South West firm Paradigm Norton is the latest business to make headlines by becoming employee owned. It follows hot on the heels of Richer Sounds joining the most well-known employee owned company, John Lewis. High street staple Lush has also started the journey.
Employee ownership represents a fundamental change to the ownership of the company. The collective ownership by employees can instil a long term set of values that can outlast any individual owner. They will also be hoping to achieve the commercial benefits that come alongside employee ownership. Independent research carried out by the Employee Ownership Association shows that the greater staff engagement and lower staff turnover associated with this model helps to employee owned companies to achieve:
- Sales increase of 4.6% per year
- EBITDA increase of 25.5% per year
- Productivity increase of 4.5% per year
As well as helping secure the future of the company, there are numerous tax benefits put in place by the government to help encourage this type of structure. These include:
- An exemption from capital gains tax on selling shares into the employee ownership trust on setting up the structure.
- An exemption from income tax on certain bonuses up to £3,600 for all employees.
Moving to this model will mean that there are a number of practical decisions that will need to be made around governance, such as the trustees of the employee ownership trust and whether an employee council is used as a way of communicating with the directors. For more information on employee ownership trusts, take a look at our factsheet.
Author: Ryan Bebbington.