Navigation

Methodology

From Employee Ownership Index
Jump to: navigation, search

Businesses with substantial employee ownership are identified by Capital Strategies through reviews of annual reports, shareholder circulars, disclosures of significant shareholdings and press coverage. The constituents of the index are reviewed quarterly for possible changes. It is likely that the index is omitting some eligible companies that have not so far been detected. This omission risk is particularly high for the 3% version of the index. Omission of companies will bias the index results only if the omitted companies are significantly different from the identified companies, which we consider unlikely.

The index is equal weighted, i.e. it is not weighted by market capitalisation. There are two justifications for this. Firstly, an equal weighting reflects the way in which an investor might construct a balanced portfolio of stocks to give a broad exposure to employee ownership. Secondly, an equal weighting ensures that the index does not become too biased towards a small number of very large companies.

The index is calculated on a total return basis, i.e. with an assumption that dividends are re-invested.

Further details about the methodology can be found in the FTSE ground rules document.

Changes to methodology from June 2013

In July 2012, the London Stock Exchange Group, which owns FTSE International, announced its intention to calculate the UK Employee Ownership Index according to FTSE methodologies. The original 10% index and a 3% variation were re-calculated back to January 2003 with four key changes:

(1) The FTSE calculation is a Total Shareholder Return index, assuming dividends are reinvested. The original 10% index ignored dividends and was a capital-only index.

(2) Like the original 10% index, the FTSE-calculated index is equally weighted but, unlike the original 10% index, the FTSE-calculated index weightings are adjusted each quarter to restore equal weighting and to remove the effect of changes in each company's market capitalisation during the preceding quarter.

(3) Changes to the constituent companies in the FTSE-calculated index are made only on FTSE quarterly review dates whereas the original 10% index added and subtracted companies throughout the year.

(4) The benchmark FTSE All Share index is now a total return version (with dividends assumed to be re-invested) excluding investment trusts whereas the benchmark for the original 10% index was the capital-only version of the FTSE All Share and included investment trusts.

Personal tools
Views