Employee Ownership - FAQs
We get asked a lot of questions about employee ownership. So here are the most common questions as answered by our team.
What is the definition of Employee Ownership?
In essence, a company is employee-owned when the majority of its shares are held by staff members. However, many thinkers and organisations see employee ownership as more than a financial arrangement. For example, the influential Nuttall Review defines employee ownership as:
“a significant and meaningful stake in a business for all its employees… [which] goes beyond financial participation. The employees’ stake must underpin organisational structures that ensure employee engagement. In this way employee ownership can be seen as a business model in its own right.”
From our point of view, employee ownership is more than just a technical business structure. It is a way to involve staff in the everyday running and management of the company. This increases engagement and helps create a stronger, more productive business.
Why is the Wales Co-operative Centre behind the push to see more employee owned businesses in Wales?
Since 1982, we’ve helped to strengthen and empower Welsh communities by supporting the growth of co-operatives and social enterprises, and by collaboratively delivering projects that provide skills and tackle exclusion.
Co-owned businesses commonly have strong ties with their local areas and maintain close links with suppliers locally and sub-regionally. They also work with local entrepreneurs and the education sector, constantly innovating and developing new products and new ways of working.
We can all imagine the societal advantages that flow from a wider and more equitable distribution of profit, the improved engagement and wellbeing of employees and an increase in jobs and job security within communities in Wales.
Employee Ownership Wales is a service delivered through the Social Business Wales programme, which is funded by the European Regional Development Fund.
Surely employee ownership is just for the larger businesses?
No! It can be used successfully by a wide variety of businesses of various sizes including commercial businesses and social enterprises.
Businesses that operate employee ownership exist in virtually every sector of the UK economy, across every size and stage of business and across all parts of the UK. From start ups looking to give the business a great beginning, to long-established businesses of all sizes seeking to plan for the succession challenge, employee ownership is a highly successful business structure.
We accept that when you think of employee ownership, John Lewis comes to mind. Some people will know that household names like Go Ape, Richer Sounds and Aardman Animations are also employee owned. However, employee ownership not just the domain of the big boys. In fact, the businesses we have helped here in Wales are your typical small businesses. Size doesn’t matter. So regardless of your location or industry you work in, you could well benefit from employee ownership.
As a business owner thinking about employee ownership, it means I give my business to the employees?
Definitely not! Your business is not given away, despite you caring for your employees and thinking about their future and your legacy, it is a financial arrangement like any other. Instead of maybe selling to one organisation, you are selling shares to employees, but you can be assured you will get a fair market value for your business.
Employee buy-outs occasionally involve employees putting up some of their own cash to buy some of the shares but usually the sums involved are small. Typically most of the shares are bought – on employees’ behalf – by a trust, financed by contributions from the company itself, or a loan that’s then paid back by the company.
There are 3 main forms of employee ownership, which one is right for your business and the employees is something we can work with you on.
- Direct employee ownership – Using one or more tax advantaged Employee Share Schemes, employees become registered individual shareholders of a majority of the shares in their company.
- Indirect employee ownership – Shares are held collectively on behalf of employees, normally through an Employee Ownership Trust.
- Hybrid model – A combination of individual and collective share ownership.
But employee ownership only comes about when a business owner is looking to sell up?
Again, no! Whilst existing owners may well want to consider employee ownership as an option against a competitor buyout, or the highest bidder which could put brands and employees at risk, it doesn’t have to be this way.
Many UK start-ups have considered and transitioned to employee ownership as it cements a culture of engagement, togetherness and commitment. We have been proud to work with businesses in Wales who have a strong ethos and set of values. Such businesses are attracted by the concept of allowing all of those who contribute to a company’s success to share in its rewards.
And it is not just start-ups. It can be an excellent model for existing businesses too. Many businesses are rooted in their communities and use employee ownership to strengthen this legacy. If you read our case study section you will see a range of businesses and their reasons for employee ownership.
Is a transition to employee ownership a quick process?
Our advice would be that when you are considering employee ownership as an option, the sooner you start planning the better.
Working with us, your own teams and external financial and legal support may give you a ‘perfect’ plan on paper. However, this paper-based solution has to be made real; a process that could take many months, or years.
If I’m thinking about employee ownership for my business who needs to be involved in the process?
The first steps would be to form a working group and talk through the issues.
This is where your paper plan can be discussed and becomes ‘real’. We would advise you bring together owners, directors, accountants and definitely include employee representation.
Think about who will be impacted by employee ownership and get these people around the table. Of course, this varies from company to company.
Contact us now for an options appraisal
Our fully-funded Options Appraisal will explore how Employee Ownership can work for your company. It includes: