August 31, 2007
Sharing the Benefits
By Bernice
Hurst, Managing Director, Fine Food Network
Named by readers of Which? Magazine as
Britain’s favorite retailer, the John Lewis Partnership is probably the best-known
successful employee-owned company in the country. All employees at John Lewis
are partners; this year, they received an 18 percent bonus, equivalent to nine
weeks’ full pay. Of the year’s pre-tax profit of £319m, £164m was re-invested
and the rest was shared between the partners.
The company’s 68,000 permanent staff own 26 department stores, 185 supermarkets, an online catalog, three production units, a farm and Greenbee, a tickets, travel and insurance service. The whole group had a combined turnover of nearly £6bn last year.
As further evidence of JLP’s reliance on its partners’ skills and expertise, its website (re-launching on August 29) will rely on them for podcasts and explanations of products. Speaking to the Guardian, David Walmsley, JLP’s head of web selling, describes his mission as aiming for “a more rounded retail experience,” offering the same high quality customer service available in their bricks and mortar premises.
Although JLP is a success, the Guardian reports that employee-owned companies are not yet overwhelmingly popular, comprising only an estimated two percent of the economy, or £25bn in annual turnover. This contrasts with results of a survey conducted in 2005 by the Employee Ownership Association which showed that 72 percent of respondents thought staff worked harder under a co-ownership structure, 81 percent said they took more responsibility, 49 percent thought competitiveness was enhanced, and 44 percent confirmed profits were higher.
The association’s executive director, Patrick Burns, believes they have potential, however, to expand. “You get a remarkable level of employee involvement and people are prepared to go the extra mile. People feel their companies are more productive, and the companies are very sustainable.”
According to the Guardian, Tracey Killen, JLP’s director of personnel, believes that “the great strength of the partnership’s model is that employees have a real stake in the business…Co-ownership allows the partnership to take a long-term view, because we do not have to answer to external shareholders who are usually seeking quick returns.”
Shared ownership isn’t everyone’s cup of tea. Critics doubt the ability to make the right decisions and make them quickly, but proponents argue that not everyone has to be consulted on every decision and point out that sometimes it’s about quality of management rather than company structure.
Discussion Questions: Why don’t you think more businesses consider the benefits of employee ownership? Do you think that inertia prevents more companies from changing their structure to one that could be potentially more profitable and productive? Or are their some benefits to non-employee owned companies that the article didn’t’ include?
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What an interesting juxtaposition with today’s first topic regarding Ace Hardware’s considering dumping a form of employee ownership in favor of a traditional corporate structure. While I’d never suggest that a single operating model works best for every type of business, perhaps we can agree that some cross-pollination between companies using different models would be beneficial to all involved.
I worked for eight years at an investment bank making its presentations (graphic design), where the year-end bonus and profit sharing contribution to my retirement were significant. Then at the end of 2004, my position was outsourced to a company I’ll name “B”. I was hired by B and placed at the same desk doing the same work for the same bank. However, the bonus and profit sharing were not included in my salary.
Today, I still make less than I made in 2003. Before, when I saw mistakes or mangled English in presentations, I used to make corrections because I wanted to present the best image possible for the bank. Now, I let everything slide by me because I have no stake in the company’s success whatsoever. And when asked to work overtime or holidays, my answer now is a resounding NO. And THAT (lack of motivation because the profits all go to management) is what’s wrong with many American retailers and companies.
Employee ownership is a great approach, but can backfire. When things are going good, all are happy. During rough times, employees lose interest and blame management. The strength is in motivating and retaining employees. The weakness is capital formation. Employees are investing sweat equity, not cash.
There are four stellar US grocery examples of employee ownership, in whole or in part: Price Chopper (minority but significant); Publix; Hy-Vee (at the store manager level, particularly), and Winco.
All four consistently outperform competitors on comp store sales, all have highly motivated employees, and all have lower than average turnover among trained staff.
The vision for founders to share the wealth this way is rare, but it seems like it generally pays off rather well.
Employee ownership is a great model for any business that expects to profit the old-fashioned way — from delivering products and services to customers. And I think it could go a long way toward rehabilitating the image of American business, especially in this age of private equity funds taking public companies private to avoid what little regulation is left after the gutting of Sarbanes-Oxley.
As for critics’ concerns that employees aren’t sophisticated enough to make tough (or complex) financial decisions:
We’ve seen hordes of financial sophisticates get themselves into plenty of trouble and take entire companies down with them — enough that we might want to think twice and run the other way anytime we see bright people pushing newly invented, highly complex financial instruments.
We know from quality-process and customer satisfaction research that front-line employees generally have a better handle on solving problems at the level of their jobs than senior management can hope to impose from above.
We also know that human beings have a genetic need to belong. It seems to me that employee ownership would help satisfy that by giving folks a tangible stake in the outcome of their work.
And we know that engaged employees raise customer-sat scores, which correlate with growing sales numbers. (Is that a proven causal relationship?)
The only places I can see employee ownership not working are where the main goals are to outdo that pesky 500-to-1 CEO pay ratio and to loot the corporate treasury for the benefit of the top level of management. But we don’t have any companies like that, do we?
There are more employee-owned businesses than some might realize. Law, consulting, software, marketing and accounting firms are often employee-owned, even if all the employees aren’t shareholders. The ESOP tax laws encourage employee ownership, but it seems that the real key comes down to a leader or small group of leaders, with out-of-the-box vision.
Very few retail chains use open book management, disclosing to their store managers the true profit/loss statement of each location, a necessary first step leading to employee ownership. Sometimes it seems that those disclosures and consideration of employee ownership only come when the business is in desperate trouble, not when it’s thriving. Many retailer companies believe that the top three people are the only folks that make the difference, and everyone else is an interchangeable commodity.
Employee ownership obviously changes the power and pay structures most dramatically at the level of senior management. I have no data for this, but I would guess that most executives, by far, take the jobs that they do because of the benefits the job offers THEM (power and pay), not others. For senior management to shed so much of these benefits to employees requires a far-sightedness that is quite rare in executive ranks; it seems that the average CEO pay differential (currently at 586 times the lowest paid worker in the organization) is evidence of the prime reason more organizations are not employee owned.
There are two major benefits to an employee owned structure. Firstly, and most obvious, is the motivation factor. The employee’s compensatory success is directly related to their performance.
A second, not so obvious benefit, is the need to hire quality staff as opposed to hiring the warm body that is so prevalent in the retail industry. If recruiters and managers are presented with the task of hiring staff that can directly affect their own success, they will definitely hire with more scrutiny and bring in more quality people. It’s a win-win situation for the company and employees.
The Super Fresh banner of A&P was started 25 years ago with both the union employees and management sharing in the operations of the stores that were resurrected from closed or soon-to-be closed Philadelphia division A&P stores.
That resulted also in profit sharing and special paid dividends. The experiment worked for many years, and the benefit structure was later changed. However many of the elements remain today as benefits to the employees of Super Fresh. The Super Fresh banner has continued to prosper and its existance proves that labor and management working together can benefit both sides.
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What an interesting juxtaposition with today’s first topic regarding Ace Hardware’s considering dumping a form of employee ownership in favor of a traditional corporate structure. While I’d never suggest that a single operating model works best for every type of business, perhaps we can agree that some cross-pollination between companies using different models would be beneficial to all involved.
I worked for eight years at an investment bank making its presentations (graphic design), where the year-end bonus and profit sharing contribution to my retirement were significant. Then at the end of 2004, my position was outsourced to a company I’ll name “B”. I was hired by B and placed at the same desk doing the same work for the same bank. However, the bonus and profit sharing were not included in my salary.
Today, I still make less than I made in 2003. Before, when I saw mistakes or mangled English in presentations, I used to make corrections because I wanted to present the best image possible for the bank. Now, I let everything slide by me because I have no stake in the company’s success whatsoever. And when asked to work overtime or holidays, my answer now is a resounding NO. And THAT (lack of motivation because the profits all go to management) is what’s wrong with many American retailers and companies.
Employee ownership is a great approach, but can backfire. When things are going good, all are happy. During rough times, employees lose interest and blame management. The strength is in motivating and retaining employees. The weakness is capital formation. Employees are investing sweat equity, not cash.
There are four stellar US grocery examples of employee ownership, in whole or in part: Price Chopper (minority but significant); Publix; Hy-Vee (at the store manager level, particularly), and Winco.
All four consistently outperform competitors on comp store sales, all have highly motivated employees, and all have lower than average turnover among trained staff.
The vision for founders to share the wealth this way is rare, but it seems like it generally pays off rather well.
Employee ownership is a great model for any business that expects to profit the old-fashioned way — from delivering products and services to customers. And I think it could go a long way toward rehabilitating the image of American business, especially in this age of private equity funds taking public companies private to avoid what little regulation is left after the gutting of Sarbanes-Oxley.
As for critics’ concerns that employees aren’t sophisticated enough to make tough (or complex) financial decisions:
We’ve seen hordes of financial sophisticates get themselves into plenty of trouble and take entire companies down with them — enough that we might want to think twice and run the other way anytime we see bright people pushing newly invented, highly complex financial instruments.
We know from quality-process and customer satisfaction research that front-line employees generally have a better handle on solving problems at the level of their jobs than senior management can hope to impose from above.
We also know that human beings have a genetic need to belong. It seems to me that employee ownership would help satisfy that by giving folks a tangible stake in the outcome of their work.
And we know that engaged employees raise customer-sat scores, which correlate with growing sales numbers. (Is that a proven causal relationship?)
The only places I can see employee ownership not working are where the main goals are to outdo that pesky 500-to-1 CEO pay ratio and to loot the corporate treasury for the benefit of the top level of management. But we don’t have any companies like that, do we?
There are more employee-owned businesses than some might realize. Law, consulting, software, marketing and accounting firms are often employee-owned, even if all the employees aren’t shareholders. The ESOP tax laws encourage employee ownership, but it seems that the real key comes down to a leader or small group of leaders, with out-of-the-box vision.
Very few retail chains use open book management, disclosing to their store managers the true profit/loss statement of each location, a necessary first step leading to employee ownership. Sometimes it seems that those disclosures and consideration of employee ownership only come when the business is in desperate trouble, not when it’s thriving. Many retailer companies believe that the top three people are the only folks that make the difference, and everyone else is an interchangeable commodity.
Employee ownership obviously changes the power and pay structures most dramatically at the level of senior management. I have no data for this, but I would guess that most executives, by far, take the jobs that they do because of the benefits the job offers THEM (power and pay), not others. For senior management to shed so much of these benefits to employees requires a far-sightedness that is quite rare in executive ranks; it seems that the average CEO pay differential (currently at 586 times the lowest paid worker in the organization) is evidence of the prime reason more organizations are not employee owned.
There are two major benefits to an employee owned structure. Firstly, and most obvious, is the motivation factor. The employee’s compensatory success is directly related to their performance.
A second, not so obvious benefit, is the need to hire quality staff as opposed to hiring the warm body that is so prevalent in the retail industry. If recruiters and managers are presented with the task of hiring staff that can directly affect their own success, they will definitely hire with more scrutiny and bring in more quality people. It’s a win-win situation for the company and employees.
The Super Fresh banner of A&P was started 25 years ago with both the union employees and management sharing in the operations of the stores that were resurrected from closed or soon-to-be closed Philadelphia division A&P stores.
That resulted also in profit sharing and special paid dividends. The experiment worked for many years, and the benefit structure was later changed. However many of the elements remain today as benefits to the employees of Super Fresh. The Super Fresh banner has continued to prosper and its existance proves that labor and management working together can benefit both sides.