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What is the Ownership Effect and why does it matter?

What is the Ownership Effect and why does it matter?
What is the Ownership Effect and why does it matter?

Last updated: 18 April 2024

You may have heard us talking about the impact of the so-called Ownership Effect. But just in case you aren’t familiar, we’ve put together a quick and easy guide to explain what it is and why it matters. Let’s jump straight in.

What is the Ownership Effect?

The Ownership Effect is the positive impact that sharing equity has on individuals, teams and the wider business as a whole. 

The term itself was coined in a 2017 independent inquiry led by the Employee Ownership Association (EOA). A panel of cross-industry UK experts gathered evidence to set out the economic case for employee ownership as a business model. 

The final report, The Ownership Dividend, highlighted many positive impacts of employee ownership. Not just on individuals but on businesses and the wider economy.

Since then, the Ownership Effect has become synonymous with the drive for equity inclusion. And by that, we mean giving the team a slice of the action. So, employee share and option schemes, which is where we come in.

Why does it matter?

The Ownership Effect can do wonders.

Evidence shows that when an employee owns even a fraction of equity in a business (in the form of shares or options) they are more inclined to contribute to the success of that business.

More likely to be loyal, work harder, solve problems faster and support the wider team to ensure that everyone gets to share in the success.

Collaboration, engagement and motivation are key ingredients in the recipe for business growth. Put simply the Ownership Effect is good for business

If 250,000 more businesses set up share schemes, it could generate a £2.4 billion boost to the UK economy.

And that doesn't even take into account the transformative impact that having a slice of the pie can have on people's lives. Just listen to Hannah's story.

What's the best way to share ownership?

By this point, we’ve hopefully convinced you that sharing equity is the way to go.

But how does it work in practice? What’s the best way for business owners to share equity with employees? What about advisors and contractors?

Many people think that Ordinary Shares are the only way to do this, but there are around 10 methods of distributing equity.

Many of them are much better in terms of the tax and cost benefits that they provide. Some are ‘conditional’, where equity is only released once certain agreed milestones have been reached.

Eligibility to the four HMRC-approve schemes often depends on the size of the company and the number of employees or intended recipients.

For instance, some schemes are better suited to SMEs and startups. The EMI options scheme is a prime example. 

What's the easiest way to do it?

The traditional process of setting up a scheme is costly, complicated and time-consuming. With this in mind, we are not surprised that more businesses aren’t on board.

However, there is a better way. Design and manage your employee share scheme on a digital equity management platform. Vestd makes sharing ownership a whole lot easier. 

Our Complete Guide to Share Schemes will tell you everything you need to know before you set up your own.

When you're ready, go ahead and book a free consultation with one of our equity specialists.

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