The Co-operative Party will today call for the creation of a “John Lewis” Economy, where employees are able to share in the ownership, decision making and profits of Britain’s businesses.

Drawing on the lessons of the successful retailer, the Co-operative Party’s will publish its policy ‘Agenda for Britain’ which calls for:

Every company with more than 50 employees to be obliged to set up a profit sharing scheme with their staff.

The introduction of a ‘duty to involve’ employees in company decision making.

Employees to be represented on company boards

Changing the tax incentives on employee ownership so that they are targeted at schemes that give employees a collective, democratic voice.

Statutory right to request employee ownership during business succession

The influential Party, which is Sister Party to the Labour Party and has seats on Labour’s National Policy Forum, was last week praised by Labour Leader Ed Miliband as ‘shaping’ Labour’s policy thinking as he endorsed Co-op Party policy proposals to support co-ops and mutuals and create a right for workers to request employee ownership. Today, the Co-operative Party will urge him to go further.

In addition, the policy document will make the case for more ‘people-powered public services,’ and the reform of broken markets such as energy, financial services and transport through co-operative values and principles.

Populus polling commissioned by the Co-operative Party – also published today – shows that more than three quarters of British public endorses the Party’s proposals:

76% are in favour of employees having a bigger say in how a company is run

76% are in favour of the Government introducing compulsory profit sharing in the UK – including 47% strong support

78% believe they should have more of a say over how the NHS is run, 75% over social care, 74% over transport, 71% over local public services and 77% of parents want more of a say over how schools are run

The Co-operative Party’s plans for compulsory profit sharing would affect 53% of the people currently employed in the UK. At one FTSE 100 company, the profit share for the average worker could be almost £4,000 per year.

Gareth Thomas MP, Chair of the Co-operative Party National Executive said:

“Even David Cameron says that Britain needs a pay rise but you have to will the means not just the ends.” “While there are some great British companies, such as John Lewis, that succeed through a shared economic approach with their employees, too many British firms are still basing their models on low-wages and low-skills. This has contributed to an economy where success no longer feeds into higher wages for the working majority, but is simply funnelled into ever greater rewards for those at the top.” “More needs to be done to ensure that business operates in all of our interests. Through allowing employees to share in the ownership, decision-making and profits of Britain’s businesses, a ‘John Lewis’ approach would allow Britain to better harness and reward the efforts of the whole of its workforce. “Ed Miliband is spot-on when he says we need an economy that works for working people. The Co-operative Party believes this is the way to do it.”

Notes to Editors:

The Co-operative Party is The Co-operative Party is the political arm of the co-operative movement and Labour’s sister party. There are 31 Labour & Co-operative MPs, 9 Welsh Assembly Labour Co-operative members, and hundreds of Labour & Co-operative local councillors.

The Co-operative Party’s ‘Agenda for Britain’ is available at http://2015.party.coop

The polling was undertaken by Populus on behalf of the Co-operative Party on 7&8th January 2015. They polled 2096 adults. Full polling statistics available on request.

For further information contact Claire McCarthy on 07702 512357 or Robbie Erbmann on 07861 388471.

Background:

Over the last 40 years, the share of national income paid out in wages is falling. In 1975, 66% of GDP was paid out in wages to employees, by 2011, this figure had fallen to 54%.

Average real wages have been stagnating for more than ten years. Despite the economy growing by more than 10% between 2003 and 2008, median weekly earnings fell by 0.2% per year for men and only went up by 0.3% per year for women.

All this while fixed costs such as food, transport and energy have risen, leading to the largest fall in living standards since the 1870s.

Yet not everyone has shared in this pain. Over the past 30 years, the top 1 per cent of earners have consistently been able to secure large pay rises, regardless of the economic conditions which seem to affect the wages of everyone else.

Profit sharing ties employees into the fortunes of their company, and offers a way for all employees to share in the successes that they helped generate. Employees only see a share of the proceeds if the company performs well, ensuring that collective performance is rewarded, without tying businesses into pay deals that they may not be able to afford in the long-term.

There is strong evidence across a number of studies for the positive impact of ‘John Lewis’ (employee ownership, profits sharing, workplace democracy) schemes on factors that tend to influence productivity. In the largest US study of its kind, which surveyed nearly 40,000 employees in 14 companies, employees participating in at least one form of scheme reported greater commitment and effort from colleagues, more teamwork, better relations with managers and a more positive workplace culture.

Academic research also suggests that where employees share in company decision-making, this tends to restrain executive pay, meaning that wages of senior managers are less likely to run away from their employees.

The degree to which employee ownership boosts productivity can be seen in the performance of part employee owned companies, which have consistently outperformed their PLC rivals. In cash terms, an investment of £100 in the Index of employee-owned companies would have been worth £754 at the end of September 2014. The same amount invested in the FTSE All-share would have been worth just £280

Employee ownership and profit sharing gives staff an incentive to raise company performance and rewards them fairly when they are successful. Shared decision making allows employees and managers to work together to resolve problems and raise productivity. Through creating a partnership between management and employees, a ‘John Lewis’ approach it can provide the means through which higher returns for both staff and owners can be generated and shared.

Specific proposals include:

Profit sharing – The Co-operative Party is calling on Labour to legislate to ensure that all businesses with more than 50 employees are obliged to set up a profit sharing scheme with their staff, with a minimum profit share pot set aside based on a calculation of its annual profits and its financial position.

This is based on similar legislation in France, where companies can choose to distribute rewards either as a flat rate to employees, in proportion to wages, in proportion to the hours worked in the previous year – or a scheme based on the combination of these principles.

It is thought that the prevalence of profits sharing schemes, along with other mandatory ‘John Lewis’ approaches in France, makes a major contribution to much higher levels of productivity than we currently see in the UK. In 2012 (the most recent year for comparison), France had the second highest level of productivity per hour worked in the G7, more than 30% higher than the UK, which is languishing in sixth.

The latest figures from the Office for National Statistics on company size suggest that there are approximately 36,000 companies with 50 or more employees in the UK, employing a total of 12.9 million people. This legislation would therefore affect around 53% of the people currently employed in the UK.

Under the French model, every company with more than 50 companies must establish a special profit sharing reserve based on the formula: PSR = 1/2 x (TP – 5%E) x (W/VA)

(PSR stands for profit sharing reserve. TP stands for taxable profit. E stands for company’s equity. W stands for company’s wages. VA stands for company’s value added).

Under this formula, last year:

The average employee at BT group would have received a profit share of £3,843

The average employee at Whitbread (owners of Premier Inn, Costa Coffee and other hotels and restaurants) would have received a profit share of £1,720

The average employee at Next would have got a profit share of £1,846

The average employee at Capita would have got a profit share of £2,041

‘Duty to involve’ – In the European ‘stakeholder’ approach to business, employees are given a formal role in making decisions about how a company is run, with works councils operating in most workplaces. While many of the UK’s largest companies operate forums that allow employees a consultative role in decision-making, overall a smaller proportion of UK staff have access to these forums than their counterparts in most European countries.

The Co-operative Party is calling for all publically listed companies to have a ‘duty to involve’ their employees. This would require employees to be involved in decision-making and to be consulted on decisions such as working conditions, changes to staffing and reorganisations, as well as the distribution of pay and profits.

Employees on company boards – The Co-operative Party is calling for company law to be modified to ensure that representation is given to employees and other identified stakeholders in all publically listed companies.

In 17 out of 27 EU member states, employees working in companies over a certain size have a right to be represented on company boards. The UK is in the minority of countries where employees do not have this right, and one of only two EU15 countries where employees have no right to representation at board level.

Tax incentives for employee ownership – As it stands, the government spends £615 million per year on tax incentives for employee ownership – which is poorly targeted towards individual shareholdings and the remuneration of senior executives.

The Co-operative Party is calling for tax relief to only be offered to all-employee share ownership schemes, which require employees to purchase and hold shares for a number of years to benefit, saving the government £285 million per year.

It is calling for £50 million per year to be invested in giving permanent employee benefit trusts the same tax treatment as other schemes, with the other £235 million targeted at schemes that give employees a collective, democratic voice.

Statutory right to request employee ownership – Employee buyouts can often be an attractive route for business succession because they transfer ownership to people with a genuine interest in an enterprise’s long-term success, and so increase the likelihood of the enterprise continuing to trade and provide jobs locally.

The Co-operative Party is calling for legislation to give employees a statutory right to request employee ownership during business succession. Alongside a more proactive approach from the government, this may prevent the needless disposal of viable businesses – with employee buyouts occurring before threats to jobs and enterprise become inevitable. This proposal was adopted by Labour in an article written by Ed Miliband last week in the Co-operative News.