Does encouraging staff share ownership improve company performance?

The latest data shows that share price performance is better when employees own shares in a company.

A few weeks ago I was at the unveiling of the latest FTSE-calculated UK Employee Ownership Index (this is an index based on the performance of UK quoted companies with more than three percent employee ownership (excluding board directors)).

We were shown how, In 2014, the index rose by 5.8%, whereas the total FTSE all-share rose by just 1%.

During the presentation, I found myself questioning whether this this means that companies that promote employee share ownership will reap the rewards in terms of their share prices?

If only it were so simple.

There is clearly something causing the significant difference, but too many companies with employee share ownership saw falls in share prices in 2014.

Nigel Mason of Capital Strategies, which did the analysis, explains: “After we have stripped out the biases in the index, such as trade sector and company size, we are left with an unexplained variance which we can only attribute to the way these companies are run.”

But I, for one, can’t help asking if staff are more likely to participate in a share scheme if they believe their company is doing well and they can anticipate good returns? But won’t if they do not think they will profit by participation.

So does employee share ownership cause better performance or does better performance lead to more employee share ownership?

Either way, Esop Centre chairman Malcolm Hurlston CBE feels that: “High employee share ownership is a proxy for a culture of employee engagement.”

Whatever the reason, these type of results have given rise to a potential new investment fund from Capital Strategies that includes companies with high levels of employee share ownership.

So someone feels it is worth a punt. And I have to say, I agree.

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