Employee ownership: attract, incentivise and reward
The war for talent has conventionally been waged with an armoury of salary and benefits including healthcare, extra pension contributions and – more recently – offerings like free canteens and coffee machines, writes Lisa Hayward, Legal Director and head of employee incentives, Birketts LLP.
As the new decade sees millennials (those born between the early 80s and the mid-90s, aka Generation Y) become the dominant force in the workplace, we look at models of employee ownership that companies should be considering to attract, incentivise and reward employees.
Research on workplace trends, including Gallup’s, ‘How Millennials Want to Work and Live’, Deloitte’s ‘Millennial survey 2019’, and KPMG’s ‘Meet the Millennials’ chart a departure away from focus on pay and a move towards finding purpose and meaning at work.
Millennials prioritise culture and communication; they want to feel that their opinions and output are contributing to a bigger picture. Gallup’s report highlights how the millennial approach differs from those of the generation before:
Gallup’s report highlights how the millennial approach differs from those of the generation before:- Past (My payslip, My satisfaction, My boss, My job) compared to Future (My purpose, My development, My coach, My life).
Research into employee incentives, including ‘Ownership at Work: Equity for all’, ‘The Ownership Dividend’ and the Employee Ownership Association’s Employee Ownership Impact Report shows that a company’s readiness to meet these needs can be facilitated by how employee ownership.
Employee ownership, whether direct or indirect, incentivises employees by offering them a ‘significant and meaningful stake in the business’.
Engaging employees in the development of the business, including them in decision-making processes aligns with the goals in the ‘future’ reference above.
The business case for employee ownership is persuasive; there is a strong evidential correlation between employee ownership, high employee engagement and strong economic performance.
The research shows that employee ownership models (particularly Employee Ownership Trusts (EOTs)) act as enablers of innovative and entrepreneurial thinking, and transforms the way employees participate in business.
A millennial’s initial choice of employer and the subsequent degree of loyalty to that employer is influenced by the prevalence of markers that give individuals a sense of purpose and meaning; ethical, fair and transparent is important to employees to the extent to which they prove that the company’s interests are aligned with their own.
For example, Deloitte’s 2019 Global Human Capital Trends asked CEOs to rate the most important measure of success for their companies, ‘impact on society, including income equality, diversity, and the environment’ was ranked as the number one issue.
It is thought that this trend is one of the reasons that employee ownership has received unprecedented attention in recent years.
The Employee Ownership Impact Report found there are societal advantages that flow from the business model, including ‘an increase in jobs and job security within communities’, ‘improved and sustained local employment’, a ‘stronger local supply chain’, ‘stronger community empowerment and responsibility’ and more ‘diversity of organisational ownership leading to greater resilience’.
There is growing interest in the societal impact of a more equitable business model that transcends concerns of shareholder profitability in favour of more equitable distribution of profit: employees getting out what they put in.
Another reason that employee ownership, and in particular EOTs, has received greater attention is unquestionably the tax relief afforded by the government to shareholders who are prepared to sell a qualifying interest into an EOT.
Shareholders can settle their interest into a qualifying EOT free of Capital Gains Tax. Employees of companies owned by EOTs are able to receive a qualifying bonus free of income tax of up to £3,600 per year.
Based on this, it is likely that we can look forward to the number of employee owned businesses in the UK continuing to rise into the new decade.
• If you are interested in finding out more about the benefits of employee ownership for your business, or you would like to learn more about the models for employee ownership and would like to discuss next steps, please get in touch. You can call Lisa on 01473 406316 or drop her an email at: lisa-hayward [at] birketts.co.uk