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Can the productivity crisis be reversed with employee ownership?

It’s no secret that the UK’s productivity gap has been a long-standing issue, with output per hour worked trailing behind other leading economies. It represents a significant challenge for the UK economy, impacting our competitiveness on the global stage. Despite various government initiatives and business strategies aimed at boosting productivity, little has been achieved to turn the tide.

However, whilst no one solution to what is a historic and multi-faceted issue can claim to solve it entirely, one that has shown promise in addressing the productivity gap is the employee-ownership business model. Recent data shows how transitioning to employee ownership can kickstart a way to overcoming the UK’s productivity problem, with employee-owned businesses (EOBs) coming out at 8-12% more productive than those that are owned by other means.

Understanding the Productivity Gap

To fully appreciate the potential of employee ownership, it’s crucial to understand the nature and implications of the UK’s productivity gap. Productivity provides a key indicator of economic efficiency and competitiveness; the higher the productivity, or the amount of output produced per hour of work, the more that resources deployed in the business are delivering results. We know that for years, the UK has lagged behind countries like Germany, the United States, and France in terms of productivity.

A gap in productivity can be attributed to several factors, from insufficient investment in technology and infrastructure, to a skills mismatch in the labour market, or wasteful and inefficient business practices. Addressing these issues requires innovative approaches that go beyond traditional business models, and this is where employee ownership comes into play.

The Employee-Ownership Business Model: An Overview

Employee ownership involves giving employees a significant stake in the company they work for, often through shares or stock options. This model can take various forms, such as employee stock ownership plans (ESOPs), cooperatives, or direct share ownership. The underlying principle is to align the interests of employees with those of the company, creating more buy-in from your employees and fostering a sense of ownership and responsibility that can drive better performance, ultimately feeding into productivity.

Creating a Positive Work Environment

Employee ownership fundamentally changes the dynamics of the workplace. When employees have a stake in the company, they are more likely to feel valued and invested in its success. It creates a trust and sense of equality between employer and employee which leads to a more positive work environment.

In an employee-owned company, employees are not just workers; they are partners in the business. They have a vested interest in the company’s success, and this changes their relationship with work. They are more likely to go the extra mile, take pride in their work, and care about the quality of their output.

73% of EOBs recorded increased job satisfaction since moving to the model, with 83% reporting a boost to motivation. Whilst this can, in turn, directly lead to increased productivity, it should also be noted that the effects can extend well beyond this to improve employee retention, saving on recruitment costs and opening up funds that can be utilised for wider initiatives to boost productivity.

Empowering Employees to Collaborate and Generate Bold Ideas

An open and positive work environment also empowers employees to collaborate more resulting in more innovative and bold ideas being generated across the business. When employees feel that their voices are heard and that their contributions matter, they are more likely to share their ideas and insights. These ideas can help the company stay ahead of the competition, adapt to changing market conditions, and drive growth and productivity.

At The 1:1 Diet by Cambridge Weight Plan, we’ve established Voice Groups across the organization. These forums enable employee stakeholders to openly discuss day-to-day work challenges and propose enhancements directly to directors. These are a completely open forum, with suggestions starting in these groups that have fed into everything from ways of working into our product offering and brand.

As business leaders, the more visibility we  have of key challenges, the more we are able to devise strategy to overcome them and the more voices that are contributing, the more considered the strategy. This also doesn’t mean that every decision has to be rubber stamped by every employee, it just means you are minimising the possibility that the business’ leadership can override the direction of the wider company.

In my experience, a highly collaborative organisation, particularly at the board level, leaves little room for personal pride to influence decision-making. This is particularly evident when  decisions prove ineffective, necessitating a change in approach. The Voice Groups within The 1:1 Diet by Cambridge Weight Plan consistently provide feedback to avoid this.

Capturing All the Talent in Employees

In any traditional company model, employees can come to feel that their talents are underutilised or undervalued. They may feel like just a cog in the machine, with little opportunity to make a real impact.

What we have seen in our experience transitioning to 100% employee ownership is that the trust given to employees means you’re really asking for employees to bring all their talents to a role, and by empowering them through a more open organisation, this is exactly what they deliver. The greater financial reward in an EOB reinforces this further, as they feed bonuses and dividends to employees.

Beyond this, EOBs are also investing more in employees’ skills, training and development, driven by the employee stakeholders themselves. Research indicates employee-owned enterprises invest 12% more than non-EOBs every year. The more opportunities employees are offered to upskill, the faster the productivity gap begins to shrink.

Keeping Generated Wealth in the Hands of Employees

In 2019 we paid 10% of our profits back to employees, with everyone receiving a payment of nearly £4,500. The year before we paid our first dividend since becoming fully employee owned, giving each employee £1,500 and a 20% bonus on annual salaries. This is the biggest way in which any EOB is able to truly demonstrate the value it holds in employees; by keeping wealth within the company and away from anonymous investors and shareholders, benefiting the employees who helped to generate it. And when employees are valued and motivated, they are more productive.

Providing blanket dividend payments across all wage bands also leads to a greater sense of fairness and equity. It also has broader economic benefits beyond productivity and the organisation itself. It can lead to higher disposable incomes for employees, stimulating local economies.

Companies with employee ownership structures are also more than twice as likely to receive fair pay accreditations and pay annual wages that are approximately £2,900 higher. These businesses also offer enhanced access to private healthcare and mental health support, alongside more flexible working conditions, providing benefits that extend beyond just financial gains.

Overcoming Challenges and Implementing Employee OwnershipO of The 1:1 Diet by Cambridge Weight Plan

Despite the clear benefits, it would be dishonest to say transitioning to an employee-owned model was without any challenges. Companies need to carefully plan and execute the transition, ensuring that employees are adequately educated about their new roles and responsibilities as owners. Financial considerations, such as funding the buyout of existing shareholders, also need to be addressed.

Governments and policymakers can play a crucial role in facilitating this transition. By offering tax incentives, providing educational resources, and supporting the development of employee-ownership trusts, they can help more companies make the shift. Through The 1:1 Diet by Cambridge Weight Plan’s journey, and now as Chairman of the Employee Ownership Association (EOA), I’ve been a longstanding advocate for the model, promoting and supporting employee-owned businesses at every stage of their transition.

The Broader Impact on Society

Although employee-owned businesses (EOBs) represent only 0.1% of UK companies, their impact on the economy is substantial, contributing between £32 billion and £41 billion. They account for 0.8% of direct gross value added and between 1.7% and 2.1% of total economic activity. Beyond individual companies, the widespread adoption of employee ownership will only serve to build on this further. It can lead to more resilient economies, as companies with engaged and motivated workforces are better equipped to withstand economic downturns. Additionally, by fostering a more equitable distribution of wealth, employee ownership can help address social and economic inequalities.

Employee ownership has the potential to contribute to a more sustainable business environment at a time when 58% of employees consider ESG commitments when looking for employment. Companies with a long-term perspective, driven by the interests of their employee-owners, have more scope to invest in sustainable practices and make decisions that benefit both the business and the wider community.

Conclusion

The UK’s productivity gap remains a significant challenge, but the employee-ownership business model offers a promising solution. By creating a more positive work environment, empowering employees to collaborate and innovate, capturing all the talent within the workforce, and keeping generated wealth in the hands of employees, this model can drive significant improvements in productivity.

Employee ownership aligns the interests of employees with the success of the company, creating a virtuous cycle of motivation, innovation, and growth. As more businesses consider this model, they can unlock the full potential of their employees, boost productivity, and contribute to a more competitive and equitable economy. The time has come for a broader adoption of employee ownership, not only to close the productivity gap but also to build a stronger, more resilient future for the UK.

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