Employee owned companies shares underperform in Q4 but show long term resilience according to Employee Ownership Index
25 February 2009
Employee owned companies underperformed at the close of 2008,
dropping 22.9% compared to the FTSE All-Share which was down 11% in
the last quarter of 2008.
In the long term view however, employee owned companies continue
to outperform FTSE All-Share companies, 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.
Of the employee owned companies in the EOI, 25% outperformed the
FTSE All-Share, with 75% underperforming. One of the reasons
for this is the disproportionate number of financial services
companies in the EOI.
The EOI started in 1992 and shows that despite the current drop
in performance, over 17 years, employee owned companies have
outperformed FTSE All-Share companies each year by on average
10%. Over successive five year periods they have outperformed
by 78% and over three years by 41%. An investment of £100 in the
EOI in 1992 would at the end of December 2008 have been worth £453
while the same investment in the FTSE All-Share Index would be
worth £172.
Possible reasons for the improved long term performance of
employee owned companies include higher employee engagement, higher
standards of governance and conservatism in relation to growth
strategies.
Graeme Nuttall, head of the Equity Incentives team at Field Fisher Waterhouse
says:
“The EOI shows that in the last quarter, employee owned
companies did not perform as well as the FTSE All-Share, in part
due to the large number of financial services business included in
the EOI. However, the EOI demonstrates that in the long term
employee owned companies do better - they may show short term
underperformance but prove to be more resilient over time. 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 020 7861 4120.