The Outsized Impact of Employee Ownership on Company Culture

This article was originally published on TalentCulture on Dec. 19, 2023.

Including employees at the ownership level is still the road less traveled. It challenges the conventional belief that only founders and management teams operate with an owner’s mindset. However, it is proving to be a win-win strategy that aligns workforce interests with the success of your business.

This article explores what business founders, leaders and owners should know about how to lift your company culture with employee ownership.

Ownership Models

Employee ownership trusts, which are highly customizable and align incentives across the organization, are an exciting option for companies that seek a  competitive advantage by creating a culture of ownership. But success depends on several factors:

• A structure you can tailor to your business model, industry, and organization’s needs,
• Financing that unlocks performance benefits
• Strategic implementation and rollout

Through this journey, you not only secure your company’s future, but also empower your workforce, turning ownership and business success into a shared venture.

How It Works

Employee ownership typically includes two key characteristics:

1. Employees at all levels of the business benefit from the company’s success.
2. Employees typically have a say in the way the company is run.

This kind of arrangement encourages employees to operate with an owner’s mindset. Even if they never hold a C-level or senior management title, staff with an upside stake in the business are likely to feel more invested in and aligned with your organization’s future success.

Of course, leaders considering this pathway often ask several key questions:

• How will the company perform under this new structure?
• Who will be responsible for managing the business?
• Who will make key decisions?

Answering these questions is worth the effort. That’s because organizations with employee ownership hold a clear advantage over competitors in attracting and retaining talent.

Does Employee Ownership Really Make a Difference?

At a time when only 32% of workers are engaged and 70% want to resign, retention at employee-owned firms is up to four times higher than other organizations. There are multiple reasons why, including higher-quality jobs, better retirement packages, and more robust benefits. For many employee-owned businesses, a significant advantage comes from increased take-home pay and better wages overall. Let’s look closer at several of these outcomes:

1. Higher Compensation

Employee ownership has a longstanding record as a wealth-building engine for workers. In fact, people at employee-owned firms typically earn 33% more than their peers at firms that don’t extend ownership to employees.

The impact is amplified for minority workers, whose salaries can be up to 12 times the median of their counterparts around the nation. And those from other historically disadvantaged groups fare better, also. For example, a recent Aspen Institute report found the wages of single and married women at employee-owned companies are 24% and 17% higher, respectively, than their non-employee-owner counterparts.

2. Higher Quality Jobs

In addition to the wealth-building potential of employee ownership, this model is associated with preserving high-quality jobs. Why?

In part, this comes from access to benefits such as flexible work schedules, generous retirement plans, parental leave, and childcare assistance. For example, 23% of employee-owners have access to childcare benefits, compared to only 5% of non-owners.

Not surprisingly, the median tenure among employee-owners is 5.2 years, compared to only 3.4 years for non-owners.

3. Ownership Flywheel

The compounded result of all of these benefits is an “ownership flywheel” effect. When employees have a stake in their company’s success, they’re more likely to contribute in ways that improve performance. In turn, this builds a more resilient business that is better positioned to weather difficulties.

This flywheel was especially visible during the pandemic’s economic downturn. Employee-owned essential businesses laid off staff at one-quarter the rate of non-employee-owned competitors. These firms kept moving forward, buoyed in part by employees who were committed to preserving their organization’s health.

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Keys to an Employee Ownership Structure

Whether you’re a business leader mulling over succession plans and engagement strategies, or you’re an owner who wants to lead a values-driven business for decades to come, employee ownership is worth considering.

As you explore this option, keep in mind that successful employee ownership plans depend on three factors:

1. The Right Approach

Every business has unique dynamics that determine the ideal employee ownership setup. These elements include everything from your business model and industry dynamics to your current culture, leadership, and executive management plans. You’ll want the flexibility to tailor your plan to your specific situation.

This is why an employee ownership trust is an attractive option for decision-makers who want to create a competitive advantage based on shared ownership. It can be customized to fit your business structure and industry, as well as the results you want to incentivize and reward.

That means you can pave a path to employee ownership that supports all your key stakeholders while leveraging the performance advantages inherent in an employee-owned business model.

2. The Right Financing Model

It’s also important to align your program’s financing structure with employee ownership goals. Here’s one reason why: Employees must believe, feel, and see the material benefits of ownership.

If buyout financing keeps staff members from meaningfully participating when business performance improves — even as other investors take cash off the table — morale, culture, and retention will face negative consequences.

This is why it helps to work with capital providers who are knowledgeable and experienced in structuring employee ownership buyouts. They can ensure your transaction structure is based on best practices while fully leveraging employee ownership performance gains.

3. The Right Rollout Campaign

After ensuring your employee ownership plan is appropriately customized and the financial transition is supported by an appealing capital structure, you’ll want to roll out the program with intention.

For some businesses, an employee ownership transition may simply be a natural progression of its pre-existing company culture. For others, it may represent a meaningful change in how the business operates and behaves. Either way, you want to prepare employees, so they understand their role in the new ownership structure, and they’re equipped to align around its core purpose, values, and objectives.

Because this is so critical, many business owners choose to work with an organization with expertise in implementing and rolling out these programs. Partners with a proven track record can reduce the risk that your organization, its culture, and its reputation could be harmed by a rushed or poorly managed rollout.

Is Ownership In Your Future?

As you ponder long-term strategies, consider the substantial, enduring impact of employee ownership. It’s more than an initiative — it is a venture in shared ambition, a journey toward a unified goal, and a path to a culture where everyone is invested in the big picture.

Transitioning to this kind of model isn’t merely a shift in business structure — it’s an investment in your company’s future and a catalyst for a culture of shared success. For owners, this fosters a self-perpetuating cycle of engagement, accountability, and enhanced performance that sets your organization apart in a competitive talent environment. With each success, a spirit of collective ownership invigorates employees, which in turn, drives further growth.

With this kind of backbone, your business doesn’t just grow. It thrives with the collective effort of individuals bound by a common stake in a shared future. This type of setup can protect and strengthen the purpose, culture, and vision you’ve built while simultaneously engaging and incentivizing your workforce.

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