The Benefits Of Employee Ownership
Perhaps the best way to analyse the benefits of employee ownership is to compare the advantages & disadvantages of employee share ownership. This can be done by taking a look at the benefits and associated risks for both companies and employees.
Company Benefits
The key benefits for a company establishing an ESS can include:
> Increasing shareholder value
Transforming your employees into shareholders immediately aligns their interests with that of the rest of your shareholders and motivates them to work to increase the value of their holdings.
> Recruiting or retaining key employees
ESS’s can provide an attractive carrot for potential employees and offer a convincing reason for your best talent to stay loyal to you for the long haul.
> Increasing innovation
Empowering your employees with ownership can prompt more engagement in the work they do, leading to a greater individual initiative and active problem solving.
> Compensating for lower salaries and relieving pressure on cash flow
Employee share schemes allow you to offer more to your employees on top of their wage whilst helping to ease the day-to-day operating burden.
> Lowering the supervision required of employees
When employees become shareholders they take more responsibility for the work they do.
> Increasing customer loyalty
Customers notice when an organisation is employee owned and appreciate the community benefits that come along with employee ownership.
> Improving the communication and cooperation between employees and managers
When all your employees share a common stake in the success of the company, the divide between management and workers shrinks substantially.
> Increasing employee happiness and job satisfaction
It’s no secret that work’s better when its your work – employee ownership is a powerful vehicle for improving the lives of your employees.
> Increasing a company’s likelihood of survival
Employee owned firms consistently outperform their peers in times of economic hardship.
> Realising owner’s investment[1]
An employee buyout can help realise the value of your business.
Company Risks
Some of the risks of a company establishing an ESS can include:
> Poor share price performance
Where the price of the company’s shares does not increase (or decreases over time) and the employee feels they have no control over the share price outcome, there is a good chance that employee morale and retention will be negatively effected.
> Cost of setting up an ESS
There are costs associated with the establishment and administration of an ESS / ESOP which can be a burden for some organisations.
> Dilution
Share ownership, and more specifically option plans, can be dilutive – i.e. as more shares are issued the value of each share you own becomes smaller (as it becomes a smaller percentage of the company).
Unsure of how to best mitigate some of the risks? We’ve got just the thing! Click here to explore our easy to understand online course in getting started with employee ownership.
Employee Benefits
The key benefits for an employee participating in an ESS / ESOP includes:
> Financial savings and reward
There is the potential for employees to build up considerable savings for themselves over their time at an organisation.
> Increased sense of ownership
It goes without saying that an employee who is also a shareholder is likely to feel like they a real part of an organisation.
> Increased awareness of the ‘big picture’
Employee owners often have more interest and personal investment in the direction and corporate plans of the organisation they are a part of.
> Improved working environment
Employee owned workplaces tend to make for a better place to work as everyone shares the same vision and goals for the company.
> Participation in key decision making
ESS’s and ESOPs are often linked with employee engagement and involvement, presenting employees with the opportunity to influence important decisions about products and process.
Employee Risks
Sometimes ESS’s /ESOPs can go wrong (usually if they are poorly structured & run). Some of the risks an employee can potentially face when entering into an ESS include:
> Overexposure to company shares
This might occur if an employee has all their eggs in one basket, meaning the employee has too high a stake in the shares of their employer (relative to their other savings / investments). Subsequently if the company does not perform (or worse, goes into administration) the employees investment is lost (this problem can be minimised by an organisation limiting the amount of salary or shares that the employee can buy).
> Share price fluctuation
Like any regular share holding, a decrease in a company’s share price can reduce the value of an employees holdings.
> Dissolution
The employee does not feel they can influence the share price or performance measures and as a result the plan has no value for them.
For highlighting the link between employee ownership and broad economic/social performance, there is some excellent data from the US “National Centre for Employee Ownership” (NCEO) which you can access at “A Visual Guide to Employee Ownership”.
The Australian Securities and Investments Commission has also produced a guide ‘Employee share schemes -Sharing the wealth – as an employee of a company, you may be invited to participate in an employee share scheme. There are a number of things to consider before signing up’.
For more on the widespread benefits of employee ownership, please see our Cooperative Workplaces Submission made to the Federal Government’s deferred ‘Cooperative Workplaces Consultation’.
If you’d like to get more involved with employee share ownership or are wondering how an ESS / ESOP can help your organisation why not become a member or explore our easy to understand online course on how to become employee owned.
[1]. See UK, Robert Postlethwaite, Johnathan Michie, Patrick Burns, Graeme Nuttal Shared Company, October 2005 and US, Steven F. Freeman, University of Pennsylvania, Effects of ESOP Adoption & Employee Ownership: Thirty years of Research and Experience (2007).
What’s next? Why not check out one of our original articles below:
Employee share plans – why you should participate
Employee ownership, participation and engagement – how to make it work
8 Lessons From Successful Employee Owned Companies
7 reasons to consider employee ownership/ESOPs
For actual stories on the benefits of employee ownership in operating companies, see:
Women lead employee-owned businesses lead the way in Scotland
When staff run the show: the true benefits of employee ownership