Thoughts from the City

How to motivate staff?

Employee-owned businesses grew sales faster and created more jobs during recession

The John Lewis Partnership was back in the news this week as the annual announcement of its bonus round for workers hit the headlines.

The 14 percent of salary payout for all partners - equivalent to seven weeks’ pay - is a far cry from the kind of bonus enjoyed by top flight bankers in the City of London. Not surprising then that media coverage of John Lewis’ results was positive. It has also attracted admiring glances from policymakers in Whitehall.

John Lewis’ employees own the company so any rewards they reap are justified. They work hard to grow sales and profits and are recognised accordingly, so rarely the case among the Square Mile denizens who have found themselves the targets of the most vociferous critics.

Alongside the 2011 results, John Lewis chairman Charlie Mayfield suggested more companies should follow the partnership model. While Mayfield admitted partnership may not be suitable for every kind of business, during a recession the model of co-ownership could be one way of helping to kick-start economic growth.

The City of London is no stranger to partnerships. Law and accountancy firms, brokerages, and investment banking boutiques apply similar principles. And a host of other mutual organisations such as insurers operate slightly differently in that they are owned by policy holders rather than workers.

Founder John Spedan Lewis’ objective for the partnership was to create success that could be measured by the happiness of its workforce and by its good service to the community.

It’s a far cry from the mission of boosting financial value that’s at the core of the public limited company model. Company boards have to answer to their increasingly short-termist shareholders who are sensitive to even the slightest wobble in the share price.

In contrast, a partnership can build for the longer-term when employees are offered a greater stake in the business they work for.

The partnership model is understood to work best for service industries, where individuals can focus on ensuring their own interaction with customers produces a positive result. This is just one reason why partnerships can shine during good times or bad.

On the downside, for companies that need large amounts of capital to fuel growth, partnership status presents a unique set of challenges. They cannot raise money in the capital markets like quoted companies. As they are owned by the workers they are unable to sell equity stakes. And more stakeholders means making decisions can be long-winded.

But employees have much more at stake when they are actively engaged in running the operation and not just cashing a pay cheque at the end of the month. Shared interest in the business’ success is a powerful motivator and natural creator of teamwork.

Little wonder then that a Cass business school report found employee-owned businesses grew sales faster and created more jobs during recession than their conventional rivals.

The report also found partnership businesses had employees who were more committed to delivering quality and were more flexible to meet the organisation’s changing demands.

These are crucially important factors during tough times.

Tags: bankers' bonuses, bonus, employee-owned partnerships, john lewis partnership, management

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About Author

Ben Griffiths is City News Editor of the Daily Mail. He's covered City and financial news for a decade, including at the Press Association news agency and The Herald newspaper, and was an integral part of the editorial team that launched business and financial daily City A.M.

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