Recent figures from the Employee Ownership Association found that companies incentivising employees by giving them some “skin in the game” are found to be 2.4 per cent more productive than the market average.
In an era where productivity is one of the biggest economic concerns we face, the fact that the top 50 employee-owned businesses boosted annual revenues last year by 4.6 per cent, to £21.5bn, is serious food for thought.
John Lewis has long been looked up to as a shining example of a business leading the way with an employee ownership model, but an increasing number of SMEs are deciding that it offers an attractive incentive to staff.
In January, Worcester-based technology company Postcode Anywhere featured in a Real Business feature looking at employee ownership. Six months on, we returned to the business to look further at what has been done and ask whether co-founder Guy Mucklow believes it will have a long-term beneficial impact.
(1) What motivated this decision?
Having established a very solid and secure base for the business, we are currently looking to scale by extending the reach of our addressing services and also through the launch of a new big data and analytics platform, called triggar.com, which is aimed at increasing online conversions.
We’ve got a very significant financial target that we’re looking to achieve in the next five years – 50 per cent growth annually in revenue over the next five years, to a £50m turnover – but to achieve that everyone will really need to be pulling their weight.
As we look to scale, we wanted to send a very loud and clear message to our employees: “We are all in this together!”
The key for us is to create an environment in which everyone feels and behaves as if they are owners of the business and, as such, can share in the growth in its capital value unlike an employee who just takes an income whilst creating wealth for others. In turn employees will be likely to start treating the business like it’s their own, buying into the vision of the company’s future, aligning passion with success; as ultimately the success of the company will provide a very meaningful impact on the individual’s future.
I don’t want to take my staff for granted, and one of the reasons why we decided to become employee-owned is because there’s a certain level of passion, desire, drive, ambition and hunger that you get from founders that isn’t often seen in people that are just working for the business. I want to spread some of that energy and see some of those qualities in other members of my team.
(2) What kind of advice did you seek to further your understanding of the process?
We signed up to the Employee Ownership Association (EOA), and myself and our HR manager attended their conference last year in Nottingham. This gave us the opportunity to speak to others that had been through the process before and to get an unbiased view of the pros and cons of the different approaches to becoming employee owned.
The EOA are a fantastic organisation who do great work in promoting the benefits of wider share ownership. I would suggest that you attend their conference as a first step.
The second part of the process for us, having made the decision to become employee owned, was the mechanics behind setting up an Enterprise Management Incentive Scheme (EMI). Here we took advice from our auditors, Grant Thornton who prepared a comprehensive brief and guided us through the process. There was also a fair amount of legal work required on our shareholder agreement and articles of association to make sure that the scheme worked for all concerned.
(3) What kind of preparation has gone into becoming an employee-owned company?
We have been on a relatively extensive journey – which started with the owners of the business deciding that they wanted set a tough challenge to management to grow by 50 per cent annually over the next five years. As part of that challenge we wanted everyone to materially share in the value created in the process.
The next step was to communicate to our staff what we wanted to do and to set the wheels in motion to ensure that we had the right scheme in place which was supported by the appropriate mechanisms and agreements to ensure that it worked properly. The idea of employee ownership can be complex to explain to staff. So we have had face-to-face conversations with employees to explain the mechanics of our EMI scheme and what it means tour employees at an individual level. When it is put to staff that delivering on performance will lead to them receiving a share that will in turn contribute to, for example, paying off a student loan or mortgage payment, they can relate to the value of the effort they put in.
(4) What was feedback from staff?
Generally very positive. It can sometimes be quite difficult with EMI schemes as it’s not instant cash. I think the key thing here is to make sure that you maintain regular communications so that employees are aware of what the options are worth and that they also have a rough idea of the timeframe for converting those options into cash.
There’s still a reasonable amount of work to do to measure the impact, but I sense that staff appreciate what Jamie and I are trying to do and are grateful that we have included everyone and not just the senior management team in the process.
(5) Why do you think this will help both attract and retain top talent?
The ability to attract and retain talented people was a major consideration for us. It’s the difference between us being an average company or one that is constantly pushing the boundaries and challenging the way that our industry works.
Both Jamie and I are very keen to ensure that we have the best talent and that we do as much as we can to share in our success. As it’s a team effort.
I believe that we are very fortunate to have attractive schemes like the EMI available to us in the UK, but that we should do more to take advantage of these opportunities to create inclusive businesses which, if successful, creates wealth amongst a wider group of people that just the early investors.
(6) Do you think this is the way British business is going, or do you think we’re still a long way off widespread adoption of employee ownership?
I would like to feel that businesses are becoming more inclusive and sharing success more widely, although to look the ratio between salaries at the top and bottom of the organisation in some of the better known brands in the UK, the evidence would suggest differently.
Whilst John Lewis are widely touted both in the press and within government as the type of organisation that we should be aspiring to, there are a lot of potential obstacles to creating more John Lewis’ and a vision of wider share ownership.
Read more about employee ownership:
- Why aren’t SMEs interested in the government’s employee share schemes?
- Employee shareholder ping pong in parliament
- Legal advice: Considering the Employee Shareholder Scheme
(7) Could more be done to both incentivise companies to do it, and make the process simpler?
I believe that the right incentives are out there, however, what may be putting people off are the cost and complexity of going through the process. Our scheme cost about £30,000 in time and effort, although I’m sure it could be done for much less.
(8) What advice would you give to anyone considering the move?
Make sure that the scheme is clearly thought through. What are you looking to get out of it and be when? Measure the impact of the scheme. Is it having the desired effect? Is it meeting your goals? If not then stop it and look at other ways to achieve the same goal.
It is well worth researching the market and speaking to people that have been there before. Take their advice as it’s incredibly valuable whether you choose to follow them or not.
Having committed to employee ownership you need to make sure that you take good professional advice and finally communication is everything. Consult with your staff to explain what you’re trying to do before launch and keep the dialogue going.