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How employee owned companies outperform their rivals

FTSE-listed companies which encourage employees to purchase shares outperformed those that did not by as much as 30% last year, according to the index published by the corporate finance firm Capital Strategies, with the support of the Esop Centre (on whose February 2014 newsletter much of the information in this blog post is based- my thanks to them).

The 69 companies that are at least partly employee owned were tracked by the new UK Employee Share Ownership Index (Esop Index) and were shown to deliver total average returns – by share price – of 53% in 2013, more than twice as much as the 21% average returns delivered by all 623 companies on the UK FTSE All-Share Index.

Here’s a table comparing the performance of the ESOP companies with FTSE ones over the 10 years up to 2013:


ESOP Index (TSR)

ESOP Index

% increase

FTSE All Share

% increase

2002

100.0

2003

171.9

71.86 20.7

2004

213.1

23.97

12.8

2005

318.0 49.26

21.8

2006

434.4

36.60 16.8

2007

382.3

-12.01 5.3

2008

212.9 -44.31

-29.8

2009

325.9 53.08

29.9

2010

380.6

16.80 14.3

2011

366.0

-3.84 -3.3

2012

466.4 27.44

12.2

2013

714.9 53.27

20.9

The Esop Index uses the All-Share Index to measure the share price performance of companies in which employees own more than 3% of the total equity, as against all constituent companies, calculated using data going back to 2003. Capital Strategies began tracking the performance of companies that were 10% or more employee owned in 1995.  However, since June 2013, the index has been officially linked to the LSE and calculated using FTSE index methodology – using the 3% threshold and including dividend payments as well as changes in the price of shares.  At the end of the year the new Esop Index stood at 714.9 (2002=100).  Esop shares have risen faster than the FTSE All-Share in eight of the eleven years for which the index has been calculated.

What’s your experience of employee ownership?  Please post a comment with your thoughts.

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