Productivity takes off with employee investment program

Saskatchewan program gives significant tax credits to employees who invest in their employers through labour-sponsored fund

Employees at West Wind Aviation view Saskatchewan’s employee investment program as an opportunity to share in the growth of the company. Offered by the company since 1994, the program allows employees to set up an investment company called a Labour-Sponsored Venture Capital Corporation(LSVCC) fund.

Created and managed by employees, the fund buys shares in the company and then sells them to individual workers.

“We were looking for a way for employees to be involved — more than just getting a paycheque,” said Chris Tabler, vice-president of West Wind Aviation, an aviation company that operates out of Saskatoon and Regina.

Each employee can invest up to $5,000 per year and receives a 20-per-cent provincial tax credit and a 15-per-cent federal tax credit on his investment. The investments are also retirement savings plan eligible.

About 30 per cent of the 250 workers at West Wind Aviation are involved, an impressive number considering many of the company’s employees are quite young and not necessarily thinking about, or able to afford, investments yet, said Tabler. A broad cross-section of employees are involved in the program, from pilots to office staff to engineers.

It’s hard to quantify how the program has boosted productivity, he said, but it creates an interest in the long-term success of the company among those who invest.

Employees are only eligible to invest in the LSVCC as long as they’re employed at the company, and they must hold the investment for eight years in order to keep the tax benefits they’ve received.

“It’s the idea that employees have the opportunity to be involved and it makes employees aware of the long-term future of the company,” he said.

Employees see returns right away

Employees see significant tax breaks right away, said Marv Weismiller, acting director of investment programs at Enterprise Saskatchewan, which runs the program. On a $5,000 investment, the employee would see a $1,000 provincial tax credit and a $700 federal tax credit.

And the benefits aren’t just for the investing employees. Productivity — measured by revenue per employee — is 24 per cent higher for firms with employee share ownership, according to a 1986 study by the Toronto Stock Exchange. (See sidebar on page W3.)

While the study data is old, it is considered the most definitive study in Canada to date, according to the Employee Share Ownership Plan (ESOP) Association Canada. One Saskatchewan CEO Weismiller talked to reported a 50-per-cent bump in productivity after his company signed up for the employee investment program.

“If a company is that much more productive, that’s money to the owner and all the shareholders. It’s a win-win situation for employees and companies,” he said.

When employees invest in the company where they work, they start to look at the company in a new way and become involved in ways they wouldn’t have before, said Weismiller.

“A good analogy is home ownership. A homeowner treats the home much differently than a renter. An owner is always working to improve their home, whereas a renter might figure it’s the landlord’s responsibility to fix things. It’s incredible how businesses are affected, from the smallest things. Employees will come forward and say, ‘If we did this we’d save three dollars,’” he said.

Those small changes add up to a big rise in productivity, said Weismiller.

How the program works

An LSVCC can be created at any ­corporation or co-operative in Saskatchewan with between five and 500 employees who reside in the province. The company must also have at least 25 per cent of its salaries paid to employees living in Saskatchewan. All employees must have equal opportunities to purchase shares.

The LSVCC can’t exceed $5 million and must invest in the company within six months of its creation. There are currently 36 companies in the province registered in the program.

Employees who want to set up a LSVCC at their company should follow these steps:

• Select a project co-ordinator, who can be an individual or organization agreed to by the employees.

• Get in touch with Enterprise Saskatchewan (www.enter and obtain a procedures kit.

• Follow the requirements of the Saskatchewan Financial Services Commission.

• Present the proposal to employees. Enterprise Saskatchewan staff can assist with the presentation.

• Establish an employee investment fund and begin the sale of shares to employees.

• Register with Enterprise Saskatchewan.

When the fund is approved, a formal letter of approval and certificate of registration will be provided.

There is some administrative cost involved in the program but it’s outweighed by the benefits, said Tabler. And the program is recommended for any company that might be interested, he said. However, a company needs to ensure employees fully understand the program before they go into it.

“It’s a good thing for companies. It’s a valuable thing for people interested in continued growth and employee involvement,” said Tabler.

The Saskatchewan government created the program because it not only benefits employees and companies but also the province, said Weismiller.

“Obviously if companies are more productive, that’s ultimately going to grow the economy of the province.”

Caitlin Gaudet is a freelance writer.


Benefits of employee share ownership plans

There are numerous bottom-line benefits when employees invest financially in their companies, according to the Employee Share Ownership Plan Association Canada. It points to a study conducted by the Toronto Stock Exchange comparing publicly traded firms that have employee share ownership plans to those that don’t. For firms with plans, it found:

• five-year growth was 123 per cent higher

• net profit margin was 95 per cent higher

• productivity measured by revenue per employee was 24 per cent higher

• return on average total equity was 92.3 per cent higher

• return on capital was 65.5 per cent higher.

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