Employee ownership: putting your employees in the driving seat

happy employees

Getting employees to think like owners can help to alleviate the pressures of succession planning and an employee ownership structure has been shown to bring many benefits to family owned businesses.

For many firms, people are the most important asset and if they act and behave as owners, increased productivity, efficiency and profitability will often follow suit.

For a family business looking to secure its long-term future and whose main assets are the skills and knowledge of its employees, choosing a corporate form that improves employee engagement and retention while making succession less of a problem could be the answer.

Gary Davie, head of employee ownership at law firm, Shakespeare Martineau explains that while empowering the workforce to make commercially-sensitive decisions can be a good idea, it can strike fear into some management teams, particularly if they have been used to making decisions in a more autocratic way.

With this in mind, it is essential that businesses thinking about employee ownership options secure management team buy-in from the start.

A key challenge for businesses when moving to this kind of model can be convincing all levels of seniority of the long-term benefits. This isn’t necessarily an ‘age’ issue, but rather the range of worries tends to differ depending on the level of seniority – highlighting the need for different approaches to reflect the concerns of diverse groups of workers.

Senior managers, commonly just below board level, are often used to getting on with the job at hand, and the move to employee ownership can make them more accountable to stakeholder groups, mainly the wider employee network. Being held more accountable is no bad thing from a business point of view, but senior managers can feel under more scrutiny than they once were, and this should be recognised and addressed.

Gen Y talent at the beginning of their careers must not be overlooked either. The ongoing debate about how businesses engage and retain Gen Y employees continues to rumble on, with many stereotyping this cohort as ‘flighty’ and ‘disloyal’, however like any generalisation this just simply isn’t true.

Evidence suggests that graduates are now looking for more than a job that they can simply clock in and out from, and the prospect of having real ownership, responsibility and influence within a business is often far more important to them than salary. Creating business structures that continually evolve and reward employees is a very real possibility and will give organisations the competitive edge when it comes to recruiting a top-quality workforce.

Aside from the multitude of people benefits, an employee ownership model also pays off financially too and it isn’t as daunting as business owners may think. Additionally, many owners are drawn to the employee ownership model for the first time when planning for succession.

At such times, the pressure to find a solution that meets the long-term interests of the business and enables the outgoing shareholders to realise value from their investments is considerable.

The fact that a Capital Gains Tax exemption exists directly applying to the disposal of shares that result in a controlling interest in a company being transferred into an Employee Ownership Trust, provides a valuable, added incentive.

In addition, the income tax breaks on future profit-related payments to the staff which can be achieved with this model add to the tax incentives available.

Additionally, the transition can be done in stages, or by way of deferred payments, to alleviate any pressure on cash flow or bank finance available. This may involve a proportion of the shares being purchased initially and placed in an Employee Ownership Trust, leaving the remaining shares to be purchased later if desired. Or owners may be content to receive their consideration from the future profits of the business.

When considering succession options, businesses would be wise to consider the benefits of employee ownership particularly if looking to retain the culture and ethos, and help secure the long-term future of the business, all whilst continuing to retain and maintain the best talent in their workforce.