Equity-able treatment for a millennial workforce

Stephen Diosi
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The millennial workforce gets a bad rap. But while millennials may have different expectations to previous generations, their ambitions can be harnessed so that both employers and employees benefit.

The normal scenario – where you work your way up the career ladder by ticking certain boxes – is being overturned. Management is increasingly expected to be flatter, and employees want to be treated as equals with more influence over the business.

There are many ways founders can meet new employee demands for more respect and inclusiveness, but one of the most effective is offering equity. After all, it doesn’t get more respectful and inclusive than giving away a little of your company.

For millennials to be inspired by equity, it’s essential that its value is communicated properly.

Equity can’t act as an incentive unless employees understand how the value can be realised.

Over the past few years, expectations have risen for benefits of this nature, particularly when the entrepreneur of a growing business is bringing in someone senior from a listed company. This has percolated down to questions about incentives for all staff.

Equity can act as the cement for businesses looking to build an ownership culture. Enterprise Management Incentives (EMI) Options are popular, but the moment for Employee Ownership Trusts (EOT) – exemplified by John Lewis – has arrived.

As a concept, it’s been around since the 1930s but the legal framework is now in place for businesses to make the most of the benefits.

There are significant tax benefits with EOTs. A founder can sell their shares tax free into the trust, and employees can be paid tax-free bonuses of up to £3,600 per year.

A lack of external financing may have held back this structure since its introduction in 2014, but over the past year we have started to see this change.

The support for EOTs is strong. While not right for every firm, it really puts ownership into employees’ hands.

Motivating employees of different seniority requires different approaches. The senior leadership team are often best motivated by the bottom line, but further down the company, incentives could be more effectively linked to sales targets.

Bonuses aren’t necessarily considered to be the effective motivator of performance that they once were.

Employees come to expect them, and anything less than what is believed to be deserved is demotivating. Some businesses are going as far as scrapping staff bonuses and instead adjusting salaries.

Another area ripe for change is the gig economy. The government has done a lot to help traditional firms incentivise employee ownership, but there is a disconnect for workers in the gig economy and the need for incentives, including tax breaks. EMI, for example, can only be given to employees.

There’s a strong case that this, together with other tax efficient incentives, should be extended to the gig economy to reflect a newer, more modern way of working. This also ensures that the UK retains the best talent, whichever workforce model they are part of.

Millennials want a stake in their future. If business owners want to attract and retain the best and brightest to ensure their company has a bright future, they may need to give away a little of their stake in the present.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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