Ahh, the worker-owned company. These are often said to be the promised land — the place where all employees are happy whether they’re mid-level managers, individual contributors, or executive leadership.
But is that really the case? What are the benefits of an employee-owned company? And what are the downsides?
In this article, we’ll explore all that and more so that you’re better equipped to make a decision on how you want to structure your business. Read on for the info.
How Does a Worker-Owned Company Work?
Before we get into whether or not a worker-owned company is the right way to go for your business, let’s first get on the same page about how exactly a worker-owned company works.
The first thing to note is that employee ownership does not happen overnight. Instead, employees gain ownership in the company over the long-term. Otherwise, an employee could join, get ownership, and then leave immediately thereafter.
Secondly, employee ownership is usually not simply given to the worker — they have to pay for it. Similar to how they would contribute to a 401(k) or an HSA, workers have to elect to pay towards shares in the company if they want to get ownership in their institution.
In some cases, companies may also contribute to that trust on the employee’s behalf, dependent on the employee’s tenure.
Employee Ownership Pros
There are a lot of advantages to doing an employee ownership program. First and foremost, employee ownership can really work to make your workers feel more involved and invested in work.
Because they have a slice of the pie, it makes it easier for workers to internalize the importance of their work to the overall success of the company and their own personal bottom line. Consequently, you can expect more dedicated workers.
In addition, having employee ownership in the company allows for a more diverse perspective on how the company should be run. Instead of leadership decisions behind limited to the executive team, all of the employees who have a vested financial interest in the company will be able to vote on board-level decisions.
This allows fresh perspectives to be brought in, while most other privately held companies can sometimes seem like an echo chamber.
Employee Ownership Cons
The pros may be good, but employee ownership also comes with several disadvantages. For instance, it’s a hard business structure to set up. You have to set up pay stubs in a way that pay contributions can go towards ownership in the company (click here for pay stub templates).
The other con is that having a lot of owners in the company can result in a “too many chefs” situation. All of the different perspectives can slow down decision-making.
Is This Company Structure Right for You?
There you have it. With this guide on how do employee-owned companies work and their pros and cons, you should be all set to make a decision on whether a worker-owned company structure is right for your business.
Check out the rest of the website for more business advice!
