A new policy floated by the Labour party could see British companies with more than 250 workers forced to hand over 10% of their equity to staff.
The shares, owned collectively by staff in an “inclusive ownership fund”, will earn workers up to £500 per year in dividends.
In a bid to boost worker pay and productivity, as well as increase staff control, companies could be forced to hand over 10% of their shares to staff, via a collective fund called an “inclusive ownership fund”, according to the FT, reporting from the Labour Party conference in Liverpool.
Under the proposals, unveiled by Shadow Chancellor John McDonnell, staff would not be able to sell shares in the fund, but will be able to receive up to £500 in dividends per year. Any dividend payments in excess of £500 per worker will be taken by the state and added to the public purse.
The fund will be run by a board of trustees – made up of and voted for by staff at each company – which will represent the fund at shareholder meetings.
The target amount of 10% of shares would be built up over the space of 10 years, with companies handing over 1% of shares to the fund each year. According to Labour”s estimates, a total of 10.7 million workers would be eligible for the scheme.
But the proposals have met a sceptical response from some industry commentators. Russ Mould of AJ Bell says while the scheme is “a welcome endorsement of the power of the capital markets to incentivise staff, encourage investment and create wealth, to the benefit of the wider economy,” it has clear limitations. Principally, Mr Mould notes that the cap on dividends “is disappointing.” He says it ends up limiting the incentive on offer to workers and “sets up the Government as chief allocator of extra capital”.
Jason Hollands, managing director of Tilney Bestinvest, has similar concerns. While he is a fan of employee share ownership, he brands Labour”s proposal a “superficial veneer of share ownership.” Staff, he notes, won”t have a direct stake in their business or be able to fully participate in all the upside or exercise their rights to vote on resolutions as they see fit.
Instead, Mr Hollands argues, with control of the fund being via elected “worker representatives”, workers would be handing voting power and influence to those “most able to mobilise for internal elections,” which will most likely be trade unionists. “It will transfer chunks of private enterprise into the control of elected representatives,” he adds. This, he worries, will politicise the private sector.
Mr Hollands also blasts the scheme as “an asset grab and de facto tax raid of seismic proportions.” He notes that companies being forced to “give” shares to staff inevitably means “buying them or taking them away from someone else who has previously paid for them, whether through the open market or by creating new shares to meet this proposed requirement and in doing so diluting existing shareholders”.
At the same time, dividends in excess of £500 going to the state means the scheme is “effectively a stealth tax on businesses, masquerading as share scheme”.
This article was first written for our sister website, Money Observer.