InsightsNews - Commercial Law - POSTED: February 18 2014
Why has the uptake of employer share schemes been so low?
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With Nick Clegg and Vince Cable at loggerheads over employee shareholder schemes, figures suggest that the scheme may be having a minimal effect. Many schemes are overcomplicated and employees may be nervous about working in this way and giving up some of their employment rights for shares. But is it time for your manufacturing business to join the Chancellor’s bandwagon and reconsider employee ownership participation?
The Chancellor reiterated his commitment to employee share ownership in his Autumn Budget Statement. He announced further tax breaks for employees of companies that are indirectly employee-owned. For the first time in over a decade, there will be an increase in the maximum annual value of shares that an employee can acquire with tax advantages under Share Incentive Plans to £3,600 a year for ‘free’ shares and to £1,800 a year for ‘partnership’ shares. The ‘Save As You Earn’ savings contribution limit will also be doubled from £250 to £500.
So why have more employers in the manufacturing sector not rushed to embrace employee ownership?
While it is difficult to provide a definitive answer, it is likely that many businesses in the sector see share schemes as complex, expensive to set up and burdensome to manage. Furthermore, businesses may see the resultant dilution of equity as unwelcome and worry that increased employee participation may amount to unwelcome interference.
Creating and running employee share ownership structures in the manufacturing sector can be complex and will require full consideration of overall corporate structure, share ownership and tax position.
It also creates an additional administrative burden for the business, particularly where there is a higher turnover of staff.
Is it all worth it? According to research by the Employee Ownership Association and sponsored by the John Lewis Partnership, the answer should be yes.
The research indicates that employee ownership has a positive effect on businesses, including ones in the manufacturing sector. In fact, since 1992 listed companies that are more than 10% owned by their employees have outperformed other FTSE companies by an average of 10% per year*. The UK employee-owned sector has grown at a rate of 1.1%, compared to 0.7% for the economy at large. This equates to a growth rate for employee-owned firms which is over 50% higher than the economy at large.** Moreover, employee-owners have higher levels of job satisfaction, feel a greater sense of achievement from work with increased fulfilment and job security and more would recommend their workplace as a place to work***.
Employee participation is often seen as a case of “us and them” – in many cases, this may be influenced by a historic employer experience of ‘employee participation’. However, the feedback on employee owner participation indicates that ownership schemes in fact engender a much more inclusive culture, a culture of ‘us and us’. Dilution of value is seen as a concern but if this helps your manufacturing business succeed and grow, whilst you may own less, that less will be worth more. Perhaps it is time for your manufacturing business to give employee ownership participation a chance.
*Field Fisher Waterhouse Employee Ownership Index – a capital only index tracking broad employee ownership
***“Fit for work? Health and Wellbeing of Employees in Employee Owned Business Final Report to Employee Ownership Association Sponsored by John Lewis Partnership 2012 Professor Ronald McQuaid, Dr Emma Hollywood, Sue Bond, Dr Jesus Canduela, Alec Richard and Gemma Blackledge http://employeeownership.co.uk/publications/fit-for-work-health-and-wellbeing-in-employee-owned-business/
This content is correct at time of publication
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