Download a copy for printing here: GE2016 – IPSA Election Manifesto
PROMOTING GREATER EMPLOYEE OWNERSHIP IN IRISH BUSINESSES, TOGETHER IS BETTER
A Programme for Economic Expansion 2016
When private business flourishes so too does the Irish economy. A private company that continues to perform well ensures that it makes money, creates jobs and importantly retains jobs. This generates not only income for the business itself but also income for Ireland through an increase in direct and indirect taxation.
This is just one key consequence of a private sector business flourishing. A knock-on tangential effect is that they stay in Ireland. A company that remains in Ireland keeps communities together, breathes vital finance into the area within which it operates and acts as an attraction for emigrants to return home and for migrants to move to Ireland.
“A powerful tool to help grow and sustain business is Employee Ownership.”
The Irish economy is the perfect size and structure for Employee Ownership (EO) to take root in companies of all sizes, domestic and multinationals, and to grow and become a key driver of economic expansion and growth.
As Ireland emerges from a period of significant austerity, now is the time to fundamentally change our economy to ensure long-term growth with strength and balance. It is time for a new Programme for Economic Expansion[i]. This is the age of Employee-Ownership.
“Employee-owned businesses are more resilient during economic downturns. They have more engaged employees who benefit from higher levels of wellbeing and experience less stress.”
Sir Charles Mayfield chairman of the John Lewis Partnership UK
What is Employee Ownership?
Employee Ownership of business is where all employees have a significant and meaningful stake in the business. Employee Ownership has been shown to create successful businesses in which employees enjoy working and which deliver wider benefits.[ii] Giving workers a greater stake in the company they work for is a powerful way of aligning the interests of employees with that of the business.
A worker who has a financial and personal stake in a company will take more responsibility for its success. The evidence shows that this is reflected in the economic strength of employee owned companies: lower absenteeism, a happier workforce and therefore less staff turnover and higher profitability. These companies also tend to be more resilient in tough economic times. More can and should be done to raise awareness of this business model amongst professionals and employees in Ireland.
It is the goal of the Irish Proshare Association to shift employee ownership into the mainstream of corporate Ireland and to show Government that with courage, Ireland can truly become the “best small country in the world in which to do business”[iii].
We in the Irish Proshare Association (IPSA) believe that all stakeholders (Government, employers and employees) concerned with the continued sustainability and growth of the Irish economy now and into the future – will flourish and grow if Employee Ownership is given a real and honest opportunity in Ireland.
For Employee Ownership to truly take root the following three elements need to be nurtured:
- Reform and improve tax system to encourage and nurture Employee Ownership;
- Engage and incentivise the private sector to embrace Employee Ownership as a strengthening tool for business; and
- Attract businesses to Ireland and assist the growth of those currently established here as a direct consequence of reform and engagement.
Reform and Improve
- Remove PRSI and USC liabilities to employees participating in Revenue Approved Schemes.
Revenue Approved Schemes are an income tax efficient employee benefit and highly valued by an employee where offered by their employer. However, the liability to PRSI and USC detracts from the wider scheme benefits, and also creates confusion and budgeting issues as employees need to factor these deductions into their following months’ salary. We believe that by removing these liabilities, it would encourage more employees to participate (and existing participants to contribute more) which has been shown to increase employee productivity thus enhancing corporate performance, generating greater opportunities for increased corporation tax.
Implementation of this reform would significantly aid Action Points 6, 9 and 11 of the Governments Action Plan for Jobs 2016[iv].
- Create Enterprise Management Incentive Schemes
In the UK Enterprise Management Incentive Schemes (EMIs) are attractive to companies who wish to align employees interests with those of the company’s. EMI Schemes reward, motivate and incentivise staff, retain key staff for the medium to long term, and promote share ownership in the company in a tax efficient manner. Due to the favourable tax treatment of EMI schemes it is possible for an employee to receive shares free of Income Tax and PRSI (UK National Insurance) and then potentially only pay Capital Gains Tax at 10% upon disposal of their shares, when specified conditions are met.
EMI schemes in the UK are an efficient way for companies to offer shares to incentivise and/or retain key staff and provide an effective and attractive solution for many small and medium sized companies. Similar benefits could be afforded to a large swathe of smaller Irish companies trying to compete with major multinational employers. Introduction of Enterprise Management Incentive Schemes in Ireland could help generate more jobs in local companies in general and local domestic tech companies in particular.
Implementation of this reform would significantly aid Action Points 2, 3, 4, 5, 6, 7, 8, and 10 of the Governments Action Plan for Jobs 2016[v].
- Enable shareholdings to be converted to cash for AVC pension contributions without triggering a Capital Gains Tax event.
The IPSA believes employees should be given the opportunity and incentive to transfer shares as a cash value into Revenue Approved Retirement Benefit Schemes as an AVC without attracting a Capital Gains Tax charge at the outset. The proceeds of this transfer would help to grow the pension fund over time and could in all likelihood generate a better and greater income tax take for Revenue, the exchequer, and the country when the individual’s pension is drawn in the normal fashion on retirement.
Engage and Incentivise
- Communicate the benefits of EO to all publically listed companies currently operating in Ireland through both the IDA and Enterprise Ireland.
The IPSA is happy to assist both of these state agencies in developing and delivering this message when attracting new companies to set up in Ireland.
Implementation of this initiative would significantly aid Action Points 7, 9, and 11 of the Governments Action Plan for Jobs 2016[vi].
- Communicate the benefits of EO to all private companies currently operating in Ireland through the Small Firms Association, ISME, IBEC and Chambers Ireland.
Privately owned businesses need to be able to compete with publicly listed companies for key talent. Employee ownership is a proven tool for the attraction and retention of skilled staff. It can be the vital component of a remuneration package when a business is cash strapped and in competition for key talent from more established entities. IPSA is happy to assist all of the above champions of private business in Ireland in promoting the benefits of Employee Ownership and Employee Financial Involvement in business.
Implementation of this initiative would significantly aid Action Points 2, 5, 6, 7, 8, and 10 of the Governments Action Plan for Jobs 2016[vii].
- Minister for Jobs, Enterprise and Innovation to commission a report into Employee Ownership in 2016.
In 2012, the then UK Minister for Employment Relations, Consumer and Postal Affairs, Norman Lamb, commissioned Employee Ownership expert Graeme Nuttall, to undertake an independent review into employee ownership in the UK. The Irish Government needs to replicate this report in an Irish context. The UK Government showed that encouraging employee ownership leads to a significant positive economic impact and that the Employee Ownership Model can be a significant differentiator for start-ups and small businesses. As the Irish economy is 99%[viii] driven by SMEs this report and subsequent adoption of any recommendations has the potential to differentiate the Irish economy within a global context.
Implementation of this initiative would significantly aid Action Points 2, 5, 6, 8, 10 and 11 of the Governments Action Plan for Jobs 2016[ix].
- Incentivise share ownership and retention as a way to alleviate pension inadequacy.
The provision of an exemption from capital gains tax on the conversion of shares for cash to invest in a Revenue Approved Retirement Benefit Scheme would not only assist and encourage employees to increase their provision for retirement but simultaneously incentivise them to greater efforts to ensure continued positive growth for the company where they are employee owners.
Implementation of this initiative would significantly aid Action Points 7, 10 and 11 of the Governments Action Plan for Jobs 2016[x] .
Attract and Grow
- Public Companies with an above average level of employee ownership significantly outperform those without any form of employee ownership.
The potential to continue to attract and help to grow and retain the biggest corporations in the world expands exponentially if Ireland could provide the right taxation environment within which these companies could operate. There is now hard evidence that quoted companies with an above average level of employee ownership significantly outperform those without and over a sustained period. The FTSE Employee Ownership Index (EOI) tracks approximately 70 UK Companies where employees own more than 3% of the shares. In 2013 the EOI produced a stunning 53.3% return compared to the UK All Share Index return of 20.8%. Looking further back proves 2013 was not a one off, since 2002 the EOI return of 439% compares favourably to a 150% return from the FTSE All Share Index.
This would significantly aid Action Points 6, 7, 9, 10 and 11 of the Governments Action Plan for Jobs 2016[xi].
- Encourage alignment of employee goals with those of the privately owned business.
Employee share ownership in privately owned businesses allows employees to participate in the growth and success of the business and aligns the employees’ goals with those of the business. Employee Owned businesses have greater sustainability and longevity as a worker who has a financial and personal stake in a company will take more responsibility for its success. The ramifications for the regeneration of rural communities in Ireland are enormous as employees are now more than ever incentivised to retain their business in their community and ensure that the local rural economy is sustained and has continuous lifeblood.
This would significantly aid Action Point 2, sub point 2.2: Stimulating Regional Growth and Action Point 10 of the Governments Action Plan for Jobs 2016[xii].
- Life Time Savings – Pensions and retirement.
Encouraging long-term thinking in terms of one’s employment can also be extended to planning for a private income in retirement from a privately held pension. By encouraging this thinking and making it attractive to convert shareholdings into AVCs Government can better help private individuals to make provision for themselves in retirement while simultaneously encouraging them to take a greater financial and personal stake in a company where they are directly responsible as employee-owners for its continued success.
“Ove Arup and his partners set up an Employee Trust in 1977 and the firm is still owned for the benefit of its employees today. This structure has helped us stay true to our core values. This distinctive approach is what helps Arup to attract and retain the best people. From our perspective, employee ownership has proved to be a huge success.”
Philip Dilley, Group Chairman, Arup
Download a copy for printing here: GE2016 – IPSA Election Manifesto
Footnotes:
[i] T.K. Whittaker, “Programme for economic expansion” White Paper laid before the Houses of the Oireachtas, November 1958 [ii] Graeme Nuttell – author of “Sharing Success – the Nuttell Review of Employee Ownership”; July 2012 [iii] An Taoiseach, Enda Kenny during GE 2011 campaign [iv] Action Point 6: Competitiveness; Action Point 9: Driving Export Led Growth; Action Point 11: New Sources of Growth, 2016 Action Plan For Jobs – Table of Actions, January 2016, Department of Jobs, Enterprise and Innovation. [v] Action Point 2: Disruptive Reforms; Action Point 3: Increasing Labour Market Participation; Action Point 4: Delivering Skills for a Growing Economy; Action Point 5: Innovation; Action Point 6: Competitiveness; Action Point 7: Finance for Growth; Action Point 8: Entrepreneurship; Action Point 10: Stimulating the Domestic Economy, 2016 Action Plan For Jobs – Table of Actions, January 2016, Department of Jobs, Enterprise and Innovation. [vi] Action Point 7: Finance for Growth; Action Point 9: Driving Export Led Growth; Action Point 11: New Sources of Growth, 2016 Action Plan For Jobs – Table of Actions, January 2016, Department of Jobs, Enterprise and Innovation. [vii] Action Point 2: Disruptive Reforms; Action Point 5: Innovation; Action Point 6: Competitiveness; Action Point 7: Finance for Growth; Action Point 8: Entrepreneurship; Action Point 10: Stimulating the Domestic Economy, 2016 Action Plan For Jobs – Table of Actions, January 2016, Department of Jobs, Enterprise and Innovation. [viii] In 2012, SMEs (employing less than 250 persons) accounted for 99.7% of active enterprises: Business in Ireland 2012 – CSO Report [ix] Action Point 2: Disruptive Reforms; Action Point 5: Innovation; Action Point 6: Competitiveness; Action Point 8: Entrepreneurship; Action Point 10: Stimulating the Domestic Economy; Action Point 11: New Sources of Growth, 2016 Action Plan For Jobs – Table of Actions, January 2016, Department of Jobs, Enterprise and Innovation. [x] Action Point 7: Finance for Growth; Action Point 10: Stimulating the Domestic Economy; Action Point 11: New Sources of Growth, 2016 Action Plan For Jobs – Table of Actions, January 2016, Department of Jobs, Enterprise and Innovation. [xi] Action Point 6: Competitiveness; Action Point 7: Finance for Growth; Action Point 9: Driving Export Led Growth; Action Point 10: Stimulating the Domestic Economy; Action Point 11: New Sources of Growth, 2016 Action Plan For Jobs – Table of Actions, January 2016, Department of Jobs, Enterprise and Innovation. [xii] Action Point 2, 2.2: Stimulating Regional Growth; Action Point 10: Stimulating the Domestic Economy, 2016 Action Plan For Jobs – Table of Actions, January 2016, Department of Jobs, Enterprise and Innovation.