Is an Employee Ownership Trust the way forward to show your workers they are valued?

In May this year Julian Richer gave his employees shares in the company through an Employee Ownership Trust (EOT) whereby they will own 60% of the business.

Announcing the decision, Richer said that he felt it was better to do it now he had reached the age of 60, than to wait until his death, as originally intended. This way, he said, he could ensure the transition would go smoothly.

Richer Sounds, the hi-fi and TV retail chain, since it was set up in 1978 has survived the last five recessions and is regarded as one of the best companies to work for.

Julian Richer’s success as founder and owner can very much be attributed to his commitment to his employees which includes initiatives such as an extra day of holiday on their birthday, heavily discounted access to holiday homes for all employees with over six month’s service, a month’s use of the company Bentley to the store that has scored highest on customer service each month and chiropody treatment and massages for his 500 employees. He even has a bring-your-pet-to-work scheme and donates 15% of company profits to various charities.

Giving employees a stake in their company via shares is not a new idea.  It began in the 1920s when John Lewis created a trust settlement for his father’s department store which was then expanded in the 1950s to full 100% employee ownership.

EOTs were formally established in the Finance Act 2014 and alongside them the Act allowed a Capital Gains Tax exemption when an owner sells at least half of the business to an EOT.

Why is valuing employees good business sense?

There are, sadly, innumerable examples of businesses that don’t treat their employees fairly, despite efforts to coax, or legislate them into doing so.

Examples include the continued, and reportedly widening disparity between the remuneration of male and female workers doing the same job, despite recent regulations requiring employers of more than 250 staff to publish their gender pay gap data.

The treatment of “gig economy” or zero hours workers has been sufficiently callous that it has prompted the European Parliament this year to pass legislation to set minimum rights that include more predictable hours and compensation for cancelled work, and an end to “abusive practices” around casual contracts. Similarly, the Parliament passed a law to give whistleblowers greater protection.

The accepted wisdom, still, among businesses wanting to improve their productivity is to expect their employees to work longer and harder. Moreover when a company is in financial difficulties their jobs are often threatened such that employees often agree pay cuts to save their jobs and in doing so save the company. Despite such sacrifice all too often employees do not share in the spoils of success when their employer returns to profitability.

Yet there is evidence that productivity gains are more likely with a short working week than with 12-hour days six days a week. In a research paper in which Will Stronge, co-founder of the thinktank Autonomy, comments that the culture of long hours fostered by US and Chinese firms “part of the ideology, and the dominant narrative that entrepreneurialism and long working hours come hand in hand […] Actually, it’s not the case. It doesn’t make business sense to work workers to the bone.” In fact, overworking employees “is the main reason for sickness in the UK and responsible for a quarter of sick days”.

At a time of skills shortages and record high employment, it therefore makes better sense for a business to retain staff by demonstrating that they are valued and by rewarding them such as giving them a stake in the business, via an EOT, or other forms of recognition.

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