Employee share ownership In European countries is strongly determined in detail by the relevant company and tax law. Basically, forms of both individual and collective participation can be found which are related to the company in which the employee is employed or also to other company shares.

One widespread (and so typical) form of participation in European countries is to offer employees a share (above all, stocks) in their company. This usually goes together with special conditions linked to prescribed holding periods and tax benefits. Company shares either go into an individual employee account or are administered by a holding company (for example, an ESOP or ‘employee share ownership plan’ in the UK). In all cases participation is legally a form of ownership, entailing all the rights of share ownership.

On the enterprise side, due to the rapid development of share markets since 1945 employee share ownership schemes (in the form of employee share schemes) are common practice in almost all large European companies. As a rule, management and employees are offered different schemes. This form of participation is comparatively simple to implement since shares are tradable assets and have a determinate price. At the same time, ownership rights (and so participation possibilities) are linked to shares, although in practice they don’t play much of a role due to their insignificance.

In Europe large companies operating in several countries face practical implementation problems with share ownership schemes. Because of different tax laws and company statutes a participation offer of, for example, 10 shares in a company represents different costs for the company and differing returns for individual employees, depending on the country in which the scheme is being run. Two expert groups were set up to harmonise these regulations in the EU but so far no real programme has been developed.

Important distinctive features of employee share ownership practice in Europe include (cf. Poutsma 2001: 17–18):

  • access to participation schemes: for all employees or only a part (management);

  • dependence of schemes on company performance;

  • regulations on the introduction of a plan and approval: approval obligations of the authorities, collective bargaining parties or employees;

  • voting rights and involvement of employees;

  • range of participation: limited to one enterprise or even sectoral or regional schemes;

  • state-recognised plans or voluntary company plans;

  • prescribed holding periods and disposability for employees;

  • allocation formulae: according to company affiliation, level of earnings, and so on;

  • financing of participation: profit-sharing or employees’ contributions (deferred compensation).

Government policy plays a significant role in the diffusion of employee share ownership schemes. This is particularly the case in France with its legally prescribed profit-sharing schemes for employees and employee savings plans. The long-term influence of legislation and government promotion policies also manifests itself in the UK, the Netherlands and Germany (for example, the strong emphasis there on building society savings and capital-forming payments under the employees’ savings schemes and the relative insignificance of financial participation, at least in state-regulated form).

Government incentive schemes are dominated on the one hand by tax benefits and on the other by direct income subsidies for employee share ownership for lower income groups. In many countries the situation is particularly favourable for both employees and enterprises, for which participation costs are tax deductible.

Statistical data are scarce on the financial significance of share ownership for individual employees. In most cases we are talking about annual amounts of between 2% and 5% of annual income (corresponding to about half a monthly wage). These sums are disbursed or go into long-term investment schemes.

Generally speaking, the provision of employee share ownership schemes has been driven less by government provisions than by personnel policy considerations in companies. Above all in limited companies the introduction of participation schemes has proved itself a practical contribution to improving enterprise culture and employee motivation (team spirit, ‘entrepreneur in the enterprise’, participation in enterprise value added, and so on). This has certainly been helped by the fact that the schemes often involve low costs for the company (for example, stock-option schemes, or the issue of employee shares within the framework of capital increases).