Insights on Employee Ownership (EO)
Employee Ownership (EO) models present both challenges and opportunities. Sustaining employee motivation after the initial transition requires ongoing communication, transparency, and empowerment. Balancing leadership, especially when founders stay involved, can also be tricky. However, EO offers opportunities for greater collaboration, accountability, and shared ownership, driving long-term success and a more engaged workforce. Steven Tebbutt, Director of Tax and Human Capital Advisory at MHA re๏ฌects on the key discussion points from our recent roundtable below.
Specialists at MHA recently hosted an Employee Ownership (EO) roundtable in partnership with the engagement service provider J Gadd Associates, change management consultants Telos Partners, and law ๏ฌrm Geldards LLP.
The event brought together professionals from a range of industries, including insurance, property, and recruitment, to discuss the challenges and opportunities within the growing EO landscape. Attendees were keen to share insights and experiences around engaging employees, fostering democracy within EO, and managing challenges when things go wrong.
1 Engaging employees: Keeping motivation and morale high
One of the central topics was how to sustain employee engagement over time. The initial transition to EO often sparks excitement and a โhoneymoonโ period of perhaps 12-18 months, but the challenge is maintaining that momentum. Attendees shared a variety of strategies that have worked in their businesses:
- Financial bene๏ฌts and transparency: Many organisations highlighted the value of offering ๏ฌnancial incentives such as EOT income tax-free bonuses. Transparent communication around ๏ฌnancial performance, and the quantum of debts due to the vendor shareholders, helps employees see when they will realise the bene๏ฌts of EO and work towards a common goal, thus strengthening their engagement.
- Clear and frequent communication: Regular, structured communication, such as quarterly meetings and forums, allows employees to voice concerns and feel heard. These meetings also provide a space to discuss upcoming changes and give employees a clear picture of what to expect in the next three to four months, creating a sense of shared ownership.
- Empowerment and consultation: Engaging employees in decisions, whether itโs choosing a new of๏ฌce space or upgrading company hardware, gives them a greater sense of control and ownership. Giving employees 'wins' ensures they know their voices matter in shaping the business.
- Balancing leadership and transition: Founders who stay involved in the early stages of EO often provide valuable stability which helps limit the fear of change amongst employees. However, itโs crucial, if they do not have an ongoing management role, for them to step back and allow the new management team and employees to manage the business, providing a supporting rather than controlling role, and trusting the team. Striking this balance helps employees feel empowered while still bene๏ฌ ting from the founderโs experience and guidance.
2 Democracy in EO: Ensuring meaningful participation
A key principle of EO is the idea of shared decision-making, but how do businesses ensure that democracy in EO is meaningful rather than performative? Several strategies were discussed:
- Transparency and accountability: Sharing business ๏ฌgures openly helps employees feel more involved and responsible. When employees understand the ๏ฌnancials and understand the impact of expenditure and losses on pro๏ฌts, they are more likely to commit to the companyโs success, knowing they have a stake in it.
- Encouraging ideas and solutions: Attendees shared examples of forums where employees can suggest ideas, many of which are later implemented by the board. Businesses that encourage problem-solving, rather than just raising problems, create a culture of collaboration and accountability. The challenge was to keep meetings and forums meaningful and avoid slipping into trivial matters. It was recognised that there is the potential to pay tax and NIC free bonuses up to ยฃ5,000 (in addition to tax free EOT bonuses) under an employee suggestion scheme.
- Co-creation: Pilot programs, where employees can volunteer to trial new initiatives, were seen as valuable. Although these take more time upfront, they create long-term success and engagement by giving employees the opportunity to shape the companyโs future.
- Strategic involvement: There was a sense that it is all too easy to focus on keeping employees happy under an EO structure, putting pressure on senior members of the team, when the focus should be to move towards treating employees like owners. Engaging employees in strategy discussions ensures they feel like owners rather than just workers. Trustees play a key role in this process, holding the business accountable to its strategic goals while empowering employees to ๏ฌnd solutions when challenges arise.
3 When things go wrong: Navigating challenges
The road to EO is not without its challenges. Economic pressures and leadership dynamics can complicate the transition, and the roundtable explored how to address these hurdles:
- Unrealistic valuations: Businesses can face ๏ฌnancial dif๏ฌculties if they do not accurately value their company or involve independent valuation experts. Being realistic about valuations and managing expectations is critical.
- Founders holding on: A common issue discussed was founders who struggle to let go of control. While having the founder involved can provide a sense of security to employees, itโs important for the founder to recognise that the management team reports to the trustee and not the founder. If the founder continues to exert too much in๏ฌuence, it can undermine the entire EO process.
- Maintaining engagement: As the initial excitement of EO fades, some businesses ๏ฌnd it dif๏ฌcult to keep employees motivated. A strong narrative, clear roles, and responsibilities help sustain engagement, along with frequent communication and recognition of employeesโ contributions.
Whatโs next for EO?
EO is likely to continue to grow in popularity, particularly if Capital Gains Tax becomes more onerous.
There was some concern over the marketing of EOTs, which in some cases has been aggressive and not in alignment with EO principles, which, combined with rising popularity, could cause HM Revenue & Customs to consider tightening the rules.
On the whole, changes proposed by HMRC in their consultation document last July were seen as fair, and unlikely to signi๏ฌcantly affect most existing EO businesses if changed.
There were hopes that the ยฃ3,600 income tax free bonus might be altered to better re๏ฌect in๏ฌation and be exempt from National Insurance Contributions as well as Income Tax.
Conclusion: A positive outlook
The EO roundtable was well-attended, with lively discussions and valuable insights. The common thread was the importance of transparency, communication, accountability and empowerment in making EO successful.
By continuing to share best practices and support one another, we can ensure that EO remains a dynamic and rewarding model for both employees and businesses.
We look forward to hosting future roundtables and furthering the conversation on how to make EO a driving force for business success.
If you have any questions or would like to discuss Employee Ownership in more detail, please do not hesitate to get in touch with our specialists in the Thames Valley.
You can ๏ฌnd out more about our ๏ฌrm and our services on our website or contact us by email: [email protected] or call: 01628 955915 Thames Valley Office: Foundation Park, Maidenhead SL6 3UD
