Monday 8 October 2012

‘Shares for rights’ risks sullying employee ownership

What is it with George Osborne and Adrian Beecroft? Business Secretary Vince Cable openly reckons venture capitalist Beecroft’s ideas on reforming employment law are ‘bonkers’. Yet time and again the Chancellor gives special credence to whatever the leading Tory donor proposes.

Mr Osborne was at it again today in his speech to the Conservative Party conference in Birmingham. Having name checked his friend in a manner otherwise confined only to the prime minister and high ranking Cabinet colleagues, the Chancellor announced a Beecroft inspired change to employment law that, when introduced next April, will allow private sector employees to swap certain employment rights for shares in the companies they work for. Moreover any profits made on the shares held by these new ‘owner employees’ will be exempt from capital gains tax if they do not exceed £50,000.

The plan, detail of which is subject to consultation, is aimed primarily at small and medium sized businesses in an effort to encourage them to hire, although companies of any size can take part. Participating employees will waive their rights on unfair dismissal and redundancy as well as the right to request flexible working and time off to train. Women on maternity leave will also have to give much longer notice of the date they will return to work. Existing employees can choose whether to give up these rights for shares but when hiring new staff employers will be able to offer contracts only on these terms if they so wish. The only proviso is that if an employee leaves, is dismissed or made redundant the company has to buy their shares back at “a reasonable price.”

Mixing the sensible idea of employee share ownership, which can in principle be said to be good for businesses and workers alike, with the populist view, widely held in business circles, that watering down workers’ rights is good for jobs, is clever politics. The Chancellor reckons ‘owner-employees’ amounts to “owners, workers and the taxman all in it together’. But could linking this to reduced workers’ rights prove to be lousy economics?

An obvious problem is limited take-up. For some workers giving up key employment rights for the uncertainty of a return on shareholdings will look like a risky bet, increasing their day to day insecurity with no guarantee of additional reward. However, even if others decide the risk is worthwhile, associating employee share ownership with minimal employment rights undermines the shared interest ethos that makes such ownership successful in the first place.

Having shares in a company is a potential incentive to higher employee performance and productivity not only because of the possibility of greater financial reward but also because it tends to go hand in hand with high trust styles of employment relations. This is the exact opposite of the ‘hire and fire’ business culture that the Chancellor and Mr Beecroft seem determine to instil in the UK. Given, as is well known, that there is no evidence to suggest that watering down workers’ rights would have any significant positive impact on employment levels, why sully employee share ownership with the taint of low trust management and heightened job insecurity.  

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