £1.1x.
The good staff know that if all 10 staff were good, they’d each get £1.4x instead of £1.1x. Bad staff only “earned” £0.8x, but still got paid £1.1x.
The good staff are financially subsidising the bad staff.
Of course in the real world it’s always more complicated than this. Staff aren’t binary “good”/”bad”. Even the best workers have bad days/make mistakes. Good workers may be given payrises/bonuses their bad colleagues won’t get. Other factors will impact the results etc etc…but let’s keep it simple!
What impact does this have?
Staff motivation can be an issue in any business. The key difference here is the poor performance of some staff has a direct financial impact on others.
On less productive staff
Most people have a conscience. Some will justify being lazy/doing poor work for a privately owned/publicly listed company. They’re “sticking it to the man”, hurting some “fat cats”. They may even consider this noble.
In an employee owned company, it’s different. They’ll know their poor work directly impacts both themselves, and their colleagues. People on modest salaries that they work alongside. People they have coffee breaks/lunch with. There’s definitely nothing noble about your actions making their lives worse!
On more productive staff
They directly lose out financially from underperforming colleagues. They’re incentivised to ensure everyone pulls their weight.
This peer pressure can work wonders. Nobody wants to feel like their colleagues look down on them.
In short, privately owned companies can have an “us vs them” attitude.
Whereas with employee owned companies there’s more alignment of goals. Why? Because the workers are the owners.
What if that’s not enough?
There will be situations where the above isn’t enough. Perhaps the individual simply doesn’t care. Maybe there’s been fall out. Or possibly they’re just not skilled/bright enough to reach the standards required.
In these situations, EOT or not, they can be pushed out.
- Normal HR rules apply.
- You must treat staff fairly.
- Give them a chance to improve.
- Offer changes to working practices etc.
- Issue verbal/written warnings where appropriate.
If after processes are followed there’s no improvement, they can be fired.
The fact a company is controlled by an EOT, and that individual is an employee (hence beneficiary of that trust), does not give them any additional protections.
What about redundancy?
Same logic applies. On occasion a business may no longer need a department, or certain employees. Their roles have become redundant.
Sure, the business may look at ways of retaining good staff where it can. Perhaps retraining them, to then assign them to roles still in demand.
A business being employee owned doesn’t prevent it from making employees redundant (again subject to normal HR rules).
Summary
Where staff collectively own a company, they’re interested in its success.
There will be varying productivity levels between employees. That’s normal.
There must be a level of acceptance that all staff are individuals, have different strengths etc.
This means working together, with tolerance/compassion, for a common aim.
But any individual employees consistently underperforming are not invincible.
Staff can be fired where that’s deemed the best thing for the business.
If you are interested in finding out more about transitioning to an EOT, get in touch with us at Go EO to see how we can help.