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The case against Osborne’s employee-owners

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The government’s plan to offer staff shares in return for dropping some of their workplace rights is unworkable

The Tories have come up with a plan to reduce the burden of employment law on businesses. Their grand ideas is a ‘shares for rights’ swap, which means employers can offer workers shares in the business if they accept reduced protections covering things like dismissal, redundancy and flexible working.

Under the scheme, which is aimed squarely at entrepreneurs and fast-growing firms, employees would get shares valued at between £2,000 and £50,000, and businesses would have to buy them back at a ‘reasonable price’ if employees leave or are dismissed.

It’s a progressive policy all right, but not one that addresses the central problems of employment law. There are two common objections to the law and how it is applied: firstly that it tends to favour employees; secondly it’s too hard to follow and comply with.

The plan outlined by George Osborne at the Conservative party conference this week solves neither problem, and it’s reasonable to suggest that such a move would hand more power to workers and make compliance harder.

As with everything in politics, the devil is in the detail, and the Tories haven’t released much of that. But consider the things that the detail must address: questions, for example, concerning how you value small business shares, how bosses cope with the shareholder-non-shareholder split , what taxes the shares qualify and whether employees should expect dividend payments.

That’s not to mention the obvious problem of handing out ownership of your business to new recruits, untried and, for all you know, unreliable; nor the problem of rogue employees refusing to sell shares after they leave. As a business owner, how would you build it into your exit strategy?

“In our poll only 26 per cent thought share benefits were an adequate solution to the various employment law-related snags”

Above all, there is no necessary connection between share ownership and employee rights, so the whole thing feels disingenuous. Why not give staff a clothing allowance for relinquishing their rights, or half an hour extra at lunch?

On Thursday the Prelude Group, a network of UK entrepreneurs incorporating The Supper Club, ran a snap poll with its members and found that only 26 per cent thought share benefits were an adequate solution to the various employment law-related snags.

But – plaudits to the Conservatives – from a business perspective there really is a problem to be solved; more than 75 per cent of entrepreneurs answering the poll said workplace regulations should be rebalanced in favour of the employer.

More than half – 57 per cent – said they had experienced an employee taking advantage of the law to obtain a settlement they, the boss, deemed unfair.

And, given a choice of answers, only 27 per cent agreed with the view “It’s a good idea as it encourage staff commitment and it’s a fair exchange”. Conversely, 46 per cent agreed with the line “I believe this will worsen people’s impression of business; that we are trying to buy off employee rights”.

The consensus seems to be: if employment-based rights such as unfair dismissal, statutory redundancy, time off for training, and flexi-time requests are wrong in some way and a brake on business, then why aren’t they being reformed across the board, top to bottom?

Asked to comment on the idea owner-employees, most respondents to our survey were not in favour, and even those who thought it a good idea raised questions about its validity.

“Employment rights are far too extensive for most small businesses, and create a real barrier to entrepreneurial activity. At some point these rights had to be reined in and it seems to me that this is a fair trade off,” said Andrew Gray, managing director of accountants Kirkpatrick & Hopes.

“If employee owners are able to save national insurance by being paid dividends, this will further compensate for the loss of employment rights. But employers who would want to give their employees shares are generally not the sort of employers who would abuse their workers’ right or mistreat them in any way.”

“I think it is fundamentally a poor proposition because it doesn’t take into account the psychological make-up of most employees and why they work”

Helena Hudson, managing director of Real Eating Company

Others were more pointed in their view: “I think it is fundamentally a poor proposition because it doesn’t take into account the psychological make-up of most employees and why they work. Most do not want the responsibility or accountability, real or perceived,” said Helena Hudson, managing director of Real Eating Company.

“Real, tangible benefits such as pay rises, bonuses, gifts and discretionary time off are far more effective in motivating the majority. Also, if employees had shares, they would be reliant on the biggest shareholder, the owner, to sell at the desired time at the right price. Their motives are mismatched.”

Meanwhile, many entrepreneurs said they wanted consistency, not change: “Despite being a private business we already have a large number of staff shareholders and will continue to expand the group over time,” said David Bailey, founder of Augentius.

He added: “Our staff want to be part of the business and we want them involved. However at the same time we must respect Employment Law. With good management the current law is fair to everyone.”

The main objection to the employee-owners project is that it doesn’t adequately address the root problem of too much red tape for bosses and, some argue, too much power in the hands of workers, some of whom are unreliable.

Meanwhile, an explicit offer involving the revocation of protections covering redundancy, working conditions and maternity leave, is not going to instil a sense of ownership in employees and will probably have the opposite effect.

The message from entrepreneurs seems to be: if you see a problem, solve it. Don’t dress it up in a way that distracts from the central issues at hand.

The Prelude Group is an organisation that supports enterprise and fast growth, offering peer-to-peer advice to some of Britain’s best entrepreneurs.




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