Employee Ownership – And Now for Something Completely Different?

by Employee Share Ownership on August 1, 2012

With the review on employee ownership happening world wide is it time that Australia undergoes a review too?

Employee ownership is essentially broad based participation rather than focused on a few executives. More recently it has been used as a means to boost the economy, save jobs and assist companies with succession planning.

The Board of Taxation was tasked with looking at employee ownership within start up businesses, private companies and also smaller companies in 2010. This review ended with a paper that in essence did not provide any solutions.

The UK government has recently used employee ownership as a means to boost the economy in the UK. The focus in the UK has been on simplification of the current regime, maximization of the benefits of the EMI scheme specifically aimed at start ups and also the recommendations set out in Nuttall report, which include raising awareness and the resources to support employee ownership.

The IDC in South Africa gathered experts from all over the world in Johannesburg last week to consider employee ownership more broadly and particularly in the context of their broad based black economic empowerment policy. Again, this recognized the importance of ownership as a means to empowerment and change.

Is it time that the Australian Government reconsider its stance on employee ownership as a tool to boost the Australian economy, to help the ageing population with succession planning and assist struggling SMEs with a means to save jobs through partial buy outs? What is the case for employee ownership?

Joseph Blasi presented at Melbourne University in 2010 and some of the key findings of his recent research is that ownership when combined with low supervision and high performance policies lead to 8% productivity increases and almost half the turnover rates of the national average. The ESOP performance puzzle studied companies which have ESOPs and those that didn’t from 1998 to 2004 and found startlingly that the net profit margins of employee owned companies were 10% higher, return of equity was 5% higher, debt was 3% lower and operating cash flow per employee was 5% higher. This research is borne out most startlingly in the John Lewis partnership.

EOA were fortunate enough to have the former chair of John Lewis, Sir Stuart Hampson, speaking at our annual conference and one of the most interesting part of the John Lewis story is that it has been a employee owned business for almost a century. The average bonus to employees during that time has been 16% where as the industry average has been around 3%. The John Lewis model works so that employees only receive a bonus if the company makes money and the bonus % is the same for all employees. John Lewis is not alone, ARUP has a similar success story as does Publix in the US (this is the largest employee owned business in the US with over 152,000 employee owners). The other important similarities are that employees genuinely want to work for the companies and feel a part of a corporate family. EOA believes employee ownership could be part of the solution to succession planning, job creation and boosting the economy of the non-resources sector.

If you are interested in being part of the EOA expert’s panel please contact us here.

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