Employee share plans have become a popular way for businesses to provide financial (often tax-efficient) rewards to employees who contribute to the success of the business.

However, this should not be confused with “employee ownership", which is, in effect, an alternative business model where employees have both a voice in how the business is run combined with a financial stake in the success of the business.

The Employee Ownership Association (EOA) estimates that employee owned (EO) businesses grew sales by 11.1% in the recession (compared to non- employee businesses which only grew by 0.6%), their research indicating that EO businesses have higher levels of employee satisfaction, greater levels of innovation and higher levels of resilience in challenging economic times.

So, what is it exactly and why might a business consider “employee ownership"?

What is "Employee Ownership"?

It typically combines employees having a financial stake in the business with high levels of employee participation.

The financial models consist of:

• direct ownership - employees own shares in their company (often through a share option plan) and benefit from the financial rewards of owning shares (dividends and capital growth); or

• indirect ownership - employees do not own shares themselves, instead the shares are held by an employee benefit trust (EBT) or employee ownership trust (EOT), for the benefit of employees (for example to pay out bonuses); or

• a combination of both.

Employee participation tends to involve:

• a “voice” - e.g. involvement in the business through representation on the board or via an employee council;

• the sharing of business information e.g. performance data.

• education - e.g. to understand how the business makes money, their part in making that happen, understanding the numbers produced; and

Why establish EO?

Most are familiar with the “household” names who have gone down the EO route - John Lewis Partnership and Waitrose (in retail) and Arum and Gripple (in the engineering and manufacturing sector) spring to mind.

In fact EO is well represented throughout the UK and across most sectors – public services (e.g. healthcare), creative media and leisure, IT and Telecoms, transport and agriculture (to name a few).

The driver will depend on the business and the circumstances, however some of the common themes are:

• philanthropic reasons - owners wanting to pass on the business to future generations/to provide future employment in the community;

• business start ups - to get the team behind the business and give it a head start;

• a succession plan for owners looking to retire (helped by the recently introduced CGT exemption for owners selling a controlling interest to an EOT);

• businesses facing the threat of closure or restructuring (e.g. public sector spin offs).

The future of EO

EO is supported by all the main political parties, experience to date showing it is an incredibly effective business model and here to stay.

For further help or advice please contact Lupton Fawcett Denison Till’s Director Melanie List on (01904) 611411 or melanie.list@lf-dt.com