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The John Lewis model and what others could learn from it

All 76,500 of John Lewis’s permanent staff are partners and they ultimately own the retailer’s 35 department stores and 272 Waitrose supermarkets

The John Lewis Partnership is one of the few UK companies where bumper bonuses do not provoke a public outcry.

All staff — from chairman Charlie Mayfield down to Saturday shelf-stackers – receive the same percentage payout which rises or falls in line with its financial fortunes. Last year its staff, or “partners” as John Lewis calls them, received 17% which is the equivalent of around nine weeks’ pay.

The retailer’s employee-owned partnership model operates differently from private-equity backed businesses and stock market-listed companies as instead of profits flowing to the shareholders, at John Lewis they flow to the staff, in the form of the annual bonus. It is not a one-off; according to the Employee Ownership Association there more than 100 UK companies with significant employee ownership, a section of the economy that is worth more than £25bn annually. Other examples include Blackwell bookshops, jam maker Wilkin & Sons and polymers manufacturer Scott Bader.

John Lewis’s ownership structure was established by pioneering businessman John Spedan Lewis whose father founded the business in 1864. He signed away his ownership rights in 1929 to allow future generations of employees to take forward his “experiment in industrial democracy”. His ideas are set out in the company’s constitution which at its heart has the idea of establishing a “better form of business”.

All 76,500 of John Lewis’s permanent staff are partners and they ultimately own the retailer’s 35 department stores and 272 Waitrose supermarkets, which generate annual sales of more than £8bn. As the company itself puts it: “Partners share in the benefits and profits of a business that puts them first.” John Lewis’s constitution also lists a formal mission to maximise the “happiness” of its staff. The power structure involves a staff council – for ideas and complaints to filter up to the board – and a weekly magazine where staff can air their views about policies and management, anonymously if they choose.

Tony Greenham, the head of finance and business at the New Economics Foundation says it is important that employees should “have a greater say in how their businesses are run, not just a bigger share of the profits”. He said: “The idea that workers have nothing useful to contribute to management belongs to the 19th century, not the 21st.”

Greenham says both privately held and employee owned businesses can contribute to an economy that does a better job of creating social and environmental value over the long run. “A successful economy is one where private interests ultimately serve the broader public interest,” he adds. “What companies like John Lewis demonstrate is that this does not have to come at the expense of commercial success.”

John Lewis staff earn the same as shopworkers at rival chains – but the year-end bonus is a significant top-up. Its directors, on the other hand, are paid substantially less than their boardroom counterparts at businesses such as Tesco, Marks & Spencer and Sainsbury’s. Staff also receive employee perks – worth £70m this year – ranging from holiday homes to sailing clubs, theatre outings, theme park admissions, and even a choir, all subsidised. It also one of the dwindling number of companies to operate a final salary pension scheme which is funded entirely by the company.

The ownership model means it is in the interests of John Lewis and Waitrose staff to work hard as they are the direct beneficiaries.

Companies such as Next are far more profitable than John Lewis but a report by academics at the Cass business school found that employee-owned businesses had a higher rate of sales growth and job creation during the recession than companies in conventional ownership. Over the course of the boom-and-bust period between 2005 and 2009, they generally created new jobs more quickly and were at least as profitable as their counterparts. The findings — based on a survey of more than 60 senior executives of both types of company, and financial data from more than 250 firms — back up other studies that show that employee owned businesses typically outperform those companies in which employees do not have an ownership stake or the right to participate in decision-making. “The advantage comes from taking a stakeholder rather than a shareholder view of management,” said the study. “Employees who have a stake in the company they work for are more committed to delivering quality and more flexible in the face of the needs of business.” © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds