Companies committed to employee share ownership outperform market
Giving your employees a significant stake in the ownership of the business could help your company achieve startling financial results, according to the latest figures from the employee ownership index (EOI), compiled by Capital Strategies, a corporate finance house.
The index tracks the weekly share price performance of UK quoted companies with a significant degree of employee ownership. Figures for the fourth quarter of 1999 show that the index outperformed all the main stock market indices, with a rise of 48%.
According to Robert Postlethwaite, director of Capital Strategies, this was largely due to strong performance from IT companies, which are strongly represented in the EOI sample. The FTSE indices, with a more equal sector spread, had a respectable but still considerably thinner quarter, all increasing by between 15% and 16%, he says.
The EOI measure, which is updated quarterly, comprises some 35 companies with more than 10% of their issued share capital held by, or for the benefit of, employees other than board directors. Since its launch in 1992, the EOI has consistently outperformed the main market indices, Postlethwaite says.
An investment of £ 100 in an EOI company in 1992 would now be worth almost £ 700, whereas a shareholder would have received just £ 248 by investing the same amount in the FTSE 100 index.
But there remains the thorny issue of cause and effect. Put simply, it's one thing to demonstrate that successful companies have significant levels of employee ownership. But have they been successful because they offer these types of incentives? Postlethwaite admits it would be unwise to make bold claims of any direct causality between employee ownership and share price growth. Rather, he feels equity ownership often goes hand in hand with more enlightened management practices.
It is clear from Capital Strategies' own experience that employee-owned companies tend to feature progressive approaches to management and communication most often associated with best practice and top performing companies.
Want to know more? If you would like to find out more about the index visit the Capital Strategies web site . . . www.capitalstrategies.co.uk
To contact Capital Strategies, tel: 020 7256 8000.