Laura Farris is an employment law barrister and was a Conservative PPC in the 2017 General Election. Guy Opperman is Parliamentary Under-Secretary of State for Pensions and Financial Inclusion, and the Conservative MP for Hexham.
In his Budget announcement on 29 October 2018, Philip Hammond informed Parliament that 3.3 million jobs had been created since 2010 – a rate which comfortably exceeds a thousand jobs per day. This is an extraordinary achievement.
Contrary to the attacks of his opponents, data published by the Office of National Statistics (ONS) on 25 October 2018 reveals that the proportion of those in insecure or low-paid jobs (defined as less than two-thirds of median pay) is now at its lowest since records began in 1997.
Yet despite the spike in employment figures, productivity growth trails that of our major competitors. Measured by output per hour, the UK is approximately 13 per cent below the G7 average.
The reasons for this are varied:regional variations in performance; uneven economic demand; and the under-utilisation of digital technology are among the contributing factors. But it was not for nothing that Hammond told the BBC this month that productivity growth was the “single most urgent challenge” facing the economy in the years ahead.
We don’t pretend there is a silver bullet. However, we have argued that businesses are missing opportunities to maximise the efforts of those they employ and could reap benefits by re-thinking the way they remunerate and engage their workforce.
First, there is untapped potential in employee ownership schemes. These may be well-established payment structures in some organisations, but for the most part remain the preserve of senior staff.
We state at the outset that, unlike Labour, we are not advocating the seizure of capital from shareholders or the imposition of rationed returns to employees. Indeed, McDonnell’s model of employee ownership is a double rip-off: punishing those who have set up their own companies by confiscating large chunks of them, and punishing workers by minimising their ownership stake so that government can pocket the rest.
But we do think that the basic principle of giving workers a meaningful stake in the enterprises in which they work is a good thing and should be expanded. Properly harnessed, employee ownership schemes can have a transformative effect on financial security and business productivity.
Until relatively recently, there was little empirical data as to their impact. That changed last year when the US National Center for Employee Ownership published a report on the impact of Employee Stock Option Plans (ESOPs). The study involved a cohort of 9000 workers from similar socio-economic backgrounds who been followed from 1997 to 2013; a period spanning most of their professional lives.
The results showed that by 2013 those who worked for companies with ESOPs had a 92 per cent higher median household wealth, 33 per cent higher income from wages, and 53 per cent longer median job tenure that those who did not. Significantly these differences applied regardless of gender, ethnicity, family or marital status – cutting across some of society’s major fault lines.
But more striking still was that the ESOP companies that employed them typically demonstrated much higher levels of financial growth over the same period, suggesting that employee ownership enhanced the productivity of the workforce and created value for both businesses and staff.
To increase take-up the Government could extend efficiencies in existing tax arrangements, with employers building them into incentive structures to reward length of service or performance.
Second, and aligned to our first point, we think that employers stand to gain from playing a more proactive role in their employees’ long-term financial well-being. With people both working and living longer, there are plenty of reasons for employers to help staff recalibrate their financial planning and draw up long-term professional objectives.
Aviva, for example, recently undertook a “mid-life MOT” pilot scheme involving a cohort of employees over the age of 45. It offered staff 12 hour-long classroom sessions covering wealth, work, and well-being, and plans to roll-out the scheme to all qualifying staff from 2019.
This is not just window-dressing. Research by Mercer revealed that just 32 per cent of employees in the UK feel that they have the mechanisms in place for financial security in retirement; a figure that falls to 26 per cent for women alone. Anxiety about financial security is the leading cause of work-related stress, itself a major contributor to absenteeism and poor-productivity.
Schemes of this kind can be tailored to meet individual requirements, for example for female workers who might have taken career breaks for family or for older employees who want to re-shape their working patterns. Long-term such schemes can reduce the attrition of experienced and productive talent and enhance the contribution of older members of the workforce.
Finally, survey after survey now shows that the benefit most valued by employees (after pay) is flexible working. A 2018 report by the recruitment consultants Badenoch and Clark found that this preference was now shared nearly equally between women and men but was still the benefit that employees felt most reticent about requesting.
There is scope for radical thinking in this area. Some firms in Silicon Valley are setting new standards in flexible practices. Asana, the software business, sets goals and objectives four months in advance. Employees have no fixed working hours or limits to the time they can take off. Daily attendance is encouraged but beyond that employees set their own schedules and performance is assessed by the attainment of KPIs.
Dropbox has gone one further – abandoning its old system of paid annual leave altogether. Its employees must meet targets but are entitled to unlimited paid time off and “no meeting Wednesdays” which are ring-fenced for uninterrupted work. Both have seen impressive results on productivity. “We have found that when employees are given flexibility, they are far more highly engaged” says Melanie Collins, Dropbox’ global head of people.
Such innovative working methods are unusual in the UK but those who would write this off as a Silicon Valley quirk miss the point. Armed with a smartphone and a laptop, employees across a range of sectors are able to discharge their duties remotely and value the opportunity to do so. We think employers seeking competitive advantage in talent and productivity should actively promote their approach to flexible working as part of the recruitment process.
The recommendations we have made are simple, scalable and cost-effective. If British businesses want to get the best from those they employee, we think these are potential solutions.