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How becoming Certified Employee-Owned can benefit your business

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How becoming Certified Employee-Owned can benefit your business

By , November 14, 2019
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Promotion and use of Certified Employee-owned could be a unique marketing strategy to grow sales and premium pricing as well as a new method to attract new employees.

Using the strength of employee-owned branding, customer perceptions of what employee-owned is likely to create in terms of culture, performance, quality, and service to drive business and stakeholder value.

Employee Ownership

Employee ownership is when employees have an ownership stake in their company. Employee ownership includes employees holding shares, share options, restricted share units (RSUs), performance rights, or anything else that gives them a legal claim on residual profits and assets of the underlying business.

Nearly every business has some level of employee ownership – that is to say, there is at least one employee that has some ownership stake in the business.

Employee ownership can vary dramatically across companies. Sometimes a small number of employees have a large ownership stake – this would include a founder/CEO who owns 100% of the business or a group of executives who have lucrative share options.

Alternatively, every employee could have some ownership, but all together employees could own just a small piece of the business – such as employees of a large public company who receive employee shares as a part of their remuneration package.

While nearly every company has some employee ownership, very few companies can truly be called “employee-owned.” That’s because there is more to being an employee-owned company than having just some employee ownership.

Certified Employee-Owned says a company is employee-owned when its employees own a significant and broad-based ownership stake. Significant means that employees own at least 20% of the business. Broad-based means that meaningful access to ownership is open to most employees ( subject to some qualification rules ) and that concentration of ownership is limited.

Companies can be employee-owned in a number of ways. They can use an employee share ownership plan, an ESOP trust (our Peak Performance Trust for example), direct share ownership, or become a worker cooperative.

This is just the start…

One of the founders of certified EO, Thomas Dudley, has published two research papers on employee-owned:

Consumer interest in shopping employee-owned concludes that 35-40% of respondents are more likely to buy a product from an employee-owned business and that 48% of consumers are willing to pay a premium price.

The data predicts an increase in sales of 10% and price premiums of between 9-23% under the certified EO label. This is consistent with research into the effect of Fair Trade certified products, certified organic and ‘great place to work’ branding supports growing consumer social awareness and influence on buying behaviour.

Job Seeker Interest in Employee Ownership examines the “attractiveness” of employed owned to potential employees and finds that 31% are more likely to apply when they learn the company is “employee-owned”. Employee-owned was seen to be more attractive than ESOP and certification was important to employees.

Promotion and use of Certified Employee-Owned could be a unique marketing strategy to grow sales and premium pricing as well as a method to attract new employees.

To find out more about certified employee-owned we are interviewing Thomas Dudley, US-based founder of Certified EO, in a webinar on Thursday 28th November 11 am (AEST time) – click here to register your interest.

 

Australia ESOP Fast Facts

  • The proportion of Australian firms with Employee Share Schemes (ESS) grew from 0.23 percent to 0.57 percent from 2006–07 to 2014–15.
  • Estimated annual ESS payments were $2 billion in 2014–15 accounting for approximately 0.4 percent of total wages and salaries in Australia. Mature firms (86 percent in 2014–15), particularly large, mature firms (65 percent in 2014–15) account for the majority of ESS spending.
  • Use of ESS is most common in large, mature, mining, professional, scientific and technical services and finance and insurance services firms.
  • Firms with ESS were found to have higher wages per employee. This result is generally consistent across all size, industry and age groups with the exception of young, large firms.
  • Small firms with ESS have a significantly higher proportion of their total wages and salaries being paid as ESS compared with larger firms. For every dollar spent on wages and salaries, small ESS firms paid approximately 25 to 53 cents to employees in the form of share based payments, depending on age. Large ESS firms paid 3 cents in the form of share based payments for every dollar of wages and salaries paid.
  • A significant decrease in the ESS intensity of small firms using ESS occurred in 2008–09 and 2009–10. This most likely represents a sharp decline in employee risk appetites and attitude towards accepting equity during the global financial crisis, as well as negative changes introduced by the Gillard government.
  • Compared with their non-ESS counterparts, firms with ESS have lower employee churn, higher sales, higher value-added, higher labour productivity and higher value added growth. The positive relationship between ESS and firm performance weakens as firms get larger and older indicating that, if a causal relationship exists, the benefits of ESS (and sensitivity to ESS policy incentives) are greatest for small businesses.
Craig West

Craig West

Managing Director | Succession Plus

Craig West is a strategic accountant who has over 20 years’ experience advising business owners. His background as a CPA in public practice, provided invaluable experience in the key issues of concern to business owners. Following 6 years of study to gain two masters degrees, Craig focused on Capital Gains Tax (CGT) for business sales advising on strategic management of tax issues. This experience formed a very strong view that business owners (and often their advisers) were unprepared and unaware of the steps required to prepare a business for exit.

Craig now acts as a strategic mentor for mid-market business owners and has written four critically acclaimed books on employee incentives, succession planning, asset protection and exit strategies. Craig has conducted numerous seminars and keynote presentations throughout Australia & internationally, including adviser education programs for the Institute of Chartered Accountants and CPA Australia.