Employee ownership of a business is nothing new – management buy-outs are a relatively common occurrence in smaller independent businesses, where owners want to see their work continued by an engaged and experienced team. But in 2014, the UK government introduced the Finance Act, and with it a new way to incentivise employee ownership of businesses across the nation: the Employee Ownership Trust, or EOT.
An Employee Ownership Trust is a trust set up for a business’ staff cohort, to which shares can be sold and which grants employees indirect part-ownership of the business. Rather than distributing shares to employees on a direct and individual basis, a majority of shares are sold to the EOT which represents employees as a united bloc, granting employees a majority stake in the business. But what benefits does this actually confer to employees?
Increased Employee Engagement
For starters, the transition from a conventional corporate structure to one that forefronts employee ownership and equity is one which sends a loud signal to the business’ workers that they are valued. By incorporating an Employee Ownership Trust as part of a business, owners and executive leaders can motivate and inspire the workforce to engage more directly with their day-to-day work; the knowledge that their contributions to the company will directly and positively impact their career.
The chief benefit to employees is a financial one; EOTs enable employers to offer tax-free bonuses to their staff, up to a value of £3,600 each year. This is a significant sum, which could make a significant difference to the lives of many full- and part-time staff in the business. Not only does this improve morale amongst staff, but also motivation.
The EOT represents a 50%-plus stake in the business, being a repository for the tax-free sale of shares from other stakeholders. With the growth of a business, its share price increases – growing the value of the staff cohort’s stake in the business and enabling workers to share in the company’s success as a result. Again, this can be a powerful motivator, as workers can see the tangible benefits to their work.
Improved Business Performance
The aforementioned benefits all result in increased employee engagement and motivation, which in turn have a positive impact on the short- and long-term success of a business. However, there are other ways in which an EOT can improve a business’ performance. EOTs can make for a more sustainable growth pattern, with employee concerns front and centre of any expansion and employee ambitions closely aligned with the ambitions of other company leaders.