This month, to mark International Workers Day, and the centenary of the International Labour Organization, Co-op News is looking at the workers in the co-op movement. This includes a look at the difference between worker co-ops and employee owned models, and the ways the put people at the heart of their thinking. Here, we speak to Deb Oxley, chief executive of the Employee Ownership Association.
What are the benefits of the EOT structure?
A transition to employee ownership at the point of succession for a business provides a route to ensure the legacy of the business, recognise the contribution of their employees and at the same time allowing founders/current owners to recognise full financial value from their investment, means that this is now a growing option for many UK SME’s and family owned businesses.
The EOT provides a route for all employees to have a stake in the future of the business, sharing in any financial success through tax-free bonus payments, and to have a voice and influence in the strategic direction of the business through formal involvement in its corporate governance.
What tax breaks are available for employee owned businesses?
The Employee Ownership Trust (EOT) was introduced in Finance Bill 2014 and allows for complete exemption from Capital Gains Tax on the proceeds of a sale to owners who sell a minimum of 51% of the equity of the business to the EOT. There is also an additional benefit to employees, where bonus payments paid via the EOT can be paid tax free to the sum of £3,600 per employee per annum.
How are employees engaged in the enterprise in general as well as in how it’s run?
Regardless of which model of employee ownership a business chooses, the resulting involvement of employees in the corporate governance of the business is a natural and necessary feature in a business where the employees have a stake.
The culture of involvement by employees is generally supported by regular sharing of business information, more transparent financial reporting and very often, the holding of account of the board to its employee owners in the case via the EOT through the trustees – this very often includes at least one elected employee rep who becomes a Trustee Director that in some cases also sits on the main Board of Directors. In other cases the Trustee Director heads up an employee council which feeds information to the main board. Each set up is different but usually includes representation of the owners in some way at trust and board level.
The flexibility of the EOT model allows for solutions that include more than one type of ownership. For example other big brands to recently adopt the model include Aardman, which has put 75% of the business into an EOT while some of the shares staying in the hands of the founders, and Sawday’s which has become an employee owned, family owned charitable trust creating a hybrid model of both direct and indirect ownership.
The EOA’s report the Ownership Dividend published in June 2018 revealed that employee ownership has a dramatic effect on the behaviours of individual employees, caused by both them having a stake and a voice. The impact is on the individual, the business and the wider regional economy.
The extra discretionary effort and joined understanding and purpose sees employees drive better performance and productivity which one business called the ‘whoosh effect’ of employees realising they can effect business performance and also share the reward as well as the responsibility.
As heard in the story of Cambridge Weight Plan engaging employees in meaningful ownership, where the ownership stake is accompanied by influence and a voice, can have a dramatic effect on the financial and business performance of the business.
In their evidence they said: “Our employees are now more interested in the bottom line, what profits we are making, employee voice and how they can get involved in deciding what happens to profits and how we spend those.
“Since becoming employee owned, UK sales have gone up by 17%, export has gone up by 22% and out total sales profit has increased by 25% – a lot of that has been driven by the fact that we are all working towards a common goal.”
How many EOA members are co-ops?
We have one worker co-op as a member – there is a real difference in needs for each type of business and our proposition is set up on helping businesses to become employee-owned at the point of succession, to support businesses to bring EO to life in their business and learn, develop and grow as employee owned businesses. Meanwhile co-ops tend to be formed at start-up or early on in the businesses life cycle so tend to need different support.
How do you see the two movements working together in the future?
Going through the Inquiry and publishing the Ownership Dividend report helped us have more clarity on where there are obvious political synergies with other parts of the economy which includes worker cooperatives.
Whilst the democratic model of a worker coop may be different to that of an EOB, there are many shared values – not least giving all employees the opportunity of a stake and a say. However, possibly more importantly, these two areas of the economy also share some of the same challenges; including a lack of awareness, a lack of professional advisory capacity and challenges around access to finance.
We have a shared belief that an increase in the number of businesses that give employees a voice and a stake will benefit the economy making it more inclusive.
Working together to create understanding of the opportunity of supporting more co-operatives as a pipeline of more inclusive businesses at start-up or early in its business cycle and more employee ownership as a succession option for SMEs and family businesses allows us to combine our efforts to campaign and lobby government for more attention and support to help grow a more inclusive economy to the benefit of individuals, businesses and the communities they serve.
- Related: Click here to hear from worker-owners at Leading Lives care co-op on the worker co-op model
- Click here for more from our workers special edition