Does employee ownership improve retention and recruitment?

Will your team stay if you sell to an EOT?

You've spent years building a team that knows your clients, understands your culture, and has helped grow your business. The promise of an EOT is that it lets you reward and look after your staff as you step away. But is that borne out by the data?

Both anecdotally and empirically, the evidence points towards a clear answer. Yes. Research commissioned by the Employee Ownership Association in 2023, which compared employee owned businesses directly against similar businesses that aren't employee owned, found that employee owned firms are over 70% less likely to suffer high staff turnover, and over 50% more likely to be expanding their workforce.* The same study found employee owned businesses were 8–12% more productive per employee.

In a successful employee owned company, people feel they have a genuine stake in the business and a real sense of being co-owners. This makes them more invested and gives them a direct share of the rewards when it succeeds. One of the tax perks is that the first £3,600 of an EOT bonus is tax-free.

There's also job security. When a business is owned by a trust set up for its employees, it isn't being lined up for a sale, a merger, or a break-up. Whilst that in no way guarantees all staff will keep their jobs forever, people can more reliably see a future there.

Financial and emotional costs

There's another reason why retention is important; replacing people is expensive. Filling a vacancy costs around £6,125 on average, rising to £19,000 for a manager-level role and more again for senior or specialist hires.** And that's just the recruitment bill. Add the lost productivity while a role sits empty, the strain on a team left shorthanded, and the months it takes a new starter to get up to speed. All this affects morale, as well as the bottom line.

Does employee ownership improve recruitment?

Yes. The same engagement that retains people also helps you to attract and hire new talent to the business. In an employee owned business, your team often becomes your best advert. People who are engaged with their job talk about where they work, and that enthusiasm reaches people in a way no job ad ever could.

Many employee owned firms put their business model front and centre when hiring. In a tight labour market, being employee owned is a real point of difference.

EOT vs trade sale

A trade sale puts your team's future in someone else's hands. New owners arrive with their own plans, their own brand, and sometimes their own people. The culture you’ve spent years building is quietly swallowed up.

An EOT works the other way round. The business carries on, in the hands of the people that know it. Protecting your team isn't a side effect of choosing an EOT, for a lot of founders it's the whole point.

See how an EOT stacks up against other exit options

The caveats

Although the evidence shows employee ownership is strongly associated with better retention, it’s not guaranteed. No one can know how individuals will react to change. Small businesses are often very reliant on a few key senior people and if these team members leave it can cause real issues.

There's another related question that crops up in smaller businesses: are your people loyal to the business, or to you? Sometimes a team sticks around because they love working for a particular boss. Take that boss away, and some of the reason to stay goes with them.

The best way to manage the risk is to communicate openly through the transition, make sure people genuinely understand what ownership means for them, and structure a deal that works for the business as well as for you. When it’s done badly, an EOT can leave staff confused rather than committed. When it’s done well, it can be one of the best things you ever do for the people who helped you build something worth selling.

Writing the next chapter

If keeping and attracting good people matters to you, an EOT is a good candidate for your exit. You get a fair price. Your team gets a stake in the future. And the business you built has an opportunity to flourish in a new way.

* Employee Ownership Association / Ownership at Work, People Powered Growth (2023)

** CIPD cost-per-hire estimate, reported by Talent Insight Group, The Cost of Recruitment

Read more