The Performance Impact of Employee Ownership

15th January 2014

The Cass Business School has recently published the findings of a study into the comparative resilience of employee-owned businesses (EOBs) during periods of both recession and economic growth.

The research finds that, when compared with non-employee-owned businesses (non-EOBs), EOBs show:

• Significantly higher growth in sales turnover during recession
• Significantly higher growth in employee numbers during recession
• Similar sales turnover per employee to non-EOBs despite maintaining higher employment levels during recession
• Superior employee contribution to profitability despite maintaining higher employment levels during recession

The study is based on data obtained from 38 EOBs and 239 non-EOBs for the period 2009-2011, and extends the findings of a similar analysis conducted in 2010 for the period 2005-2009. For the purposes of the Cass study, EOBs are businesses which are majority-owned by employees.

The most striking finding is the significant and steady decline in turnover of non-EOBs between 2005 and 2011, while EOBs showed positive growth in turnover, even as the recession deepened. The survey found that, while EOBs are not immune from recessionary pressures, they appear to be better able to withstand the downturn.

Although the study indicates a general slowdown in the growth in numbers of employees during the period, the impact of the recession seems to have been less severe for EOBs than for non-EOBs who, as a group, dropped into negative growth figures on employment.

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 UK Employee Share Ownership Index (EOI)

The Cass study coincides with the publication of separate research which finds that UK companies which are viewed as encouraging employee share ownership have delivered substantially better returns for their investors than their listed peers last year.

The EOI measures the share price performance of FTSE-All Share companies in which employees own at least 3% of the equity. During 2013, shares in the 69 companies which satisfied this ownership condition produced an average total return (share price plus dividends) of 53.3% as against an average total return of 20.9% achieved by the other 623 companies in the All-Share index.

Among the companies making up the EOI are support service companies such as Atkins and Mitie, financial services companies such as Brewin Dolphin and Admiral, the insurance broker. Employee share ownership was, of course, an important feature of the privatisation of Royal Mail, which was the largest London flotation in 2013.

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These two studies seem to provide strong evidence to support the Government’s declared view that employee ownership is beneficial to the UK economy as a whole. Details of the most recent tax incentives announced by the Government to assist employee ownership can be found on our website by clicking on the following link: