FINANCIAL PARTICIPATION
Employee share ownership can bring impressive financial results
Renewed evidence that companies committed to employee share ownership outperform the market has emerged from research published by Capital Strategies, a corporate finance house.
The employee ownership index (EOI) tracks the weekly share price performance of UK quoted companies with a significant degree of employee ownership. Figures for the first quarter of this year show the index rose by 2.1%, compared with a 5.1% drop in the FTSE all-share index, while the FTSE 100 was down 7%.
What is the index?
Updated quarterly, the EOI is made up of more than 30 companies with at least a tenth of their issued share capital held by, or for the benefit of, employees other than board directors. Since its launch eight years ago, the EOI has consistently outperformed the main market indices, Capital Strategies says.
In fact, an investment of £ 100 in an EOI company in 1992 would now be worth £ 800, whereas a shareholder would have received just £ 251 by investing the same amount in the FTSE 100 index.
Cause and effect
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?
Robert Postlethwaite, director of Capital Strategies, 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.