Employee share ownership contracts have become popular over the past few years. This essentially means that employees own a part of the business, and the aim of this is to give workers an incentive to work harder. With that in mind, let’s take a look at the pros and cons of employee share ownership for both the worker and the business in further detail…
Benefits for the employee
Let’s begin by taking a look at the benefits to the employee. Employee share ownership contracts have been linked with employee involvement and engagement, which means you will be in the position to influences processes and products. There is also better communication and partnership between management and their workers. Other advantages include improved awareness about the big picture decisions, an increased sense of ownership, and, of course, the financial rewards that come with having a share in the company.
Risks for the employee
As is the case with anything in life, there are also risks associated with having a share in the business you work for. This includes the fact that you may feel the plan has no value for you because you cannot influence performance measures or share price. Moreover, there is always the risk that the value will decrease because the share price decreases. Finally, you are going to have your eggs all in one basket, which means your success is based on the company’s success, and this is something a lot of people are not comfortable with.
Benefits for the company
Now let’s take a look at the benefits for the company. It is always worth taking a look at other companies that have done this form of contract well. Ogletree Deakins is a good example. You will be able to see the benefits they have gained as well as inspiration on how to implement this approach. Some key benefits for the business include increasing the company’s likelihood of survival, employee job satisfaction, employee loyalty, shareholder value, customer loyalty, and innovation. You will also reduce staff turnover, motivate workers to be more productive, reduce supervision requirements, relieve pressure on cash flow by compensating for lower salaries, and you can align employees’ interests with shareholder interests.
Risks for the company
Finally, there are a couple of disadvantages to consider. Your percentage of the business will naturally become smaller. You also need to factor in the costs linked with the administration and establishment of such a structure. Finally, morale and retention can suffer if the share price of the company remains stagnant or gets worse.
As you can see, there are pros and cons associated with both options. It all comes down to working out what is right for you and your business – there is no right or wrong answer!