Nick Clegg’s keynote speech to the City of London earlier this year extolled the virtues of employee share ownership. His view that “too few people…have a real stake in their firms” and his announcement that he wants this current decade to be known as the “decade for employee share ownership” raised both the profile of employees acquiring shares in their employers and also a number of key questions.
Many businesses within certain “people based” sectors (in particular IT) already use employee share schemes effectively as a means of recruiting, retaining and motivating their key employees. The tax efficient and flexible Enterprise Management Incentive (EMI) plan has been adopted by over 10,000 UK companies since 2000 and for many software businesses it is now part and parcel of a new recruit’s expectations in terms of long term reward. EMI can, in those businesses that really succeed, be a means of producing potentially life style changing, post-tax returns to employees (typically on an ultimate business sale) but still remains undersold by Government.
For some business owners though the spectre of diluting their value may be unpalatable. So much so, that they are unwilling to consider the enhanced upside to them in overall value that may be generated through a more motivated workforce. Nick Clegg’s suggestion that employees may be given “a new, universal right to request shares” is likely only to have added to those concerns.
While evidence, and my experience of advising employers, clearly supports the Deputy PM’s claims that employee share ownership can produce higher business productivity, the real challenge for his taskforce over the next few months in getting “employee share ownership into the bloodstream of the British economy” will be to address more effectively the often perceived blockers to wider share ownership (business culture, owner concerns, tax and implementation costs). If existing employee incentive legislation can be enhanced, and new share arrangements be formulated which properly deal with these concerns, then the possibility of a “John Lewis economy” in which many more employers and employees share together in business value may well become more of a possibility.
If you are interested in discussing how employee share schemes, contact
John Dormer for more information.
