Profit-sharing could be Miliband’s ‘right to buy’

Profit-sharing, and options like employee share ownership, incentivise staff to work towards raising company performance and rewards them when successful

Related Topics

The ‘right to buy’ for council house tenants has long been considered emblematic of the Thatcher revolution of the 1980s.

It gave direct expression to the rising aspirations for betterment amongst the skilled working classes, particularly in Southern England, and secured their allegiance to a conservative vision of a property owning democracy. It remains one of the most popular and enduring policies of the last thirty years. It taps into a craving for security, the desire to get on and the need to have a stake in society. Through homeownership, we are encouraged to put down roots, plan for the future and help shape our neighbourhoods. 

Thirty years later, voters’ desire for security and a stake in society are just as strong. Yet they are now undermined by the crisis of living standards and the alienation that many people feel at work.  So where Mrs Thatcher sought to extend security and ownership through selling council houses, Ed Miliband should look to the workplace. He should set an ambition to help more employees take a real stake in their companies, boosting their commitment, driving up productivity and helping to rebuild a more dynamic and resilient British capitalism.

The most straightforward way to do this is through profit-sharing, by distributing a small share of company profits to employees, once a company achieves a certain level of profitability. The John Lewis Partnership provides the most famous example of profit-sharing, but in fact about one third of all British companies use it in some form to reward their employees. Another high-profile case is Sports Direct, where staff who had been with the company since 2009 received shares worth 75 per cent of basic pay when the company achieved profit targets in April 2013.

Profit-sharing isn’t just good for staff. Firms that have adopted profit-sharing and other similar schemes are typically more profitable and see stronger improvements in productivity than other similar companies. Evidence shows that the financial stake that profit-sharing gives to employees induces them to work harder and smarter, and get on better with their colleagues and managers.  These benefits are strongest where all staff share in the rewards – not just the top executives – and where rewards are linked to collective effort, not individual targets.

Profit-sharing, and other options like employee share ownership, incentivise staff to work towards raising company performance and, crucially, rewards them fairly when they are successful. Rather than staff simply demanding higher wages, profit-sharing provides a means through which employees can earn better financial rewards, generating stronger returns for company owners and shareholders in the process. The financial risk to companies and shareholders is limited because profit shares are only generated if a certain level of profitability is achieved.

The overarching goal of profit-sharing is to make British businesses more productive and more profitable. But the central insight is that this is most effective – and most resilient – when we draw on the talents of the whole workforce and reward them accordingly. If every private sector company in the UK with 500 or more employees had a profit-sharing scheme, over 8 million people (43 per cent of all employees) in 3,000 firms could benefit from hundreds of pounds a year.

The number of firms using profit-sharing has been fairly static in the UK over the last decade. Companies stuck in low-value, low-skill business models might need a push to adopt these more dynamic practices. How do we get more firms to adopt profit-sharing and other models like employee share ownership? The first step is to ask employers, investors and employee representatives to come up with some proposals for expanding profit-sharing that suit all sides. A future Labour government might also look at new tax reliefs to encourage worker share ownership, although it’s important to prevent further opportunities for tax avoidance. In France, profit-sharing is compulsory for all larger companies.

In an age of austerity, working people can no longer rely on the state to support rising living standards with more generous in-work benefits. Weak real wage growth that predates the recession highlights the need for bold economic reforms. A commitment from Labour to dramatically expand the use of profit-sharing would signal a renewed commitment to ensuring that working people have a stake in the success of the British economy.

Nick Pearce is Director of IPPR. ‘Sharing profits and power’ is published by IPPR today.

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

SQL Report Analyst (SSRS, CA, SQL 2012)

£30000 - £38500 Per Annum + 25 days holiday, pension, subsidised restaurant: C...

Application Support Analyst (SQL, Incident Management, SLAs)

£34000 - £37000 Per Annum + excellent benefits: Clearwater People Solutions Lt...

Embedded Software / Firmware Engineer

£40000 - £45000 per annum + Pension, Holiday, Flexi-time: Progressive Recruitm...

Developer - WinForms, C#

£280 - £320 per day: Progressive Recruitment: C#, WinForms, Desktop Developmen...

Day In a Page

Read Next
David Cameron's 'compassionate conservatism' is now lying on its back  

Tory modernisation has failed under David Cameron

Michael Dugher
Russian President Vladimir Putin 'hits his foes where it hurts'  

Dominic Raab: If Western politicians’ vested interests protect Putin, take punishment out of their hands

Dominic Raab
Backhanders, bribery and abuses of power have soared in China as economy surges

Bribery and abuses of power soar in China

The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

Highland terriers steal the show at opening ceremony

Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
German art world rocked as artists use renowned fat sculpture to distil schnapps

Brewing the fat from artwork angers widow of sculptor

Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

BBC takes viewers back down memory lane

The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

Nicolas Cage shines in low-budget drama Joe

Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

Fiesta is UK's most popular car of all-time

Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

Make your own ice lollies and frozen yoghurt

Think outside the cool box for this summer's tempting frozen treats
10 best reed diffusers

Heaven scent: 10 best reed diffusers

Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
Commonwealth Games 2014: Female boxers set to compete for first time

Female boxers set to compete at Commonwealth Games for first time

There’s no favourites and with no headguards anything could happen
Five things we’ve learned so far about Manchester United under Louis van Gaal

Five things we’ve learned so far about United under Van Gaal

It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little
Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

Screwing your way to the top?

Good for Lana Del Rey for helping kill that myth, says Grace Dent
Will the young Britons fighting in Syria be allowed to return home and resume their lives?

Will Britons fighting in Syria be able to resume their lives?

Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

Beyoncé poses as Rosie the Riveter

The wartime poster girl became the ultimate American symbol of female empowerment
The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

The quest to find the perfect pair of earphones

Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
US Army's shooting star: Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform

Meet the US Army's shooting star

Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform