Just as you thought it was safe to go out, along comes the Tory party conference with the Chancellor of the Exchequer looking to grab the headlines – and succeeding.
Yesterday he announced a plan to create a new class of employment status: Owner-Employees. In an echo of Margaret Thatcher’s plan to create a nation of owners by allowing people to buy council houses and have shares in their utility companies, George Osborne wants to create a nation of shareholders, provided they agree to give up certain employment rights such as unfair dismissal, redundancy payments, flexible working and the right to ask for training. Mothers returning from maternity leave will have to give 16 instead of eight weeks notice of their return. In consideration of these sacrifices, owner employees will be entitled to receive between £2,000 and £50,000 of shares in their employer, and any gains will be exempt from Capital Gains Tax (CGT). In Osborne’s case though, his primary motivation isn’t to make us all entrepreneurs but to remove fundamental employment rights.
The proposal is said to be aimed at any companies, but particularly small and medium sized businesses looking to expand.Existing employees will have the opportunity to opt in. However, new employees may not have that choice, because companies can choose to offer only this type of employment contract. It is proposed, somewhat ambitiously, that owner-employee contracts will be introduced in April 2013
You can see where the Chancellor is coming from on this one: if you give all employees a stake in the business, no matter how small, but with the promise of jam tomorrow, they will be incentivised not to spend their energies in asserting their legal rights but in working hard to make the company prosper. It might work for some people but not all. In small start up companies I can see it could be very attractive, helping to build a “we’re all in this together” ethos. But would that be the case in a very large corporate? Won’t the shares be seen as just another fringe benefit, tossed down like a crumb from the high table along with health care, life insurance and subsidised gym membership? Employee engagement is unlikely to be significantly engaged, particularly if the employer only gives out £2,000 of shares. Unless the scheme can be implemented “off-the-shelf”, small businesses are not going to want to spend money on professional fees in setting it up.
The scheme is said to be aimed at small to medium companies, yet it only makes sense for large companies that are listed on a stock exchange where the shares can be easily traded. For privately owned companies (which is what most small companies are) there is no ready market for their shares. The value of them depends on what the other shareholders will agree to pay and it is only the other shareholders that will buy the shares: members of the public cannot. Consequently this scheme creates a system whereby the only likely purchaser of the shares dispensed at the beginning of the employment is the employer itself.
The prospect then is for companies to be able to grant the minimum number of shares and then buy them back at an arbitrary (read low) value when the employee is dismissed.
The Press Release from HM Treasury stated that the buy-back and forfeiture provisions have yet to be drafted, to ensure that the company re-purchases the shares at a reasonable price. They will make interesting reading.
Investment banks will love the scheme as it is almost custom made for them. Giving employees £2,000 of shares will be much cheaper than having to fund redundancy packages on termination.
What will the Lib Dems make of this? I was heartily amused when I read that the Business Secretary, Vince Cable, who is supposedly responsible for employment law was yesterday beginning a tour of West Africa. While the cat’s away! I expect that this proposal may not have an easy gestation in Whitehall.
For some other articles and tweets on the subject try these;