Thursday 16 May 2019 8:52 am

DEBATE: As Julian Richer hands over company shares, are staff-owned firms better for the economy?

As Julian Richer hands over company shares, are staff-owned firms are better for the economy?

Scott Corfe, chief economist at the Social Market Foundation, says YES.

Companies with significant employee ownership schemes tend to have higher productivity – which is exactly what the UK needs right now. Poor productivity performance is a key reason why, despite low unemployment, worker pay growth remains subdued.

Of course, it is important to get employee ownership schemes right. Employee shares must not be given out in a tokenistic manner; they should come with greater employee engagement in the running of a business. To be incentivised to work harder and smarter, employees need to feel that their words and actions can influence the performance of a business and, in turn, the value of their shares.

As well as incentives to work harder, greater employee engagement can help hold senior management to account – giving employees power to challenge issues such as runaway executive pay.

Done right, employee ownership can enrichen workers, boost productivity, improve staff retention, and help restore faith in capitalism – that’s a set of prizes worth pursuing.

Read more: Richer Sounds founder hands staff 60 per cent stake

Catherine McBride, senior economist in the International Trade and Competition Unit at the IEA, says NO.

Owning a share of the business where you work ties you to that business – which may have been Julian Richer’s intention – but it isn’t always in the best interests of the workers, or the wider economy.

Giving workers a stake in the business might improve outcomes for that particular company in the short term, but there are costs.

The economy needs new market entrants to keep it competitive and vibrant. Therefore workforces need to be as mobile as possible, allowing people to move to new opportunities with higher returns, generating a more efficient use of resources. But giving workers a vested interest makes it less likely they will leave and set up rival businesses or move to new industries.

There are other ways to incentivise staff to improve profit margins or sales. A cash bonus from profits, a sales commission, or an employee of the month prize would also work and would allow employees to change jobs without losing their stock options or flexibility.

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.