How to keep employees engaged in your employee-owned business

In the latest article in our series, Employee Ownership Trusts: Looking to the Future, our guest author, Jeremy Gadd (Partner in Telos Partners Ltd and Founder of J Gadd Associates) discusses the importance of employee engagement for employee-owned businesses.

What interests do employees hold in an Employee Ownership Trust (EOT)?

An EOT is a special type of discretionary trust which is established by a company, for the purpose of acquiring a controlling interest in that company.

The employees of the company do not individually hold shares in the company. Instead, as the employees are the beneficiaries of the EOT, the EOT holds the shares directly for the benefit of the employees – this represents indirect employee ownership.

What value can keeping your employee owners engaged add to your employee-owned (EO) business?

Successful employee ownership can be a force for good, as well as offer a competitive advantage for your business. Yet while, commercially, EO businesses have been shown to be more productive and invest more in supporting employees’ wellbeing and career development (according to Employee Ownership Association research), it’s a myth that employees will automatically feel engaged in it – or even ‘get’ what employee ownership means.

One reason is because, in an EOT ownership structure, the employees do not hold shares directly in the EO business and therefore have no voting rights or right to receive dividends. Another reason is because there’s no legal definition of EO: you have to create your own version of it. Enabling your employee owners to understand the rights, responsibilities and rewards of employee ownership will go a significant way to helping them ‘get it’ – and your business to unlock the benefits of being employee-owned. But you need to invest time and energy here because this won’t happen by itself.

What are the biggest barriers to employee engagement once a business has transitioned to an EOT?

The barriers are often more perceived than real but, in my experience, one of the main barriers to engaging employees in employee ownership is that people over-complicate things. And, as already mentioned, the assumption that your employees will automatically ‘get’ what employee ownership means because it’s a ‘good’ thing.

There might also be some nervousness around the change and unrealistic expectations of what the transition to employee ownership will bring.

If your business previously had a founder/owner or leader with a ‘command and control’ leadership style that can also be a challenge – as can having a complex business where people aren’t connected or are geographically remote.

What are the opportunities for employee engagement once your business has transitioned to an EOT?

The good news is there are so many opportunities to engage employees once you’ve become employee-owned – provided you create a clear plan and actively invest in enabling them to take more personal responsibility for the success of the business.

Becoming employee-owned gives you the opportunity to have a different conversation and gain employees’ psychological discretionary effort. As employee owners, they’ll share in the rewards of ownership. Those might be a share of the profits, as well as a greater ability to influence and participate in a business where their input makes a difference.

But it’s crucial they understand that with opportunity comes the responsibility to build that success. You must create a narrative for change and bring it to life – clarifying how you want your employee owners to participate and providing the timely, relevant support they need to do this effectively.

You’re ‘onboarding’ your people to employee ownership. Depending on the strength of your business’ purpose, culture and engagement before you transitioned this can be hard work – but the benefits can also be huge.

What are your top 5 tips for keeping employees engaged when your business has become employee-owned?

1. Explain clearly what employee ownership is (and isn’t) and why the transition to an EOT ownership structure was selected as the best option for the business. Set the decision in context, explaining what alternatives were rejected and why. Focusing on the commercial/cultural reasons why employee ownership is the right path for the business will help employees feel motivated and engaged in the start of something new.

2. As you transition, set out what your first year as an EO business will look like. Be honest about what will change and what will stay the same. Clear communication at this stage is key.

3. If you’re creating new roles linked to your EOT governance – perhaps employee trustees for your EOT trustee board or employee representatives for your employee forum – make sure each person gets the expert training, support and time they need. Investing in their development from the start will enable them to be more effective and maximise the value they can add.

4. Don’t worry if not every employee owner is actively interested in the fact you’ve become employee–owned – as long as their work is still good and they’re adding value to the business, that’s okay. Instead focus on those employees who are interested in employee ownership and offer them opportunities to become more involved, demonstrating the link between opportunity and reward.

5. Finally, remember that transitioning your business to an EOT is the start of a longer journey, so there’s no need to run headlong into lots of activity right at the start. Instead, pace yourself and prioritise the areas that will have the biggest impact over the longer term. As your employee ownership evolves, other things will change naturally too.

About Jeremy

Jeremy is a Partner at Telos Partners Ltd and founder of J Gadd Associates (JGA). Following JGA’s merger with Telos Partners in January 2025, he supports business owners, leaders, boards, teams and representative bodies to unlock the benefits of being employee-owned for their business – whatever its size, sector or stage of employee ownership.

How can TLT help?

TLT has been a leading firm active in the employee ownership sector for a number of years. Our specialist, and experienced, employee ownership lawyers have a diverse range of clients in England, Wales, Northern Ireland and Scotland.

We provide insightful strategic direction to employee-owned businesses at every stage of their journey and have led a number of the most high-profile employee ownership transactions within the UK.

If you are interested in discussing any of the topics covered in this article, get in touch with Jeremy (info@jgadd.co.uk) or TLT’s employee ownership specialists below.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at April 2025. Specific advice should be sought for specific cases. For more information see our terms & conditions.