Mutual benefits

As two channel players hand slices of their businesses over to staff, Hannah Breeze finds out more about employee-ownership schemes and how they can help the channel

The John Lewis Partnership might be the largest and most well-known company which is owned by its staff, but it is far from the only one. In the past month alone, two tech companies - public sector reseller Agilisys and B2B software vendor Postcode Anywhere - have carved up their businesses and handed over portions to staff.

The theory is that by giving employees a stake in the business, they will work harder, be more committed and less likely to leave. A number of tax and National Insurance benefits also apply to certain schemes, acting as another sweetener for owners and staff.

Employee ownership schemes come in a variety of guises across the UK, with some versions allowing employers to break off a small segment of the equity and distribute it among staff, and others going further, ruling that the majority stake must be collectively owned by staff.

It is the latter option which public sector reseller Agilisys signed up to earlier this month when it became an Employee-Owned Trust (EOT) - the same model operated by John Lewis.

Agilisys' business development director Andrew Mindenhall, who joined the firm in its very early stages in 1998, said the move was inspired partly by the findings of the 2012 Nuttall Review, which was a government research initiative designed to assess how shared ownership could grow the economy.

The review found: "A worker who has a financial and personal stake in a company will take more responsibility for its success. The evidence shows that this is reflected in the economic strength of such companies: lower absenteeism, a happier workforce and therefore less staff turnover and higher profitability. These companies also tend to be more resilient during tough economic times."

Mindenhall said the philosophy fits perfectly with his company's aims and its ambitious targets to grow every year by 10 and 20 per cent annually.

"On the back of that review and the government encouraging businesses to become a mutual or employee owned, it seemed to us - across a number of factors - the right thing to do," he said.

Agilisys employs almost 2,000 staff, who now collectively own a majority stake in the firm. About 80 per cent of the reseller's customers are in the public sector, and half of its own staff have worked in the sector previously. Mindenhall said having an "in it together" culture is a perfect fit for a company so entrenched in supplying the public sector.

"There isn't anybody like us," he said. "Remember, we're competing against the Capitas, the BTs, the Sercos - organisations which are significantly bigger than us in terms of staff and turnover. But now we're a mutual, we think we're very unique in how we can work with central and local government. From a staff perspective it has gone down very well. Even just in the past few weeks we have seen people hugely motivated by the fact they are working for a mutual organisation."

According to the Employee Ownership Association, which is behind the EOT scheme, businesses which are owned mainly by their staff contribute to four per cent of UK GDP. But other schemes which have similar motives also exist in the UK, contributing even more to that figure.

One such alternative is the Enterprise Management Incentive (EMI) scheme, which was recently adopted by B2B software firm Postcode Anywhere.

Earlier this month, the 50 staff at the company were handed a 10 per cent share of the business's equity between them. Previously, the business was divided 75:25 between its two founders, but they each surrendered a five per cent share and gave it over to staff with a view to boosting commitment and productivity. The firm has distributed the 10 per cent share among staff according to their seniority and contribution to the business.

Postcode Anywhere's chief executive Guy Mucklow (pictured) said although still in its early days, the reaction among staff has been positive.

But he did admit the prospect of giving away part of something he had built up from scratch was not an easy decision.

"It's quite difficult when you're giving away quite a large amount of money to people - something you've worked really hard to build up in value - you want them to really appreciate it," he said. "It's a thorny issue I juggled with - do we actually charge people for this equity? There's the old adage that people don't value anything unless there's a [financial] value attached [and that] does apply quite often. I didn't want people to think ‘I've got a load of shares' and that's it. What I've given them is really meaningful."

A taxing decision

Certain employee ownership schemes, such as the EMI, offer staff and companies some tax benefits.

No income tax or National Insurance is charged on certain share options awarded to staff under the EMI scheme, according to HM Revenue & Customs.

Other schemes which fall under the banner of employee ownership offer similar tax efficiencies. In the Share Incentive Plan, staff who receive shares and keep them in certain plans for five years do not have to pay income tax or National Insurance on their value, and Capital Gains Tax does not apply either so long as the shares are kept in the plan until they are sold on.

Mucklow said this was another benefit of using the scheme.
"The EMI scheme is underutilised and it is an incredibly good, tax-efficient scheme which all business should really use," he said.

"I'm a firm believer in sharing the spoils of success."

Agilisys' Mindenhall said there are other financial benefits for staff too, including the prospect of getting a bonus if the company performs well. He was keen to stress his company was still deciding on what, if any, reward scheme would be in place for its own staff, but was enthusiastic about the prospect offered by the scheme.

"We are working through some of the detail around that, but part of setting up the EOT allows the payment to all beneficiaries of a bonus up to a certain amount," he said.
"There are some tax benefits - it's something HMRC has put in place, in part, to encourage companies to do it. If we decide to - we may not - but if we decide to pay out a bonus to all beneficiaries, the first x-thousand pounds would be tax free, but we have not decided necessarily to do that yet. It's something we are working on."

What's in it for me?

According to the Employee Ownership Association, there are a number of benefits of sharing the spoils with your staff:
■ Co-owned companies tend to be more successful, competitive, profitable and sustainable.
■ Companies that are employee owned, or that have large and significant employee ownership stakes, now contribute £30bn to the UK's GDP.
■ Because they are co-owners, staff in employee-owned businesses tend to be more entrepreneurial and committed to the company and its success.
■ Businesses owned by their workers tend to be better at recruiting and retaining talented, committed staff.
■ Employee-owned businesses tend to have a strong commitment to corporate social responsibility and involvement with the communities in which they operate.
■ Staff-owned firms are more innovative because managers go out of their way to consult, share information about the company, and give staff responsibility.