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Employee Share Ownership
20/Jul/2010

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Employee share ownership is a term used when a business is owned in whole or in part by its employees. Employee share ownership can take many forms. Employees are often given the opportunity to buy shares in the business after a certain length of employment or upon the happening of certain events. Some companies make formal arrangements for employee participation, called employee share ownership plans (ESOPs). Employee shareholders will have varying degrees of influence on decision making.

Advantages for employers:

  • Improves employee production and profitability.
  • Improves employees' dedication and sense of ownership.
  • Regarded as a good recruitment and retention tool.
  • Paying employees in shares can reduce cash flow problems, although it may dilute the equity.

Disadvantages for employers:

  • Can lead to slow decision making.
  • Possible dilution of non-employee shareholder interests.
  • Adverse impact on morale if the value of shares falls.
  • Can be difficult to manage a large shareholder group.

Advantages for employees:

  • As shareholders, employees may gain a better understanding of the financial performance of the company which they work for.
  • Shares give a stake in the future growth of the company and employees benefit from the success they are creating.
  • Possible future income in the form of dividends or capital gain if shares are sold at a profit.

Disadvantages for employees:

  • May lead to increased financial dependence on the company.
  • Lower paid employees may prefer bonuses in the form of cash-in-hand rather than shares.
  • Much of the benefit is time-related, which may tie employees to jobs which they might otherwise prefer to leave.

Tax breaks:

  • The use of Inland Revenue approved employee share ownership or share option schemes can give substantial tax benefits to both employers and employees.

Find out more:

Lee & Priestley provides its clients with free initial advice on the suitability of using employee share ownership schemes in their businesses. Contact:

Jonathan Oxley (0845 129 2344); or
Caroline Soulsby (0845 129 2353).