One of the most common assumptions about employee ownership is that everybody should be rewarded in exactly the same way. It is an attractive principle. It is not always the right commercial answer. Employee ownership is built on fairness — but fairness is not necessarily the same as identical treatment.
The senior leadership team will often carry responsibilities that are materially different from the wider workforce. They may be expected to develop strategy, secure finance, win major clients, lead acquisitions or deliver ambitious growth over many years. Some employee-owned businesses conclude that those additional responsibilities justify additional incentives. Others disagree. Neither approach is inherently right or wrong — it is simply a commercial decision each business must make for itself.
Start with the problem
The temptation is often to begin by discussing shares. That is usually too early. The better question is: "What are we actually trying to achieve?"
- Are you trying to retain someone who could easily leave?
- Recruit someone with specialist expertise?
- Encourage long-term growth?
- Reward exceptional performance?
- Create succession within the leadership team?
Each objective may point towards a different solution.
Shares are only one answer
Receiving shares is often presented as the obvious incentive. Sometimes it is. Sometimes it is not. Shares involve risk — their value may increase dramatically, or not at all. Some senior employees are comfortable with that uncertainty. Others are not.
Some would genuinely prefer:
- higher guaranteed salary;
- larger annual bonuses linked to measurable performance;
- enhanced employer pension contributions;
- additional annual leave;
- long-term cash incentive plans;
- deferred bonus arrangements;
- private healthcare or other benefits.
The right answer depends on the individual. Good incentive design starts with listening rather than assuming.
Every incentive should have a purpose
The other common mistake is rewarding people simply because they are senior. The better approach is to decide what the business expects in return. If someone is receiving additional rewards, what outcomes justify those rewards — revenue growth, profitability, retention, innovation, leadership, successful succession? The incentive should encourage behaviours that genuinely increase the long-term value of the business.
Employee ownership changes the conversation
An Employee Ownership Trust already creates a powerful collective incentive: everyone benefits when the business succeeds. Additional management incentives therefore need to complement that wider ownership culture rather than undermine it.
The objective is not to create two classes of employee. It is to recognise that some individuals may carry responsibilities that justify additional commercial arrangements. Done well, the wider workforce usually understands that distinction. Done badly, it can damage trust.
There is no standard model
Some employee-owned businesses deliberately avoid any special incentives. Others use carefully designed EMI schemes. Others rely entirely on cash-based incentives. Many combine several approaches. The important point is that the incentive should fit the culture of the business, the commercial objectives of the owners and the expectations of the leadership team. Our guide to employee share schemes sets out the main options in more detail.
The businesses that succeed are usually those that spend more time deciding why they are incentivising people than how. If you are weighing up how to reward your leadership team fairly, talk it through with us.