ArabianBusiness.com - Middle East Business News Sunday, 06 July 2008 | 14:43 UAE time

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Staff ownership could boost profits

by Lynne Roberts on Thursday, 27 March 2008

Gulf firms could boost profits, increase staff loyalty and survive for longer by giving employees a financial stake in their business, a group of experts said on Wednesday.

Companies with Employee Stock Ownership Plans enjoy a range of benefits, including increased staff loyalty and improved corporate financial transactions, according to research revealed ahead of a seminar on the issue next month.

A study of ESOP firms found sales, employment and profitablity was around 2.4% higher than companies without the scheme. 82% of companies said revenue increased after applying ESOPs, while 72% indicated they saw an increase in profitability.

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Employee Stock Ownership Plans are currently estimated to hold more than half a trillion dollars in assets, and cover over 10 million workers in the US alone.

Stock ownership by employees in the Gulf region is rare, however, where around 70% of privately held companies are family owned and run largely by expatriate management.

More legal flexibility is urgently needed to enable employers in the region to establish stock ownership plans, said Richard Lamptey, principal at human resources firm Mercer.

“In the UAE, there are some legal restrictions that should be addressed in regard to getting an ESOP approval and the fact that the expat employees in the Gulf are now allowed to own stock in UAE national owned companies,” he said.

With lack of regulatory framework and lack of clarity on ESOPs rules currently cited as a major obstacle, a change could pave the way for a significant wave of employee allocations in the future, said Marcus Wallman, associate at legal firm Al-Tamimi & Co.

“As regional markets develop and the talent competition fuels, I believe that we will see economies gradually shift from capital-based to talent-based economies, and stock ownership will soon become a critical factor for successful business growth,” he said.

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