Equity-able treatment for a millennial workforce

Posted on 17 January 2018. Source: City AM

Equity-able treatment for a millennial workforce

The Millennial workforce gets a bad rap from some quarters. But while Millennials may have different expectations to employees of previous generations, with the right incentives their ambitions can be harnessed so both employers and employees benefit.

The normal scenario – where you start your career at a certain level, then work your way up the ladder by ticking certain boxes - is being overturned. Management is increasingly expected to be flatter, and employees want to be treated as equals with more influence over the business. There are many ways founders can meet new employee demands for more respect and inclusiveness, but one of the most effective is offering equity. After all, it doesn’t get more respectful and inclusive than giving away a little of your company.

For Millennials to be inspired by equity it’s essential that its value is communicated properly. Equity can’t act as an incentive unless employees understand how the value can be realised. Listed companies have traditionally had stock options in place as standard, but this hasn’t translated to private businesses in the same way. Over the last four or five years, expectations have risen for benefits of this nature, particularly when the entrepreneur of a growing business is bringing in someone senior from a listed company. This has percolated down to questions about the ownership and incentives for all staff.

Equity can act as the cement for businesses looking to build an ownership culture. Enterprise Management Incentives (EMI) Options are popular, but Employee Ownership Trusts (EOT), exemplified by John Lewis, might just be an initiative whose moment has arrived. As a concept, it’s been around since the 1930s but the legal framework is now in place for businesses to make the most of the benefits.

There are significant tax benefits with EOTs. A founder can sell their shares tax free into the trust, and employees can be paid tax-free bonuses of up to £3,600 per year. A lack of external financing may have held back this structure since its introduction in 2014, but over the last 12 months we have started to see this change.

There is strong support for EOTs across all political parties. It won’t be right for every business, but it really puts ownership into the hands of employees - particularly business owners looking at succession.

Motivating employees of different seniority and positions necessarily requires different approaches, which will need to be structured accordingly. The senior leadership team is in it together and often best motivated by the bottom line, but further down the company, incentives could be more effectively linked to sales targets or other appropriate metrics.

Bonuses aren’t necessarily considered to be the effective motivator of performance that they once were. A growing number of business leaders are concluding that bonus culture doesn’t always drive the right behaviours. Employees come to expect them and anything less than what is believed to be deserved is demotivating. There are examples of some businesses going as far as scrapping their staff bonuses and instead adjusting salaries.

Another area ripe for change is the gig economy. The Government has done a lot to help traditional firms incentivise employee ownership, but there is a disconnect for workers in the gig economy and the need for incentives, including tax breaks. EMI, for example, can only be given to employees. There’s a strong case that this, together with other tax efficient incentives, should be extended to the gig economy so as to reflect a newer, more modern way of working and to ensure that the UK retains the best talent, whichever workforce model they are part of.

Millennials want a stake in their future. If business owners want to attract and retain the best and brightest and ensure their company has a bright future, they may need to give away a little of their stake in the present.

View the full supplement that featured in today's City A.M. here.

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