Employee owned companies shares perform better in the long term according to Employee Ownership Index
22 December 2008
Employee owned companies outperform FTSE All-Share
companies in the long term, according to the UK Employee Ownership
Index (EOI) published by law firm, Field Fisher Waterhouse LLP.
The EOI, compiled by the firm’s Equity Incentives
team, monitors the share price performance of listed companies,
comparing the performance of FTSE All-Share companies with
companies that are over 10% owned by employees.
The EOI has been running since 1992 and shows that
over the 17 year period, employee owned companies have outperformed
FTSE All-Share companies each year by on average 10 %. Over
successive five year periods they have outperformed by 79%, over
three years by 41% and over single years by 10%. An investment of
£100 in the EOI in 1992 would at the end of September 2008 have
been worth £611 while the same investment in the FTSE All-Share
Index would be worth £210.
There are number of possible
reasons for the improved long term performance of employee owned
companies, including:
- employee engagement is generally higher in
employee owned companies, leading to improved performance
- employee owned companies tend to demonstrate
high standards of governance and be more conservative in relation
to growth strategies. This is because they are more
accountable to employees and are under more scrutiny
Graeme Nuttall, head
of the Equity Incentives team at Field
Fisher Waterhouse says:
“The EOI demonstrates that in the long term
employee owned companies do better than FTSE All-Share
companies. These businesses may show short term
underperformance because of their concentration in certain sectors
such as IT and financial services but prove to be more resilient in
the long term. This is likely to be down to the higher level of
employee engagement in companies– surveys by the Employee Ownership
Association have shown that staff work more effectively if they
work within a co-ownership structure. Other factors include the
strategically cautious nature of employee owned companies which
tend to have high governance standards.”
The Equity Incentives
team at Field Fisher Waterhouse produces quarterly reports on EOI
performance and advises on employee ownership solutions for a
variety of business structures as well as in incentive plans for UK
and overseas listed and private companies. They have had detailed
and broad ranging input into Government share plans policy.
For further press information, please
contact:
Louise Eckersley, PR Manager,
Field Fisher Waterhouse LLP on +44 (0)20 7861 4120.