Employee owned business models: John Lewis
For many modern UK employers considering how to attract and retain talent in competitive marketplaces and how to secure the best performance, the option of Employee Ownership is a definite consideration. Research consistently shows that Employee Ownership (EO) is an excellent way to increase engagement, performance and ultimately security for businesses. It can be found in operation across a wide range of sectors including social care, consultancy, retail and manufacturing.
In this blog, we take a look at one business model which is championed by the retailer John Lewis, and that is a trust-based EO model.
An Employee Benefit Trust (EBT) is a trust into which a company can place shares or other assets for the benefit of employees, under the separate legal ownership of trustees. For example, the proprietors of a private company may wish to use an EBT to grant options or other share benefits to employees. Legislation was introduced to curtail the use of trusts for tax avoidance, which had previously been widespread. However, these trusts may still be used in conjunction with tax advantaged share schemes such as EMI, CSOP or SIP which are recognised by HMRC.
John Lewis is the largest employee-owned company in the UK. The founder, John Spedan Lewis, set the company up to be both commercially viable and democratic; signing away his personal ownership rights to allow for his employees and those of the future to take forward what he referred to as his ‘experiment in industrial democracy’.
John Lewis has created a partnership model as oppose to an employer-employee relationship, affording Partners with the rights and responsibilities of ownership to great success. All 93,800 Partners have a voice in how the Partnership is run, as well as an equal percentage share of the company’s profits. Engaging Partners in the business, encouraging entrepreneurialism amongst its Managers and rewarding Partners for their ongoing contribution has led to consistent exemplary employee satisfaction surveys and a thriving, diverse business that continues to go from strength to strength in a demanding retail marketplace.
Today, the employee-owned sector is estimated to have a value of £25 billion, representing 2% of the UK’s economy; with the EBT model estimated to account for 23% of all employee-owned businesses.
The choice of employee-ownership options continue to grow in popularity and trust-based models allow for inclusion of all employees, regardless of their personal wealth, with a lower risk for employees themselves. Correspondingly, the trust-based model provides companies with a vehicle to drive performance, increase employee engagement and plan for succession. Not only that, but employee ownership is rising on the political agenda with Government policy initiatives introduced via the Finance Act 2014 to promote and support more employee-ownership schemes, including tax-exempt profit sharing for companies with at least 50% employee ownership as well as exemption from capital gains tax for owners selling 50% or more of their company to an Employee Ownership Trust.
Download our free fact sheet on Employee Benefits Trusts for more information or please contact us on 020 8949 5522 for a free, no obligation consultation on how Employee Ownership might work for your business.