Companies that encourage employee share ownership continue to outperform those that do not

The 69 companies tracked by the firm's UK Employee Share Ownership Index (EOI) delivered total average returns of 53.3% in 2013; well above the 20.9% average returns delivered by all 623 companies on the FTSE All-Share Index, it said. The EOI measures the share price performance of companies in the All-Share Index of which employees own more than 3% of the total equity.

"These figures give additional evidence why share incentives are a good thing that can benefit companies, employees and their shareholders," said Judith Greaves, a share plans expert with Pinsent Masons, the law firm behind Out-Law.com. "They also support the Government's welcome recent decision to increase the limits for the UK's tax-favoured 'all employee' Save As You Earn (SAYE) and Share Incentive Plans (SIPs) from 6 April this year."

"There is much talk of aligning the interests of employees and shareholders, but these results may help to show sceptics what a difference employee ownership can make to a company," she said.

Capital Strategies initially began tracking the performance of companies that were 10% or more employee-owned in 1995. Since June 2013, the index has been officially linked to FTSE and calculated using FTSE index methodology, which uses the 3% threshold and includes dividend payments as well as changes in the price of shares.

Companies for inclusion in the index are identified from public disclosures, meaning that it does not necessarily include every company eligible for inclusion.

Capital Strategies said that the EOI ended 2013 "on an all time high", having outperformed the FTSE All-Share in each of the last six quarters. In the final quarter of 2013 the EOI was up 12.5%, against 5.5% on the FTSE All-Share. Work has now started to create an investment fund to track the index due to its "consistent returns", the firm said.

"Screening for employee share ownership creates a portfolio of businesses built on intellectual capital and earning high returns on tangible assets," said Nigel Mason of Capital Strategies. "It also helpfully filters out some of the dogs. We are left with a list of high quality businesses which, in their different ways, are engaging their employee shareholders to deliver consistently superior returns for themselves and their investors."

As part of last month's Autumn Statement, the Chancellor of the Exchequer allocated an additional £25 million annually to support employee ownership, following the annual £50m set aside as part of the Budget in March. This money will be used to increase the maximum annual value of shares that employees can acquire with tax advantages under the two main types of HMRC-approved employee share schemes, SAYE and SIP. It will also be used to fund two tax breaks for indirect employee ownership structures, announced by the Government last July.

SAYE, or Sharesave, allows employees to save up their own money before deciding whether to use this to acquire shares in their company at a discount, while SIP allows employers to offer their staff the opportunity to purchase shares out of gross salary. From April, employees will be able to acquire 'free' shares worth £3,600 per year or 'partnership' shares worth £1,800 a year under SIP; and will be able to save £500 per month towards SAYE.