Mishcon de Reya page structure
Site header
Main content section

Employee Ownership - A New Way Forward

Posted on 28 July 2017

FCA publishes its Business Plan

Last month, the Employee Ownership Association, in partnership with the John Lewis Partnership and the eaga Trust, launched an inquiry into the effect of employee ownership (EO). The intention of this inquiry is to gather and reveal new evidence on the performance of employee-owned businesses following a sustained period of growth in their number over the past five years. With a combined turnover of £30-40bn annually, research shows that the sector outperformed the conventional business sector during the economic downturn and has demonstrated exceptional levels of employee engagement, productivity and standards of governance.

The inquiry comes at perhaps a critical time in the current political and social environment. We have seen several Government consultations and Green Papers focused on executive remuneration in large, publically listed companies, making recommendations around accountability, performance setting and engagement with employees. Indeed, during her canvassing for the Conservative party leadership in 2016, Theresa May was committed to exploring the benefits of having employee representatives on boards, a concept that appears to have been put somewhat on the back-burner given the immediate pressures to construct and negotiate the UK's exit from the European Union.

Employee-owned businesses can present themselves in different ways and will usually take one of three forms:

  • Direct employee ownership – using one or more tax advantaged share plans, employees become registered individual shareholders of a majority of the shares in their company;
  • Indirect employee ownership – shares are held collectively on behalf of employees, normally through an employee trust;
  • Combined direct and indirect ownership – a combination of individual and collective share ownership.

Whilst to-date, many businesses consider EO as a solution to business succession, the model can also be used as part of general business expansion, for start-ups, and even for a business that faces the threat of insolvency. Support has been given to EO through a significant tax relief introduced in 2014 which enables founder shareholders to sell their shares into a qualifying EO trust tax free. However this tends to favour EO within a succession environment. To become more mainstream, it is likely that a wider package of government support will be needed to allow EO to sit alongside more traditional growth structures where venture capitalists and private equity investment play key roles.

In an environment where we are seeing the traditional employee/employer relationship being challenged, both through the different expectations of Generation-Y, and the increased presence of the gig economy, there is perhaps an opportunity for EO to play a significant role in shaping a new generation of workers that provides a springboard for entrepreneurship and engagement. Combined with the more common types of reward and equity incentive schemes - such as Enterprise Management Incentive Plans, Company Share Option Plan, Save As You Earn, Share Incentive Plans and Long Term Incentive Plans - the EO model could provide a powerful platform for businesses of the future.

If you would like to contribute to the call for evidence on the impact of employee ownership, please click here to complete the submission form by 5pm on 21st July 2017. Alternatively you can provide your views to Stephen Diosi and we will include these in a combined submission.

How can we help you?

How can we help you?

Subscribe: I'd like to keep in touch

If your enquiry is urgent please call +44 20 3321 7000

Crisis Hotline

I'm a client

I'm looking for advice

Something else