Fiona Smith Columnist

Fiona writes on workplace issues, including management, psychology, workplace design, human resources and recruitment. She is a former Work Space editor at The Australian Financial Review and has also covered property, technology, architecture and general news.

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Employee ownership works: Get a stake in your own success

Published 24 May 2013 11:21, Updated 30 May 2013 00:45

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Employee ownership works: Get a stake in your own success

In more than 80 years of selling milk and sugar to American shoppers, the Publix Super Markets chain has never had to retrench anyone. Never. Ever.

While jobs are falling like autumn leaves all over the world, thanks to this long drawn-out financial downturn, this chain is still adding to its workforce of more than 150,000 people.

The company is trading well, with 2012 sales of $US27.5 billion from its 1069 stores – capitalising on its reputation for great customer service. For years it has held the top spot on the American Customer Satisfaction Index.

Not only does it not retrench, the company can’t get people to leave of their own accord. Only 3 per cent of employees choose to leave each year, in an industry where the average is around 43 per cent.

No wonder the company has been named one of Fortune’s “100 Best Companies to Work For in America” for 16 consecutive years.

The secret sauce

So, what makes this company so special? Well, it might have something to do with the fact that it is more than 30 per cent owned by its employees (with the remainder held by the founder’s family).

This is certainly the view of the executive director of The National Centre for Employee Ownership, Loren Rodgers, who says people work better when they feel like they have an ownership stake in the company.

“What is exciting to me is to see all the little ideas that make a difference. They are not inventing an iPad, but it is the thousands of small improvements they [the workers] make,” he says.

According to Rodgers’ research, employee-owners were four-times less likely to be laid off during the recent recession, are more highly paid (while the executives are paid less than the average), and are more productive.

Rodgers says there would have been 1.8 million more unemployed people in the US in 2010 if employee-owned companies had shed jobs at the same rate as the rest of the business community.

Meanwhile, across the Atlantic

Graeme Nuttall, adviser to the British government on employee ownership, can point to the success of the John Lewis Partnership, which is entirely employee-owned and has the John Lewis chain of department stores and Waitrose supermarkets.

John Lewis is considered a bright spot in British retailing, with rising profits and paying out more than £200 million ($313 million) in staff bonuses through its generous profit share scheme this year.

It is generally very reluctant to retrench, but announced cuts to 325 management positions in February.

Rodgers and Nuttall were in Australia to speak at the Employee Ownership Australia and New Zealand conference in Sydney, May 24.

A new wave

While employee-owned companies are still a very small part of the corporate scene in Britain and the US – between 3 and 4 per cent – there has been a resurgence of interest since the British government pledged support for Nuttall’s review and his 28 recommendations last year.

The British government hopes to grow the sector to 10 per cent of companies.

In January, Deputy Prime Minister Nick Clegg said “firms that have engaged employees, who own a chunk of their company, are just as dynamic, just as savvy, as their competitors; in fact they often perform better”.

“The 1980s was the decade of share ownership. I want this to be the decade of employee share ownership. We need more individuals to have a real stake in their firms, more of a John Lewis economy.”

Nuttall says the British government has made employee ownership a priority because it is convinced that is it a way to raise productivity, provide some job and financial stability for owner-employees, encourage start-ups, and allow the owners of businesses to retire from their businesses by selling them to their staff.

“The UK government took this little-known, but highly successful model and made it more widely known and widely understood,” says Nuttall, who is also a partner at Field Fisher Waterhouse.

Australia yet to catch on

The ramifications of the enthusiasm in Britain are being felt all over the world and the chairman of Employee Share Ownership Australia, Angela Perry, says her organisation has also experienced a rise in enquiries from business owners.

However, there are some impediments in this country. In 2009, the Rudd government tightened up the tax treatment of company share schemes and many employers responded by freezing their plans for a while.

The changes (affecting more than 4 million employees) meant those earning more than $60,000 had to pay tax in advance on share and options packages.

“At the moment, there may be a lack of awareness. It takes a level of commitment to understand employee ownership,” she says.

In Australia, the Liberal Party has been more interested in the concept than the Labor government. Employee-ownership is often misunderstood and derided as a tax dodge for executive incentive schemes.

According to the US National Centre for Employee Ownership, some of the ways employee ownership improves business performance are:

  • through productivity, which improves by 4 per cent to 5 per cent on average in the year an employee stock ownership plan is adopted, and the higher productivity level is maintained in subsequent years
  • by using such plans which increase sales, employment, and sales per employee by about 2.3 per cent to 2.4 per cent per year
  • higher sales, with employee-owned companies having on average an 8.8 per cent higher sales per employee than their counterparts in the same industry and same size
  • job growth, with private employee-owned companies showing job growth of 60 per cent between 2001 and 2011 while other companies remained flat.

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