Are you considering applying for a job at an employee-owned company? Maybe you are thinking about buying something from, or using the services of an employee-owned company?
Or possibly you are even considering handing your own business over to your colleagues?
In any of these circumstances, you might feel an element of trepidation, and it could feel like a step into the unknown.
But you shouldn’t be worried!
Because the good news is that nearly all the studies into employee-owned businesses point to the same thing, it is a benefit to both the businesses, the employees, and in fact just about everyone!
So is it good if a company is employee-owned?
Let’s take a closer look…
Is It Good If A Company Is Employee-Owned?
Studies have shown that there are numerous benefits from companies being employee owned. As staff have a stake in the business productivity increases, which means the business and its profits tend to grow more quickly. Staff themselves benefit financially from profit sharing and are more loyal to the business as they have a say in how it is run. Employee ownership can also bring a number of tax perks.
There are a number of figures out there about the increasing number of employee-owned businesses and in particular in employee ownership trusts (EOTs), the area of employee ownership we specialise in here at Go EO.
A Freedom of Information request revealed that 500 EOTs were set up in 2022, this is compared to 235 in 2021 and 56 in 2020.
The Employee Ownership Association confirms this with its own figures showing there were 1,030 EOTs in the UK in 2022, up from 576 the year before.
The reason for this growth is down to the multitude of benefits employee ownership brings, including increased productivity, more engaged staff, faster growth, and much more.
Benefits of Employee Ownership to the Business
#1: Productivity Increases
Because staff literally have a stake in employee-owned businesses they tend to be more committed to the success of the company.
The staff know that when the business does well, they will benefit financially.
Figures released by the Employee Ownership Association in June 2022, showed that employee-owned companies had a median productivity increase of 9.4% ‘like for like’ or of 5.2% as a whole.
Either way, it was far above the UK average of 2.6%.
“When you are an owner you recognise the need to boost your skills levels. You know that the company’s productivity feeds directly into your pay packet and the company’s success. There is no need to fake enthusiasm or force yourself to go the extra mile when the business in hand is very much your business.”
Report on Employee Ownership Trusts by Ownership at Work.
#2: Accelerated Business Growth
Unsurprisingly the result of a more committed workforce, all working towards the same goal, is accelerated business growth.
And it all goes back to what we mentioned above, staff are rewarded when the business does well in a way they might not be in a traditional company.
Ed Stubbs, Managing Director of Gripple, a Sheffield-based manufacturer of wire and cables that became employee-owned in 2016, said the company has averaged growth of about 15% a year ever since.
Likewise BIC Innovation, a private consultancy firm in Wales, quadrupled its workforce from 13 employees to 51 employees in just three years after becoming employee-owned in 2018.
#3: Greater Retention of Staff
Engaged staff, who feel like they are contributing to the success of a business and being rewarded accordingly, means a happier workforce.
Staff at employee-owned businesses genuinely care and feel part of the business.
As a result, employee-owned companies tend to have lower levels of absenteeism and greater retention of staff.
A study by Edinburgh Napier University showed that 80% of staff at employee-owned companies would recommend them as places to work.
Benefits of Employee Ownership to Staff
#1: They Have A Say in How the Business is Run
Staff at employee-owned businesses have a genuine say in how the business is run, after all, it is their business.
Employee-owned businesses do tend to involve employees in decisions more than other businesses.
But beyond that, in employee-owned trusts (EOTs) staff have a big say in how the business is run.
That is because employees elect the trustees that represent them, and these trustees hold the management of the company to account.
The trustees even have the power to remove management in extreme situations.
#2: They Benefit Financially
Staff who work for an EOT in particular feel the benefit of working for an employee-owned company.
They don’t have to pay anything for their share of the business as it is held by a trust. Plus they’ll receive a share of any profits the company makes, with the first £3,600 per year completely tax-free!
They get a tangible reward for the work they put in.
“Colleagues have bought cars that are way beyond what they could hope to do and go on holidays … Our company did that, our model provided them with those opportunities. It’s so uplifting.”
Andrew Lane, Managing Director of Union Industries, an employee-owned company based in Leeds.
#3: They Feel Part of Something
As you can probably see, many of the benefits that a company enjoys when it is employed owned, are also applicable to the staff.
We’ve already said staff tend to be more committed to the success of the business, and more loyal.
They own a share of the company and tend to feel a true sense of belonging.
Employee Ownership: Real-World Feedback
It is all very well listing the benefits of employee ownership, but is there information to back this up I hear you ask?
Yes there is, and there is a lot of it!
Ownership at Work, an independent charitable think tank, has carried out a number of studies on employee-owned businesses, most notably Stefan Stern’s study, ‘How Employee Ownership Changes The Art Of Leadership’.
Stern choose four employee-owned businesses for the study and carried out numerous focus groups with 10 to 12 employees working at all levels of each business.
Stern’s basic summary?
“That employee ownership binds colleagues together, supports innovation, enterprise and risk-taking, wins engagement and commitment, and rewards people well for their efforts.”
Stefan Stern, How Employee Ownership Changes the Art of Leadership
What is more, he said he “couldn’t find anyone who wasn’t positive (about employee ownership)”.
Separately Paul Fish, Director of P.A. Collacott which sold a 51% share of its company to an EOT in 2021, said it “definitely boosted productivity”.
Matthew Emms, a partner at the accounting firm BDO was equally positive about the company’s switch to being employee owned saying: “People were initially nervous of the structure, but it has worked out really well, becoming a self-fulfilling prophecy.”
The Government too has recognised the benefit of employee-owned businesses to the economy, and according to the Employee Ownership Association, employee-owned companies contribute over £30billion to the economy each year.
It is a win, win, win situation!
Employee Ownership Models: An Overview
We’ve talked here about employee ownership, but it can take three main forms.
Direct Employee Ownership
This is when members of staff buy shares in a company with their own money.
Benefits:
- Staff own something of value they can sell later.
- Staff can potentially keep hold of the shares after leaving the company, as a form of pension.
Disadvantages:
- Staff have to spend their own money.
- A lot of administration is needed to keep track of who owns what, what tax has been incurred and so on.
- It’s not always easy to find a buyer for shares if/when staff want to sell.
Indirect Employee Ownership: Employee Ownership Trusts (EOTs)
This is when a business owner sells their shares in a business to an employee ownership trust (EOT), and the trust holds the shares on behalf of the employees (who are the beneficiaries) and legally controls the trading company.
The business owner is paid off over time via profits generated from the trading company, and during this period staff can also benefit from excess profits.
When the owner’s debt has been cleared, then employees enjoy the financial benefits of all profits going forward.
Benefits:
- Staff don’t have to pay anything for their share in the business.
- It is a simple, one-off transaction where the EOT buys the shares.
- All employees benefit, not just those wealthy enough to afford it.
Disadvantages:
- Staff don’t own shares personally (the EOT owns them), so have nothing they can sell.
- When staff leave they will no longer benefit.
The EOT model is what we specialise in at Go EO.
EOTs tend to be simpler, fairer and of benefit to everyone, and also bring with them a number of benefits for the business owner, which we detail below.
If you are interested in finding out more about transitioning to an EOT, get in touch with us at Go EO.
Hybrid Ownership
This is simply a mix of direct and indirect employee ownership.
An EOT will own part of the share of the company and individual employees the other part.
Usually in a hybrid ownership model the EOT will have the majority of the shares, as it brings with it particular tax benefits.
Benefits of EOTs to a Business Owner
If you are a business owner considering selling your business to an EOT, which is our area of expertise here at GO EO, there are a number of other benefits for you in addition to those we have listed above:
- There is zero capital gains tax payable on the sale proceeds.
- As the buyer and seller are on the same side, EOT sales are usually relatively quick and easy.
- For the same reason, EOT transfers tend to be less expensive than a sale to a third party.
- The business will be independently assessed and sold at a fair market value.
- It provides a way for a business owner who wishes to sell their business to do so with limited risk to the future of their employees and without their company being swallowed up by a larger organisation.
Our page on the options available to business founders after selling a business to an EOT goes into more detail on the matter.
Summary
Is employee ownership a good thing? Very much so!
It provides benefits to the business, the staff, the original business owner and the economy.
There is a reason why employee-owned businesses are increasing in number at a rapid rate in the UK!
Almost every study done into employee ownership concludes that employee-owned businesses are more successful, profitable, sustainable and happier places to work.
Staff have a stake in employee-owned businesses so tend to be more productive.
As a result, employee-owned businesses grow more quickly, are more profitable and have greater staff retention.
Here at Go EO we have genuine first-hand experience of selling a business to an employee-owned trust (EOT).
Transitioning to an EOT is usually quicker, easier, less costly and comes with a number of tax perks.
If you want to go EO, get in touch with us to find out more.