The Government should set a public target for big public companies to increase the number of their shares owned by staff through employee share schemes, to give more workers a stake in the economy, a new report says.
The Social Market Foundation (SMF), a cross-party think-tank, called for a major new Government campaign to encourage firms to spread ownership among workers via employee share schemes.
Motivation
More than two-thirds of workers of big firms are keen to own part of their company, the SMF reported. Almost 60% said share ownership would motivate them at work.
Ministers should establish a high-profile target for businesses to make it easier for workers to own shares in their employer and publish league tables tracking firms’ progress in meeting the target, the SMF said.
Public targets would put the onus on big employers to adopt employee share schemes and “give more people a real stake in the economy” the SMF said. Studies suggest wider share ownership can help restore faith in market economies, which some observers say has been falling in recent years.
Share ownership
Several Government schemes support employee share ownership and some of Britain’s biggest employers offer workers the chance to buy shares, sometimes at a discounted price.
But those companies – which include Greggs bakery and Tesco – are in the minority. Just over 13,000 of the 1.4 million firms with more than one employee operate tax-incentivised worker-ownership schemes. The SMF calculated that around 1.9 million people own some sort of employee-shares.
The SMF called for a “sea change” in attitudes over employee share ownership, saying it should become the norm for workers to own part of their company. Company voting rules could also be overhauled to give employee-owners a bigger say in the way firms are run, the think-tank suggested.
Following the process that led to a public target for the number of women on big company boards, the SMF said ministers should establish an independent body to set a target for employee ownership, then monitor and report companies’ progress towards it.
Name and shame
Public targets, backed by a “name and shame” reporting regime, have helped raise the proportion of FTSE-100 board seats held by women from 12% in 2011 to more than 32% today.
France has passed laws setting targets for employee ownership, aiming for 10% of some firms to be owned by workers by 2030. The SMF said Britain should also be bolder in encouraging wider employee ownership.
James Kirkup, SMF Director said: “More people should have a stake in the economy. Good companies already know that helping workers become co-owners is good for business and good for employees.
“A sustained effort of leadership from politicians would encourage businesses to make good on their promises to behave responsibly by making workers into owners. We need nothing less than a sea-change in attitudes on employee share ownership to build a real stakeholder economy that everyone can have faith in.”
Recommendations
Polling by Opinium for the SMF study showed significant interest in share ownership among employees of larger companies:
· 68% said that they like the idea of holding shares in the company that they work for.
· 60% believe that employee shares/options would incentivise them to stay with their employer for longer than originally intended.
· 58% agreed that share ownership would/does make them “more motivated to do well in my job”. This suggests that employee share ownership could improve workforce productivity.
· 56% said that employee share ownership would make them more interested in other types of investment.
Scott Corfe, SMF research director said: “Some people in politics are keen to talk up tensions between companies and workers. We found real enthusiasm among workers to become part-owners and contribute even more to the success of their firms. Politicians should be encouraging more partnership between business and workers and employee share ownership is a good way to do that.”
The Chief Executive of the Investment Association Chris Cummings said: “Investment managers have long supported the principle of greater employee share ownership. This report from the Social Market Foundation clearly shows that employees want to play a greater role in workplaces by owning company shares, and the benefits this can bring.
“Employees who have a stake in their companies are more likely to be motivated and productive, leading to better long-term returns for businesses. It is important however that we implement employee share ownership in a way that does not short-change savers and investors by reducing the value of their pensions or diluting their shareholdings.”
The SMF report was sponsored by the Investment Association. The SMF retained full editorial independence.
Among the report’s other recommendations:
- The Government should update regularly the Employee Share Ownership Index, which tracks the performance of listed firms with employee owners against the movements of the wider FTSE All Share.
- The Financial Reporting Council should require firms to include information on what type of employee share ownership schemes are operated, the extent to which each scheme is taken up by eligible workers and the average value of employee shares in annual reports.
- The Government should decrease the holding period of Share Incentive Plans from five years to three years.
