Governance Explainer Employee share ownership

In August 2023, Nish Kankiwala, the new Chief Executive of John Lewis told the Mail on Sunday that he was ‘very committed’ to the retailer continuing as Britain’s biggest employee-owned business.

For the past 73 years, John Lewis has been owned by its 74,000 staff (known as partners) via the mechanism of an employee trust.

In March 2023, the John Lewis Partnership (JLP) cast doubt on the future of its 100% employee-ownership status by announcing that it was considering raising between £1 billion and £2 billion of new investment from external investors.

The move attracted almost universal opprobrium and led to a vote of no confidence in Sharon White, Chair of JLP when the partnership council expressed disappointment in her performance. White survived the vote and has pledged to push through a five-year recovery plan to reduce costs, improve service and move the department store business into new areas.

The crisis demonstrated how much its staff and customers cherish JLP’s status as an employee-owned business.

It was also a refreshing reminder of how much employees care about a company they work for when they have some skin in the game.

Detachment and disengagement

A 2020 report by the Social Market Foundation found a majority of listed company employees would like to own shares in their company. But almost four in 10 of those offered the chance turned it down because they felt they could not afford it.

Archie Norman, Chair of Marks & Spencer, recently wrote in the Financial Times that the employee engagement that followed the ‘democratisation’ of share ownership in the 1980s, when employees of former nationalised industries were offered cheap or free shares in the companies they worked for, has evaporated.

“Today, the public has lost that stake. People feel detached from the businesses that employ, profit, invest and pay tax in the UK,” he said.

The M&S chair also noted the percentage of equities owned by UK residents has fallen for three decades and now stands at a ‘measly’ 12% – compared with more than 50% in the 1960s.

Government overhaul

In June 2023, the government revealed plans to overhaul the rules affecting employee share schemes in order to boost take-up and help low earners own a stake in the companies they work for.

The government wants to improve interest in two schemes: Save as You Earn (SAYE), which allows workers to buy discounted shares through monthly savings; and Share Incentive Plans (SIP), which allow companies to help staff buy shares or offer them as awards.

Both have generous tax breaks and yet both have seen waning employee take up. This is despite the fact that 81% of the businesses that use these schemes feel that they help boost their business, with almost three-quarters of these saying they have helped retain and recruit staff.

However, an HMRC evaluation also revealed that a significant number of businesses found these schemes too complicated to set up.

Industry representatives have asked ministers to reduce the time employees have to hold shares in a SIP in order to qualify for tax breaks, from five to three years.

Another potential barrier to take up is the recent reduction in the tax-free allowance for dividend income, which will drop from £2,000 last year to £500 in 2024-25, meaning many relatively low earners paid dividends through a SIP could be required to fill out a self-assessment tax return.

Productivity boost

At a time when growth has flatlined, policymakers are keen to revisit the potential benefits to the economy of employee share ownership.

RM2, a specialist employee share scheme and employee ownership trust adviser, estimated in 2022 that the median productivity increase across the 50 largest employee-owned businesses was 5.2% year on year, double that of the national average.

It is easy to see why such turbocharged economic benefits might be attractive, both in Westminster and in boardrooms around the country.