Retaining hardworking and dedicated employees is something every business would like to do and there’s no better incentive out there than offering them shares. Here’s why…
Employee ownership schemes give businesses the opportunity to share their success with their employees. Bringing your employees along for the ride by implementing employee ownership in your company is one of the best ways to motivate and retain them.
In this post, we’re going to cover what employee ownership schemes are and how implementing them will help you keep your employees. Take a look…
What Are Employee Ownership Schemes?
Employee ownership schemes give employees the opportunity to acquire shares in the company they work for. There are two ways employees can own part of their company under these schemes:
- Direct employee ownership: employees hold shares in the company directly and can purchase them at a tax-efficient rate.
- Indirect employee ownership: the company is owned by an employee share ownership trust on behalf of the employees.
Types of Employee Ownership Schemes
There are also a number of employee ownership schemes available in the UK that have significant tax breaks as the government sought to promote them. The schemes that the government gives breaks for are:
- Save As You Earn (SAYE): employees put aside £500 a month that they can use to buy shares at the end of their agreed contract (3 or 5 years).
- Share Incentive Plans (SIPs): employees receive £3,600 of free shares every year and if they don’t sell them for 5 years, they pay zero Income Tax or National Insurance on them. They also don’t pay capital gains tax when they’re sold.
- Enterprise Management Incentives (EMIs): these employee ownership schemes provide a large stake in the company to managers, offering shares up to £250,000. If they buy the shares at market value, they don’t have to pay Income Tax or NI.
- Company Share Option Plan: employees are able to buy up to £30,000 of shares at a fixed price and pay no NI or Income Tax on the difference between what they initially paid and what they were worth in the end.
- Enterprise Ownership Trusts (EOTs): this is the only ‘indirect’ government-backed ownership scheme. Shares are sold to a trust who own them on behalf of the employees. These shares are exempt from Capital Gains Tax and there is an Income Tax exemption of £3,600 a year on certain employee bonuses.
How Does Employee Ownership Retain Employees?
Now that we know what employee ownership schemes are, it’s time to discuss why they are so successful at retaining employees.
In an article published by The Guardian in Feb 2020, Shaun Revill said that his employee owned company Gripple has a 99 percent staff retention rate. He did go on to clarify that those who first arrive either deal with the flat structure and open environment or they don’t.
The employees who are able to cope with the structure and want to be part of an employee owned company are the ones who tend to stay. In the experience of Gripple, and many other employee owned businesses, these people often stay for good.
So, what is it about employee ownership that convinces staff members to stick around?
1. Attracts the right employees
There are two different types of employees out there. Some want to make it through the workday, go home to their family, and pay their bills. These types of employees are probably not interested in being part of an employee owned company.
Some employees, however, are always looking to be part of something bigger than themselves. These people only feel a sense of satisfaction if they’ve made some sort of significant impact on the business.
These employees would not only work harder for the company in pursuit of that goal. They’d also be more likely to stick around because they’ve finally found something they can contribute their maximum effort to.
2. Ties employees into the structure
Once your employees are part of an employee ownership scheme, they’ll be reluctant to leave and work somewhere else. Despite the number of companies out there who are now employee owned, it’s miniscule in comparison to those that aren’t.
To leave a company that gives you shares, and the ability to influence how much those shares are worth by putting in the work, for a company where you’d just be taking home a pay check, would be very difficult.
Also, once you own shares as part of one of the government schemes, lots of the tax breaks only take effect after 3 to 5 years. This means that leaving the company could actually be detrimental to the value of their shares.
3. Gives employees a voice
Staff who are part of employee owned companies tend to get much more of a say in what the company does as they are technically classed as shareholders.
Most of these companies embrace this idea and provide open forums for employees to discuss their ideas and raise their concerns. Not only does this help the company iron out its problems, it gives employees a sense that they are an important part of something.
4. Employees are better off financially
If you own shares in a company and the company succeeds, you end up taking home more money than if you were to take home a standard wage.
Also, when people need a deposit on a house or have any other large payment to make, they can cash out a portion of their shares to pay for it. With financial incentives like these, leaving an employee-owned company for a run of the mill job would be ludicrous.
Will Employee Ownership Help Me Retain my Employees?
In this post, we’ve managed to cover what employee ownership schemes are and how they can help companies retain their employees.
If you were to convert your company into an employee owned business today, you wouldn’t necessarily retain all your employees. Those who enjoy the responsibility will stay and those who don’t will leave and you can replace them with new employees who share your vision.
Once you’ve had this system in place for a few years, you may find that your business will retain employees at a greater rate than traditionally run companies.