UK Employee Ownership Index
Background
The UK Employee Ownership Index is an index of the share prices
of UK public companies quoted on the London Stock Exchange and AIM
which have 10% or more of their issued share capital held by or on
behalf of employees other than main board directors.
The idea for the index came from the USA where a similar index
was maintained during the 1990s. The index is used to test a
hypothesis that substantially employee-owned businesses perform
well over the long term, thanks to their highly engaged staff, high
governance standards and long term outlook. The hypothesis has been
positively affirmed in academic literature and so the index is a
practical step to explore an investment thesis, namely that
employee-owned businesses produce good long term shareholder
returns.
The UK index was started in 1995 (backdated to 1992) and
calculated quarterly and on a consistent basis ever since.
Methodology
Substantially employee-owned businesses are identified through
press coverage, annual reports and disclosures of significant
shareholdings, which can reveal sizeable holdings by employee
benefit trusts. Broad-based ownership, as opposed to
concentrated executive-only ownership, is a requirement for
inclusion. The constituents of the index are reviewed quarterly for
possible changes. It is likely that the index is omitting
some eligible companies which have not so far been detected.
There are currently around 20 companies in the 10% index but
there have been as many as 44, in the so-called “dot com boom” in
1999-2000.
The main index requires a 10% employee ownership threshold to be
passed, but there is also a subsidiary 3% threshold used in a
related index, which acts as an occasional feeder of companies for
the main index.
The index is not weighted by market capitalisation and is a
capital-only index, i.e. no account is made for dividends. There is
a good spread of companies by size, but a sectoral bias exists in
favour of support services, financial services, IT and media.
Closing share prices are captured daily. Various benchmark
indices are also maintained: the FTSE All-Share, the FTSE AIM and
the FTSE Small Cap.
Performance
The index has consistently outperformed the FTSE All-Share over
3, 5 and 10 years. Quarterly performance announcements are
issued.