Incentivising Share Ownership and the John Lewis Economy

Firms where employees own a chunk of the company simply perform better.

Earlier this year, Nick Clegg said that "we need more individuals to have a real stake in their firms". And on Monday, The Chancellor of the Exchequer, George Osborne, announced plans for a new kind of employment contract called an "owner-employee" contract.

As a small business owner and serial entrepreneur, I warmly welcome the announcement and have been discussing the idea with my staff at my latest eCommerce venture 31DOVER - an online premium drinks retailer. Smaller firms like ours are interested in exploring the owner-employee contract; not because we want to diminish the rights of our employees, but primarily because we recognise the benefits of share ownership across the workforce.

Firms where employees own a chunk of the company simply perform better. Absenteeism and staff turnover tend to be lower, which leads to higher productivity levels. A happier, healthier workforce creates a more entrepreneurial and innovative environment, which means employers can attract the best people to work for them.

A recent report on workplace stress suggested that being under stress at work, and being unable to change the situation, could increase your risk of developing heart disease. Employees with a stake in their company feel much more in control and are more likely to try to address the causes of their workplace stress.

Of course there have been the usual cries from certain quarters that the proposed contract somehow represents a licence to hire and fire at will. It doesn't. Employers will still rightly be subject to most employment legislation, especially in regard to discrimination. But does anyone really think that rogue employers who don't respect the rights of their employees will be likely to share a stake in their firms with their employees?

Where smaller firms and start-ups can also benefit is with increased workforce flexibility. One of the key features of the current economic downturn for the UK is that we have not seen such high levels of unemployment as have been witnessed in many other countries. A higher level of labour market flexibility than in our European neighbours looks to be the obvious reason. This proposal seeks to add to that flexibility with a simple quid pro quo. That can benefit growing businesses in a very straightforward way: employees with an equity stake in the company they work for have an added incentive to work with their employers to reduce costs when their business is not growing.

Owner-employee contracts won't be right for every business. And they're not going to cure the UK's economic ills on their own. But business owners that are seeking to grow quickly, who are afraid of building up employment cost liabilities they may not be able afford, could help limit their exposure and thus overcome a reluctance to take on more staff.

But won't the companies that see the benefits of employee ownership simply do it anyway? Indeed, some will. But if it encourages more entrepreneurs to share a stake in their firms then we may see more of the John Lewis's of tomorrow emerging.


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