Employee Ownership Trusts: How employers are harnessing the ‘EO effect’

12 June 2023

Since 2017, RSM has helped up to 100 businesses transition to employee ownership (EO). Today, there are more than 1,300 employee-owned companies in the UK. A sale to an employee ownership trust (EOT) is increasingly viewed as an attractive form of indirect EO in the UK and a powerful way to align employees’ interests with those of the business. But what does effective EO look like, and how can employers maximise its benefits?

Employee-owned businesses demonstrate resilience and growth

Employee-owned businesses typically have a tripartite governance structure, consisting of a corporate trustee, the board of directors and a form of employee council. In times of economic uncertainty, these businesses have been applauded for their resilience and ability to deliver growth, as the strong governance framework can mean that decisions are made in the interests of all stakeholders and with a longer-term view leading to stability.

For any employee-owned business, the employee council acts as a channel of communication between the EOT trustee as shareholder and the wider employee base. Research has shown that the business case for transitioning to EO is persuasive; companies generally have a greater level of employee engagement, a more committed workforce, increased profitability and improved employee wellbeing. An employee council can be a feedback forum to allow the new ‘employee owners’ to share their views on the strategy and direction of the business directly with other stakeholders. In reverse, it can be a conduit for dispersing financial and management information to employee owners.

Staff are more engaged with strategic business decisions

Horizon Platforms, a UK-based company that established their EOT in 2021, enhanced its collaborative culture by handing over ownership to its employees. In the former shareholders’ view, allowing people to enjoy the security of working in a business they collectively own, as well as the opportunity to craft the look and feel of that same business, plays straight into two innate human needs: security and purpose.

As staff transition from an ‘employee’ mindset to an ‘owner’ mindset, they will be increasingly engaged with the financial and strategic aspects of the business. If harnessed effectively, this can be a powerful tool for growth. Many employee-owned companies report greater commitment to cost-cutting initiatives once ownership transitions to employees.

EO not only helps a company run more effectively, it’s also a useful marketing tool. As the war on talent continues, employees desire an increased sense of workplace community. By creating an EOT, employers show they value employees’ input, giving them a sense of ownership without acquiring shares directly. Together with the potential to earn up to £3,600 of the company’s profits income tax-free, this can be an influential tool to recruit and retain talented, committed staff with lower recruitment costs. Many employee-owned companies are proud to be employee owned, not to mention being employee-owned opens up a network of suppliers and clients who share a similar ethos, both of which can contribute to growth.

EO certainly isn’t an easy option. To work effectively, the structure needs commitment from employees and stakeholders at all levels. Businesses who are already employee-owned should continue to review their employee engagement to ensure they are taking full advantage of the benefits of EO.

Explore the benefits of employee ownership by contacting any of our EO specialists such as Martin Cooper or Fiona Bell.