When the UK government introduced Employee Ownership Trusts in 2014, their long-term goal was to encourage more businesses to move to an employee ownership model most famously employed by John Lewis.
What does the John Lewis model mean?
In simple terms, the John Lewis model gives every employee a stake in the company – this means each employee is part-owner of the business. John Lewis employees get a share of the group’s annual profits, as well as a say in how the company is run.
Profit share is a major factor in improving productivity, as employees are given a tangible incentive to excel and help the company thrive.
Why does the government encourage the John Lewis model?
According to the UK Government, research has suggested that employee-owned companies that are run appropriately, benefit their employees, the business, and the economy itself.
- Employee-ownership encourages greater commitment and engagement in the company.
- It reduces absenteeism, staff turnover, and even the number of accidents in the workplace.
- It stimulates productivity and profitability compared to similar non-employee-owned businesses.
- It helps businesses become more resilient through times of economic hardship due to less variability over economic cycles.
- It encourages faster growth in sales and employment.
The Government greatly supports employee-ownership, which is why they offer very generous tax incentives for business owners who sell their controlling stake to an Employee Ownership Trust.
What are the benefits of the John Lewis model?
Employee-ownership suggests the most substantial benefits of moving to employee-ownership are enjoyed by the employees, not the existing owners. This is not the case – there are some major benefits for existing business owners who dispose of a controlling stake in the company to an Employee Ownership Trust.
- They are guaranteed the full market value of shares.
- The sale of shares is effectively exempt from capital gains tax.
- No IHT liabilities arise on the transfer to the EOT.
- They can recognise the contributions employees have made and reward them appropriately.
- They can transition away from the company gradually, avoiding major disruption and preserving their legacy as a business owner.
What other companies use a model like John Lewis?
Employee-owned companies are a rapidly growing sector of the economy, with the top 50 employee-owned companies in the UK generating more than £20bn in combined sales in 2020. This is a 4.3% increase from 2019.
Other companies that are owned by their employees include:
- Richer Sounds
- Aardman Animations
- Weir Group
- Mott MacDonald
Would you like to find out more about employee ownership?
Interested in selling your controlling stake to your employees as a tax-efficient exit strategy? You can learn more about Employee Ownership Trusts through the following helpful resources:
- What is an Employee Ownership Trust?
- How does an Employee Ownership Trust work?
- What are the Tax Benefits of an Employee Ownership Trust?
- How is an Employee Ownership Trust funded?
Alternatively, get in touch with our team of dedicated corporate finance experts to see if an Employee Ownership Trust is the right choice for you and your business.