From the TUC

Trade Unions and employee ownership: A good mix lost in the myths

03 Jul 2013, by Guest in Pensions & Investment

Trade unionism and employee ownership can be a good mix.  But this gets lost in the myths surrounding employee ownership. It is a myth that employee ownership is incompatible with trade unionism.

The Nuttall Review on Employee Ownership highlighted the fact that trade unions operate in many companies with employee ownership and summarised research that shows the employee ownership business model benefits both workers and business. 

Then TUC General Secretary Brendan Barber said exactly this when the review was launched:

‘The most successful companies are those which have good relationships with their staff and where employees genuinely feel involved with the running of the business. In these situations where workers feel valued and that their views matter, employee ownership can reap benefits both for the workforce and for businesses”.

These “win-win” benefits were illustrated when the long-standing Employee Ownership Association member Tullis Russell won the Scottish Trades Union Congress Health and Safety Award.

What is not widely known is that the TUC has a set of principles concerning employee ownership.  These are set out in full below.  They are a really good fit with the Nuttall Review’s definition of employee ownership, as shown if the TUC’s principles are summarised alongside extracts from the review

Key principles

In summary the TUC’s principles are that any form of share ownership should be open to all workers, including part-time workers and should give workers a substantial body of shares; shares should be allocated on an equitable basis to ensure that employee ownership does not just reinforce existing pay differentials but makes a positive statement about the value of all employees, and schemes should provide for the effective involvement of employee representatives in company decision making.

The Nuttall Review definition of employee ownership is that employee ownership means a significant and meaningful stake in a business for all its employees.  What is ‘meaningful’ goes beyond financial participation. The employees’ stake must underpin organisational structures that promote employee engagement in the company.  References to share ownership by all employees assume such ownership is voluntary. Share ownership must be made available to all employees on the same or similar terms but this can be subject to a minimum period of employment or other reasonable qualifying conditions. Entitlements often vary on a fair basis according to length of service, remuneration or similar factors.

There are clear parallels between the TUC principles and the review’s definition.

Other similarities

The Nuttall Review placed a particular emphasis on the value of the employee trust model of employee ownership.  The TUC principles similarly state “Collective ownership of shares in a trust is preferable to individual share ownership as this will enhance employees’ voice in the company and preserve the shares for future employees”.

Also, given the controversy surrounding the “Trading Rights for Shares” section in the Growth and Infrastructure Act 2013 it is worth remembering that the Nuttall Review concluded “It is standard practice in tax advantaged share plans and other share plans to provide that the employment rights of a participant are not altered in any way by participating in the plan and that similarly any benefits of participating are not taken into account when deciding on pension or similar benefits. This review did not hear any suggestions that this approach is an obstacle to promoting employee ownership. The TUC principles state clearly that “Employee share ownership schemes should be in addition to, not a substitute for, decent pay and pension provision”.

As regards involving employees in the introduction of employee ownership, the Nuttall Review contained a number of recommendations including that “The Department for Business, Innovation and Skills (BIS), working with ACAS, should encourage employer and employee groups (including trades unions) to develop a voluntary Code of Practice setting out best practice on requesting and agreeing employee ownership in a company”.  The TUC’s principles include “The introduction and design of employee ownership scheme should be subject to consultation with the workforce and their representatives”.

The Nuttall Review adopted a flexible approach as to how the employees’ voice might be heard within a company with employee ownership. Ideas included in relation to the employee trust model that the composition of the trustee directors might include “a ‘paritarian’ composition of trustee directors (that is equal numbers from management and staff with one or more independents)”.  The relevant TUC principle is that “Workers and their representatives should be involved with the running of the scheme” and “preferably through seats on the board”.

Particular points of emphasis in the TUC principles

The Nuttall Review did not highlight the possible problem of excluding some employees from participation because they cannot afford shares.  The TUC principles rightly include a warning on this point: “Allocation should not depend on the ability of workers to buy shares, as this will simply reinforce existing pay differentials within the company, rather than enhancing the stake in the company of all workers”.

A key point of emphasis in the TUC principles, is, unsurprisingly that “employee ownership should not be introduced as a substitute for formalised consultation procedures or used to sideline the role of recognised trade unions in the workplace”.

Continuing the debate

In summary the TUC principles and the Nuttall Review agree on the fundamental point, which is that “There is still a vital role for trade unions to represent their members’ interests in relation to their employer within companies that are employee-owned or that have employee share ownership”.

The Government’s decision to support the Nuttall Review’s recommendations and to promote the concept and benefits of employee ownership is therefore something that trade unions locally and nationally can support.

On 4 July 2012 the TUC welcomed the opportunity to contribute to the debate on how workers might start owning shares in the places where they work for the benefit of everyone.  A year later, 4 July 2013 is the UK’s first Employee Ownership Day and it is good to see that the debate continues and continues with trade union involvement, including participation in the BIS Employee Ownership Implementation Group and a presentation by Janet Williamson of the TUC on “The role of trade unions in employee ownership” at the EO Day London Conference.

NOTE: The following are the TUC’s principles on employee ownership in full:

  • Any form of share ownership should be open to all workers, including part-time workers.
  • The introduction and design of employee ownership scheme should be subject to consultation with the workforce and their representatives, and employee ownership should not be introduced as a substitute for formalised consultation procedures or used to sideline the role of recognised trade unions in the workplace.
  • Employee share ownership schemes should be in addition to, not a substitute for, decent pay and pension provision.
  • Collective ownership of shares in a trust is preferable to individual share ownership as this will enhance employees’ voice in the company and preserve the shares for future employees.
  • Schemes should give workers a substantial body of shares.
  • Shares or share revenues should be allocated on an equitable basis, perhaps pro-rata for part-timers, to ensure that employee ownership does not just reinforce existing pay differentials but makes a positive statement about the value of all employees.
  • Allocation should not depend on the ability of workers to buy shares, as this will simply reinforce existing pay differentials within the company, rather than enhancing the stake in the company of all workers.
  • Workers and their representatives should be involved with the running of the scheme.
  • Schemes should provide for effective involvement of employee representatives in company decision making, preferably through seats on the board.
  • Employee share ownership is not a substitute for trade union recognition and collective bargaining. There is still a vital role for trade unions to represent their members’ interests in relation to their employer within companies that are employee-owned or that have employee share ownership schemes.
GUEST POST: Graeme Nuttall is a solicitor and chartered tax adviser, and a partner at European law firm Field Fisher Waterhouse LLP. As the Government’s independent adviser on employee ownership, he produced “Sharing Success: The Nuttall Review of Employee Ownership” which has set the agenda for growing employee ownership in the UK . Graeme belonged to the HM Treasury Employee Ownership Advisory Group that helped create the HM Revenue and Customs approved share incentive plan and enterprise management incentives arrangement. He also drafted the Employee Share Schemes Bill, a successful Private Member’s Bill. He is adviser to the Employee Ownership Association, the voice of co-owned business in the UK, and a Cabinet Office Mutuals Ambassador.
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