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Government to broaden share ownership schemes to increase staff retention and boost business performance

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The Government is to reform the tax system to encourage employee share ownership.

Speaking yesterday to business leaders at the Centre Forum think tank in Mansion House, the deputy Prime Minister Nick Clegg (pictured), said he would create a "John Lewis economy" by increasing employee share ownership schemes and making it easier for employers to take part.

The idea behind the plan is that companies owned by employees, tend to perform better meaning share schemes encourage business growth.

Clegg said: "What many people don't realise about employee ownership is that it is a hugely under-used tool in unlocking growth.

"I don't value employee ownership because I believe it is somehow 'nicer', a more pleasant alternative to the rest of the corporate world. Those are lazy stereotypes.

"Firms that have engaged employees, who own a chunk of their company, are just as dynamic, just as savvy, as their competitors. In fact, they often perform better."

ifs ProShare, the industry body for the employee share ownership industry in the UK, says 44% of eligible employees already participating in a Save As You Earn scheme (SAYE), according to its latest annual survey,

John Collison, head of ifs ProShare hopes the Government announcement will mean more employees will see the benefits of this tax efficient, low risk method of saving.

Collison said: "We have been in frequent contact with the Government as they have been considering making such schemes easier for employers to implement and therefore available to more employees.

"Share plans often strengthen employee - employer relationships and give all employees the ability to share in the success of the company they work for. Companies benefit from a more engaged workforce when employees know their efforts are directly contributing to the value of the company and the value of their share holding. "

Catherine Wilson, employment partner at law firm, Thomas Eggar, said: "The perceived advantages of employee share ownership have been well documented and include greater employee motivation and loyalty. This in turn should improve employee retention and productivity as well as hopefully discouraging employment claims.

"If this new 'right' is introduced, employers will need to have a formal agreement in place to adequately deal with the allocation and disposal of shares. In the case of an unlisted company then any scheme would need to include the creation of an internal market for the shares to be sold. The costs associated with both the creation and administration of such a scheme could be quite considerable. Employers will also need to define who is entitled to qualify for share ownership, for example, what is an appropriate minimum service requirement and how the scheme should treat women on maternity leave, staff taking career breaks and those absent on long term sickness. Consideration will also need to be given as to the often vexed definition of good and bad leavers.

"Other legal implications are unclear at this stage. It is not clear whether employers will be permitted to require their employees to accept a lower salary in return for getting shares, thus requiring a change to the terms and conditions of employment contracts.

"Smaller employers may also fear a dilution of share ownership and the resultant lack of control over key business decisions. Historically, certain schemes attract considerable tax advantages if they are approved by HMRC but again it is not clear whether these tax benefits will apply to the new style schemes. Even employment law claims relating to dismissals may become slightly more complex as this additional benefit will need to be taken into account when calculating loss.

"Perhaps most importantly, some care will be required to manage employee expectations not least because of the unpleasant truth that shares may go down as well as up."

Paul Randall, partner at law firm Ashurst, added:"Share plans for all employees are long overdue for a boost. They were immensely popular in the 1980s and 1990s. Under the last Government they were made over-complicated and unattractive. All the research indicates that employee share ownership is good for employees, good for companies and so good for the economy as a whole."

Click here to find out more about John Lewis' model in an exclusive interview with its personnel director Tracey Killen.