Employee ownership is rapidly gaining traction as a sustainable and transformative business model in the UK. From increasing employee engagement to enhancing long-term business resilience, transitioning to an employee-owned structure offers numerous benefits for organisations and their people.
As HR professionals and business leaders face challenges such as talent retention, motivation, and succession planning, employee ownership provides a compelling solution. In this post, we explore why decision-makers should consider employee ownership, how it impacts business transformation, and the key benefits it delivers.
What is Employee Ownership?
Employee ownership refers to a business model where employees hold a significant or majority stake in the company they work for. This can be achieved through various mechanisms, such as Employee Ownership Trusts (EOTs), direct share ownership, or hybrid models combining both.
The UK Government has actively supported employee ownership, recognising its positive impact on productivity and long-term business sustainability. Since the introduction of EOTs in 2014, the number of employee-owned businesses in the UK has surged, covering a range of sectors from professional services to manufacturing and retail.
Key Drivers for Employee Ownership
1. Talent Retention and Motivation
Employee retention is a pressing issue for many organisations, with skilled workers increasingly looking for opportunities that offer more than just a salary. Employee ownership provides a sense of purpose and belonging, fostering loyalty and long-term commitment.
A study by the Employee Ownership Association (EOA) found that employee-owned businesses experience lower staff turnover rates compared to traditionally structured companies. When employees have a vested interest in business success, they are more likely to stay and contribute meaningfully.
2. Increased Productivity and Performance
Ownership fosters accountability. Employees who own a stake in the business are more engaged and proactive, driving productivity and innovation. Research from the UK’s Ownership Effect Inquiry highlights that employee-owned businesses report higher levels of discretionary effort, meaning employees are more willing to go above and beyond their job descriptions.
3. A Solution for Succession Planning
For business owners looking to transition out of their company, employee ownership provides a viable alternative to traditional trade sales or private equity buyouts. Rather than selling to an external buyer, business founders can transfer ownership to their employees, ensuring continuity and preserving company culture.
This approach benefits not only the departing owner but also employees who may have been uncertain about the company’s future under new, external ownership.
Financial and Organisational Benefits
1. Tax Advantages for Businesses and Employees
The UK tax system offers significant incentives for companies that adopt an employee ownership model. For example:
- Selling a business to an Employee Ownership Trust (EOT) is exempt from Capital Gains Tax (CGT), providing a tax-efficient exit strategy for business owners.
- Employees in an EOT-owned company can receive tax-free bonuses of up to £3,600 per year, enhancing financial wellbeing and motivation.
2. Business Resilience and Long-Term Growth
Employee-owned businesses have been shown to outperform their non-employee-owned counterparts in terms of financial stability and long-term sustainability. These organisations are less likely to suffer from short-term decision-making pressures, as employee-owners have a vested interest in ensuring long-term success.
3. A More Inclusive and Engaged Workforce
When employees have a financial stake in their company, decision-making processes become more inclusive. Businesses that embrace employee ownership often implement greater transparency and democratic decision-making, leading to a more engaged and satisfied workforce.
Case Study: The Success of Employee Ownership in the UK
RPV Group’s Transition to Employee Ownership
Robert Palmer, founder of RPV Group, a specialist industrial valve distributor, decided to sell 51% of his company to an Employee Ownership Trust. His motivation was to reward the employees who had contributed to the company’s growth while ensuring its legacy remained intact.
The transition resulted in improved financial outcomes for employees, who began receiving tax-free bonuses linked to company performance. Additionally, the shift in ownership led to increased engagement, with employees taking a more active role in decision-making and company strategy.
John Lewis Partnership: A Blueprint for Success
One of the most well-known examples of employee ownership in the UK is the John Lewis Partnership. With over 80,000 employees, the retailer operates under a model where all workers, known as ‘partners,’ share in profits and have a say in business strategy.
John Lewis’ success demonstrates the viability of employee ownership at scale. Its inclusive approach to governance and profit-sharing has contributed to a strong brand reputation and consistently high levels of customer service and employee satisfaction.
Is Employee Ownership Right for Your Business?
While employee ownership offers numerous advantages, it may not be the right fit for every organisation. Factors to consider include:
- The company’s financial health and ability to fund an ownership transition.
- The willingness of leadership to embrace a more democratic governance structure.
- Employee interest and engagement in taking an active ownership role.
HR and business transformation leaders should engage in discussions with financial advisors and employee ownership trust experts to assess the feasibility of transitioning to an employee-owned model.
Final Thoughts
Employee ownership is more than just an alternative business model—it is a powerful tool for fostering engagement, retaining top talent, and ensuring business continuity. By giving employees a meaningful stake in the company, businesses can drive motivation, enhance productivity, and create a culture of shared success.
For HR professionals, decision-makers, and business leaders seeking innovative ways to future-proof their organisations, employee ownership presents a compelling and proven option worth serious consideration.