An essay by Alan Greig, Board member, Employee Ownership Australia
Employee ownership boosts wealth and income through workers sharing in the profits and assets of their employer. And by providing a method to share with the workforce the financial benefits of business success, the income stream created improves the financial well-being of workers and their families, while giving them potentially a more stable financial future. The financial benefits provided by employee ownership thus can significantly improve the economic security of workers, their families and the wider community.
As a result of their sharing ownership of a business, employees in employee owned companies have higher median household wealth than those who are not involved in employee ownership. This comes from higher wages, better benefits, and accumulating assets in employee owned companies. Longer job tenure and better career prospects also enable a higher standard of living for employee-owners and their families. These benefits are common outcomes in employee-owned firms. A more secure and financially stable household environment benefits children as well by reducing financial stress and promoting overall family well-being.
With a combination of higher pay and job security providing a stable and predictable income for families, this will reduce the level of financial anxiety in families – and with workers in employee-owned companies receiving training in business and financial fundamentals, this helps them make better financial decisions for their families over time. Greater financial stability also allows families to plan for the future with more confidence, thus making it easier for them to save for big purchases, education and retirement. Participating in shared business ownership plans encourages longer term improvements such as psychological safety and active involvement in ongoing health and safety initiatives.
Importantly, employee ownership reduces economic inequality by distributing wealth amongst all workers, not just to management and shareholders. With employee owned businesses showing a distinct ‘wow factor’ leading to improved business outcomes, fairer treatment for workers and their families results. Firmer financial foundations also generate more opportunities for families, including better access to education, healthcare and other resources.
There are other business benefits as well. With employee owners being more engaged and with a greater personal stake in the company’s success, this translates into higher productivity. Employee ownership encourages greater investment in training and development, as workers are motivated to acquire new skills which can improve company performance. By fostering this heightened sense of collective purpose, stronger societies arise.
Those studies which show that employee ownership is linked to higher wages also show that employee-owned companies experience greater job security and fewer layoffs, especially during recessions. However, these studies also show that ownership sharing leads to such results only where it is associated with formal employee participation in decision-making and structured workplace involvement. Ownership alone might have little impact.
With employee ownership leading to increased worker engagement, this makes for longer term management decision-making. When workers have a voice in company decisions, along with opportunities to influence both high-level corporate strategies and day-to-day work practices, this builds greater workplace productivity – and while employee owners feel more invested in their company’s success, this leads to a stronger sense of satisfaction overall.
With employee-owned companies contributing to economic resilience and job retention, they play an important role in economic recovery following economic downturns. Employee owned companies tend to be more locally rooted, circulating more money within the community. Supporting local economies in this way fosters community development, with workers in employee-owned companies showing higher rates of civic engagement, such as volunteering and participation in community activities.
Employee ownership also plays a major role in successful business successions. In doing this – and by keeping the business in the hands of its employees – such businesses are much more likely to secure local jobs – and these jobs are more likely to be maintained compared to a sale to a new, external owner. And with employee ownership being associated with greater company stability and higher survival rates, more dynamic local economic activity should result.
Employee ownership is also good for the planet, thus benefitting society and all of its members. Employee owned businesses regardless of their size are doing much more to get to ‘net zero’ than non-employee owned businesses. Employee owned businesses tend to prioritize management time towards ensuring they have a positive planetary impact, and by paying more attention to improving their wider environmental sustainability they are much more likely to have ‘environmental sustainability’ accreditations of various sorts. They are creating a greener economy as a result.
In conclusion, all the various research studies show that employee ownership is good for workers and their families, good for their communities and good for business and the economy overall. And further, by promoting wealth sharing and economic prosperity for workers – and by helping to reduce economic inequality – employee ownership generates well-being and healthier societies and citizens.