Employee share ownership is a perk worth expanding

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When Simon & Schuster’s chief executive explained to staff this week why KKR had won the $1.6bn auction for the publisher, he highlighted something unusual about the private equity firm. It was, he said, the only suitor that had pledged to let employees “participate in the benefits of ownership” after the deal was done.

The equity ownership plan KKR proposed stood out because so few companies currently offer most of their people a chance to build a stake in the business they work for. Fewer than one in five US employees own shares in the company where they work, a recent Rutgers School of Management study found, and that number has stagnated. This is not just a US phenomenon: in the UK, the number of companies offering Save As You Earn schemes or Share Incentive Plans has been falling.

Boards routinely offer equity to align top executives’ interests with those of investors, yet only a minority extend the same logic to all staff. As many companies fret about disengaged workforces it is time to reconsider this tool for retention and motivation.

Since the likes of Procter & Gamble and Eastman Kodak introduced equity plans more than a century ago, proponents have argued that they are an investment that pays off by making workers more committed to their company’s success. Successive studies have made the case that businesses that offer staff equity are more resilient.

Concern about wealth inequality has brought another argument to the fore. Too few participants in modern economies own the financial assets that drive wealth creation: in the US, for example, the least wealthy half of the population owns just 1 per cent of all equities. Making more workers equity owners could narrow that wealth gap.

Corporate share plans do have potential drawbacks. They come at a cost to companies, and risk diluting existing shareholders. As shares do not always go up, employees risk losing their stock as well as their pay cheque if their company hits trouble.

Research by the UK’s Social Market Foundation and the National Association of Stock Plan Professionals in the US shows that many workers shun existing plans because they cannot afford to put money aside or because they cannot understand them.

Offerings of stock cannot be a substitute for fair wages, but carefully designed plans can address many of these concerns. Research by Fidelity has shown that companies can overcome affordability concerns by offering shares at a discount, for example. Companies wanting to encourage wider participation must also consider how daunting investing can seem to first-timers, and provide employees with the financial education they need.

Meaningful change will need policy support. In the UK, a consultation on government-sponsored employee share schemes closes this month, aiming to boost take-up, particularly among low-income workers. Industry members have already urged ministers to cut the time employees must hold stock to qualify for tax breaks.

In the US, employee ownership has emerged as a rare topic with bipartisan backing. Republican and Democratic lawmakers joined forces last year to introduce a bill designed to widen the use of employee share ownership plans. Rutgers professor Joseph Blasi suggests Congress could do more, such as making some corporate tax breaks conditional on firms offering broad-based equity participation plans.

Business leaders have styled themselves recently as stakeholder capitalists. What better way to demonstrate that commitment than to turn more of their stakeholders into capitalists?