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Time for the Government to embrace Employee Share Ownership and let it help drive the recovery

By November 30, 2020No Comments
By Eleanor Cunningham, IPSA Chair

In terms of harnessing the power of employee share ownership, 2020 has been something of a missed opportunity by the Government.

COVID19 has plunged Ireland into an economic crisis. Business activity has fallen, companies are struggling, and people are losing their jobs or having their hours reduced because of events that are beyond their control.

Recent announcements around the development of vaccines for COVID19 are, of course, very welcome, however, Ireland will need every weapon in its economic armoury to remedy that damage that has been wrought over the course of the pandemic.

IPSA Chair Eleanor Cunningham

Embracing employee share ownership and the role it can play in helping Irish businesses to bounce back from COVID19 is one such weapon that has a prodigious track record around the world.

Research has shown that companies with some form of employee ownership are more productive and profitable than those without. Such companies weather economic downturns better, maintain more jobs, and recover stronger and more rapidly than other companies because their employees have more at stake in the companies that employ them, and are more motivated to succeed.

Indeed, a US study into the impact of the pandemic in the workplace found that compared, to other businesses, employee-owned firms were:

  • 3-4 times more likely to retain non-manager and manager employees;
  • 2 times more likely to retain staff – even when other companies received government funding support and employee-owned other businesses did not;
  • Significantly less likely to reduce employees’ hours or pay;
  • More likely to send employees home to work during the pandemic – and did so earlier; and
  • More likely to provide employees with personal protective equipment.

Crucially, the study found that employee-owned businesses “kept considerably more money in employees’ hands and in the economy” than other companies.

Earlier this year, IPSA urged the Government to support Irish businesses and companies that allow their employees to share in the success of the business through employee share schemes, as this is an effective method of strengthening the Irish economy and assisting businesses to bounce back from the current downturn. Prior to Budget 2021, IPSA made a number of proposals to Government:

  • We proposed a salary for shares scheme that would allow struggling businesses to protect jobs by offering employees shares in the companies they work for in lieu of part of their salary. This would be an alternative to redundancies for some businesses, providing them with a cash lifeline as they seek to recover from the downturn.
  • We sought payment holidays for employees enrolled in APSS and SAYE share schemes but who are struggling to maintaining their monthly contributions because they had been furloughed or are on reduced salary.
  • IPSA was instrumental in seeking a tax favoured share scheme for SMEs such that they could compete with larger companies for employee talent. The Key Employee Engagement Programme (KEEP) was introduced in Since its introduction, IPSA has sought amendments to the scheme. That this process is incomplete is reflected by the fact that take up of the scheme remains desperately poor, because it fails to meet the needs of the SMEs that it is was created to serve.The IPSA pre-Budget submission argued for further reform of KEEP. We asked that Government simplify the terms and conditions for qualification for KEEP and the process of implementing and administering KEEP – both of which are too complex and costly, and therefore act as deterrents to start-up and other SMEs seeking to introduce an employee incentive share option scheme. Make no mistake, there is an appetite among SMEs and start-up companies for an equity-based share scheme for employees, but until these fundamental issues are addressed KEEP will continue to be largely unfit for purpose and largely unused.
  • We also called on the Government to defer the implementation of the Register of Beneficial Ownership of Trusts, which is being introduced due to an EU anti-money laundering directive. The Register impacts many employee share ownership trusts which do not present a money-laundering risk, and the COVID-19 crisis is not the right time for implementing the Register, which will place onerous administrative burdens on already struggling businesses.

There is no panacea for the economic ills visited by the COVID19 pandemic. Tough decisions have to be made. However, the decision of whether to embrace the potential of employee share ownership and the role it can play in helping Ireland to recover is not, in IPSA’s opinion, a tough decision.

At a time of economic uncertainty, incentivising companies to engender a more potent sense of unity and purpose within their organisations is, quite frankly, a bit of a no-brainer.