Converting to employee ownership is an increasingly popular choice for many business owners. But does the same apply to charities? Read on to find out more…
If you work for, or even own, a charity, then you’ll no doubt be on the lookout for innovative ways to ensure that said charity is as successful as possible. What better way of doing that than to convert to an employee ownership model?
Employee benefit schemes, such as employee ownership, have been more commonly associated with traditional businesses. They’re becoming frequent across all manner of industries, and that doesn’t exclude charities, so considering it might be wise.
Now may be as good a time as any to jump on to the employee ownership bandwagon. So, to find out more about it, and how it may apply to charities, read on…
What is Employee Ownership?
Employee ownership is where all employees have a significant and meaningful stake in a business or charity. This will mean that employees have both a financial stake through owning shares, as well as a say in the way that the charity is being run.
Financial stakes are likely to include holding shares through something like a Share Incentive Plan. All of the employees associated with a company should receive an offer to participate in employee ownership, regardless of their ability to make a financial contribution.
This gives employees a say in the way the charity is being run, which includes setting up an employee’s council. It can take one of three forms:
- Direct Employee Ownership: where employees become registered individual shareholders of a majority of the shares in their company; achieved by using one or more tax advantaged share plans.
- Indirect Employee Ownership: where shares are collectively held on behalf of employees. This is normally done through an employee ownership trust.
- Combined Direct and Indirect Ownership: a company uses a combination of individual and collective share ownership.
Why Might Employee Ownership Take Place?
There are a number of reasons why a company might opt to make use of employee ownership. These include, but certainly aren’t limited to:
Business Succession or Ownership Succession
Transferring to employee ownership is often the perfect solution for a business owner who is looking to sell their company. Choosing employee ownership means that they can choose to sell to their trusted workforce and management.
Growth and Expansion
Even if a business owner doesn’t want to sell, they may still want to use employee ownership. This could be because they have plans to broaden ownership in order to attract more employees, or even retain the ones they already have.
Threat of Insolvency or Closure
Employee benefit schemes can provide an effective route of recovery for businesses that are facing imminent insolvency or closure.
Can Charities be Employee Owned?
Yes, it’s entirely possible for a charity to follow an employee ownership model. However, to convert, a charity will first need to discuss the matter with an advisory body, such as the Employee Ownership Association (EOA).
The EOA helps individuals and business to adopt the most suitable model of employee ownership, as well as helping to plan for the future with the support of specialist advisors.
They’ll also be able to iron out the finer details of a charity’s employee ownership scheme, such as:
- How much ownership should be in the hands of employees.
- How much employees will be able to participate.
- How the principles and values of the charity will be affected moving forwards.
Benefits to Employee Ownership for Charities
So, what are the benefits to employee ownership for charities? Let’s take a look…
Greater Employee Commitment
The most immediate and well-documented advantage to employee ownership is the high levels of employee engagement and commitment. When employees have a stake in the way the charity they work for is being run, they’ll be more motivated to achieve the highest possible standards.
This should provide a strong platform for success moving forward, improving employee retention, as well as attracting more like-minded individuals to work for the charity.
No Takeover Saga
When the future of any business – including charities – is in question, then a takeover saga filled with rumours and uncertainty is likely to follow. That can be avoided altogether by using an employee ownership model.
A charity owner can avoid having to go through painful negotiations and legal proceedings. What’s more, employees will feel more relaxed about what the future is going to have in store.
There are several tax advantages to employee ownership. These are usually enjoyed through tax advantaged employee share schemes, such as:
- Share Incentive Plan
- Save as You Earn
- Company Share Option Plan
- Enterprise Management Incentives
It’s also possible that employees can receive up to £3,600 in annual bonuses that is not subject to income tax.
No Huge Culture Shift
Traditional takeovers could present an issue in the form of a huge cultural shift within the charity. That isn’t the case with employee ownership. In fact, the core culture is only likely to become even stronger.
What’s expected of employees will remain the same, as will day-to-day operations, which means there will also be very little disruption when it comes to the service that is provided.
It’s been shown that employee-owned businesses display greater resilience during economic difficulties. This is brought on by the fact that there is less variability during different economic cycles.
This can be crucial – especially during the ongoing economic hardships that have been brought on by the COVID-19 pandemic.
Are You Considering an Employee Ownership Scheme for a Charity?
Now you know a little more about what employee ownership is, how charities can be employee owned and the benefits for converting to that model.
Have you got any more advice for charity owners who might be considering switching to an employee ownership model? Feel free to leave a comment below so we can keep the discussion going!