Nick Clegg says Britain should develop “more of a John Lewis economy”. But what exactly is the deputy prime minister proposing? And could it work?
In a speech on the economy, the deputy prime minister said capitalism was not the problem, but a lack of employee share ownership was. “We need more individuals to have a real stake in their firms. More of a John Lewis economy, if you like.”
Mr Clegg said firms owned by their staff “often perform better: lower absenteeism, less staff turnover, lower production costs; in general, higher productivity and higher wages”.
The 1980s were “the decade of share ownership”, he said. “I want this to be the decade of employee share ownership. But it won’t happen at all without government taking a lead, so I am kickstarting a drive in government to get employee ownership into the bloodstream of the British economy.”
Mr Clegg said one option to boost employee ownership could be giving employees a “right to request” shares in their companies.
The deputy prime minister is not the first politician to single out the John Lewis Partnership, the owner of John Lewis and Waitrose, for praise. As David Cameron extols the virtues of the “Big Society“, John Lewis is frequently cited as a business model to follow.
In 1928, the company’s founder, John Spedan Lewis, handed over the firm to its employees. It now has 76,500 staff, known as partners, who own the company and share in its profits. In 2010-11, when the company made profits of £431m, this share was worth 18 per cent of salary.
The percentage paid is the same for every employee, from the chairman to the shop floor. The highest paid employee is chairman Charlie Mayfield, who earns £868,000 a year. The company’s constitution says he is not allowed to earn more than 75 times as much as the lowest paid employee.
This sounds like a big difference, and it is, but a recent survey showed that executives at Britain’s biggest public companies typically earn 120 times more than the average salary at their firms.
I think it is certainly something that can be implemented. It’s fairly easy for a company to gift or pay people in this way. Rob Harbron, CEBR
Could the John Lewis model be followed by other companies? Rob Harbron, an economist at Centre for Economics and Business Research, believes it can, as long as employees are prepared to accept that their livelihoods are affected by the financial strength of their companies.
“When you’re a small company and you feel a part of it, it can probably make a substantial difference to the outcome of the company. But with large companies, it is more difficult to make a difference,” Mr Harbron told Channel 4 News.
“I think it is certainly something that can be implemented. It’s fairly easy for a company to gift or pay people in this way. But some employees may not want their earnings tied to the performance of the company.”
FactCheck: why Clegg’s right about the “John Lewis economy”
A spokesman for the Institute of Directors told Channel 4 News that mutual companies, like John Lewis, could work very well, but he said giving staff a right to request shares in their firms would cause problems for many companies.
“The right to request can produce quite a lot of admin,” he said. “That is an extra burden on employers if they have to give a reason to turn it down. That is something we would be concerned about.
A right to request will inevitably create red tape. For small employers, it’s a bit of a headache. IoD
“A right to request will inevitably create red tape. It’s something businesses have a big problem with at the moment because of the right to request time for training. For small employers, it’s a bit of a headache.”
He said the John Lewis model was not always appropriate. “You probably couldn’t replicate it across the economy. How practically would you implement it? Everyone already has the right to buy shares in publicly-listed companies. Would you force private companies to list? Why should owners of companies have to provide shares to employees if they don’t want to?
Neil Carberry, from the Confederation of British Industry, said: “Many firms already choose to offer employee share ownership schemes, with one-third of the workforce already eligible to participate, and these schemes can in many cases incentivise improved personal and company performance.
“However, such schemes must work within the wider company strategy, as securing the long-term health of a business is ultimately the greatest benefit for employees and shareholders.”
What is the John Lewis model?
The John Lewis Partnership is owned by its 76,500 staff, known as partners, who work for John Lewis and Waitrose.
It says its "ultimate purpose is the happiness of all its members" and that it pays its employees the market rate for the job they are doing "and as much above that as is justified by performance".
There is an annual bonus/share of profits and a non-contributory final salary pension scheme, a benefit very few other companies offer.
Bonuses are typically 10-20 per cent of salary.
The John Lewis Partnership made profits of £431m in 2010-11.
The highest paid member of staff, the chairman, is not allowed to earn more than 75 times as much as the lowest paid employee.