Benefits and drawbacks of employee share schemes.

The benefits of employee share schemes.

1) Attract top talent.

Employee share schemes are still relatively new to many businesses (and completely novel in some sectors). So, they can be a real point of difference. A recent study from ASIC supports this view – it found that businesses with an ESS are more likely to both attract and retain high-quality employees.

Further, in organisations where cashflow is often tight, an ESS can give you a competitive edge if you have to offer a lower base salary. This allows you to properly compensate your team members and provide an attractive offering to new starters, without adding to your day-to-day financial pressures.

Whilst attracting and retaining staff is one of the many benefits of employee share schemes, there are some tax implications to be aware of. So get advice before launching yours. You can read more about income tax and capital gains tax (CGT) on employee share schemes here.

2) Lower turnover, improve engagement.

Compared to non-employee-owned businesses, organisations with employee share schemes tend to have lower employee turnover rates and higher levels of engagement.

ESS programs can be a great way to retain your key staff for the long haul. And when they’ve got skin in the game, your team members have higher levels of engagement and responsibility, and a greater sense of ownership over their work. Why might that be?

When employees have a financial stake in the success of your business, they are more likely to feel invested in its purpose, mission and values. They are also more likely to work together to support each other, and less likely to be motivated by self-interest.

3) Improve productivity and decision-making.

A study by the National Bureau of Economic Research found that employee ownership can increase productivity by up to 4%, and lead to higher profitability over the long term.

In addition, an ESS program can help to align the interests of your employees with those of your wider organisation. When employees are also owners of your business, they are more likely to make decisions that are in the best interests of the whole company. Simply put – an ESS means your people are less likely to let self-interest affect their decision-making.

4) Increase shareholder value and harmony.

An ESS can also help to increase shareholder value over the long term.

But don’t just take our word for it. The National Center for Employee Ownership found that companies with employee share schemes grew 2.5 times faster than those without. That’s a pretty impressive statistic, if you ask us.

Moreover, by converting your employees to shareholders, you instantly align the interests of the key parties to your business. Goodbye AGM thrown downs! Hello shareholder harmony. When everyone’s an owner, everyone’s goal is both a healthy workplace and strong growth.

In addition, an ESS can help to reduce the agency problem, which occurs when managers act in their own interests rather than those of your company’s shareholders. In organisations with an ESS, employees are more likely to monitor each other, including managers, and ensure that they are acting in the best interests of the company.

And, no surprise, this all leads to higher profits and ultimately, shareholder benefit.

5) Foster a culture of ownership and innovation.

Finally, implementing an employee share scheme fosters a culture of ownership, empowerment and innovation.

Employee-owners experience deeper responsibility for both day-to-day management tasks and high-impact decisions.

Know that old saying: two brains are better than one? Well how about harnessing all the brains in your business? If done successfully, this can lead to sharp increases in innovation and in turn, a stronger, more successful business.