The rise of employee ownership trusts

The rise of employee ownership trusts

How EOT’S are shaking up company structures and setting new expectations for company benefits

What is an Employee Ownership Trust?

An Employee Ownership Trust (EOT) is a business model where all employees are granted a ‘meaningful and significant’ stake in the business. The influence and benefits shared with employees should include both financial gain (this can be through shares or bonuses paid out free of income tax up to a certain amount), as well as vocational gains by giving employees a chance to have their say in how the company is run.    

This dual aspect of employee ownership can result in staff strengthening their financial position whilst raising their career prospects and creating better working environments.

Why do we see a rise in EOTs?

As we are in times of financial uncertainty and many people are experiencing stagnating wages or being given benefits that are of little use to them, workers are seeking more from their employers, and many are willing to move on to greener pastures in search of better overall working package.

Because employees are willing to vote with their feet, employers must wake up to the fact that more is expected from them to retain good talent. This is both in terms of monetary incentives and having some influence in major company decisions, such as the direction the business is heading in.  

And if business owners don’t drive the move to an EOT, employees are empowered to propose the idea themselves. The government provides guidance for those employees willing to take demands into their own hands and request their existing company transition to an EOT model.

What are some successful examples of an EOT?

One of the most well-known examples of an employee-owned business in the UK is the John Lewis Partnership.

Implemented at a time before EOT’s significant rise in popularity, John Lewis and Waitrose began adopting principles of the EOT model in the 1920s. Starting with rewarding employees with share promises in 1920, by the end of the decade, their first trust settlement was created, and they had introduced a medical service almost 20 years before the creation of the NHS.

Today, all employees are still ‘partners’ in the business and receive a share of company profits and vote on how the company is run. This means that from their bakers to the boardroom executives, all employees get a stake and a say in the retailer’s success. And the company continues to reassess and evolve its employee benefits to current desires. For example, in 2021, it updated its benefits to include six months’ equal parenthood paid leave and two weeks of paid pregnancy loss leave.

The brand is one of the most loved in the UK, with a loyal customer base and a reputation for a higher-quality shopping experience that broadens out into a higher-quality job. The way they value and treat their employees only adds to the brand’s reputation, and a positive impact on sales can likely be attributed to this.

How can I adopt an EOT model for my own business?

If you’re a business owner, one of the most common ways to facilitate an EOT is to either sell or give away shares to your employees through an employee buy-out scheme. Selling to your employees is also a good option if you’re looking to retire or move on to a new project while freeing up cash.

As part of the shift to employee-owned, it is a good idea to consult your employees on what they would like to see from the new structure and to inform them of how the transition will be made.

You’ll need to make sure you meet any legal requirements when changing the structure of the business, and you may need to take extra steps to get share valuations of your company and ensure all your employee communications are correct. Finally, you will need to secure any financing if this is needed to fund the buy-out.

How can I fund an employee-owned trust?

Sometimes, businesses will need additional funding to facilitate the switch to an EOT. This can be done by approaching lenders like OakNorth Bank.

An example of this is OakNorth Bank which has recently provided funding to Manchester-based Crookes Walker Consulting, to support its own switch to an employee-owned model. This business loan allowed the original founders to sell their shareholding, while retaining their day-to-day business involvement.

If you would like to find out more about Employee Ownership Trusts and how Logros Advisory Partners can help you and your business, then please contact us here

  • Rachel Ferguson

    Launched in 2015, OakNorth Bank helps the UK’s most ambitious businesses access the fast, flexible finance they need to scale while also helping savers make their money go further.