Employee financial participation in companies

Dribbusch, Heiner

Overview

Article

Employee financial participation in companies

Published: 2 July 2008

In June 2008, the Institute of Economic and Social Research (Wirtschafts- und Sozialwissenschaftliches Institut, WSI [1]) within the Hans Boeckler Foundation (Hans Böckler Stiftung, HBS [2]) published new findings concerning the extent of profit-related pay schemes and employee share ownership in Germany (see Bispinck, R. and Brehmer, W., ‘Gewinnabhängige Bezahlung und Kapitalbeteiligung’, in WSI Mitteilungen [3], Vol. 61, No. 6). The findings are drawn from the 2007 WSI works council survey (/Betriebsrätebefragung/), which is based on responses from a representative sample of establishments with 20 or more employees and having a works council.[1] http://www.wsi.de/[2] http://www.boeckler.de/[3] http://www.boeckler.de/168.html

Marked differences exist in the distribution of profit-related pay schemes and employee share ownership according to economic sector and size of establishment. While works councils consider the majority of such schemes as a chance for employees to take advantage of good business results, they are also aware that these forms of ownership involve risks. These are some of the findings of a works council survey published in June 2008 by the Institute of Economic and Social Research.

In June 2008, the Institute of Economic and Social Research (Wirtschafts- und Sozialwissenschaftliches Institut, WSI) within the Hans Boeckler Foundation (Hans Böckler Stiftung, HBS) published new findings concerning the extent of profit-related pay schemes and employee share ownership in Germany (see Bispinck, R. and Brehmer, W., ‘Gewinnabhängige Bezahlung und Kapitalbeteiligung’, in WSI Mitteilungen, Vol. 61, No. 6). The findings are drawn from the 2007 WSI works council survey (Betriebsrätebefragung), which is based on responses from a representative sample of establishments with 20 or more employees and having a works council.

Profit-related pay schemes

The survey showed that in 36% of establishments with 20 or more employees some form of profit-related pay scheme (gewinnabhängige Bezahlung) existed. This proportion is almost the same as that found in the previous survey in 2005. This finding is also in line with those of the 2005 IAB Establishment Panel (in German), an employer-based survey conducted by the Institute for Employment Research (Institut für Arbeitsmarkt- und Berufsforschung, IAB) of the Federal Employment Agency (Bundesagentur für Arbeit, BA). However, it is worth noting that profit-related pay is only found in 9% of all establishments if enterprises with fewer than 20 employees are included in the sample.

According to the 2007 WSI works council survey, the presence of profit-related pay schemes is strongly related to the size of the establishment. For instance, in companies with 2,000 or more employees, profit-related pay is found in almost 70% of the establishments surveyed (Table 1). Furthermore, significant differences exist according to the economic sector to which the company belongs. While almost 60% of establishments with 20 or more employees in the financial services sector have some form of profit-related pay in place, the same can be said for less than a quarter of companies in the construction sector.

**Table 1: Extent of profit-related pay schemes, by sector and establishment size (%)**
	Germany	West	East
All sectors	35.7	36.8	29.4
Raw material and industry goods	35.7	34.4	42.9
Investment and durable goods	29.0	31.2	15.6
Consumer goods	27.1	29.2	14.6
Construction	23.8	21.9	33.4
Wholesale and retail trade	45.7	47.3	33.3
Transport and communications	30.1	28.8	37.9
Financial services	57.6	57.8	53.8
Other services	35.3	36.5	29.4
Establishment size
20 to 49 employees	35.8	36.9	29.0
50 to 99 employees	30.9	31.5	26.7
100 to 199 employees	38.2	40.2	30.5
200 to 499 employees	43.5	43.6	42.4
500 to 999 employees	44.3	45.7	34.5
1,000 to 1,999 employees	62.4	63.6	50.1
2,000 or more employees	69.8	68.8	100

Notes: Findings based on data from the 2007 WSI works councils survey. All findings related to establishments with 20 or more employees.

Source: WSI, 2008

Profit-related pay can take various forms. In more than 90% of the cases surveyed, it takes the form of an annual bonus. However, in some cases, not all employees are entitled to this kind of payment. In 54% of establishments where profit-related pay is paid as an annual bonus, all employees are entitled to the payment of the bonus. However, in 46% of those establishments with profit-related pay schemes, only specific groups of employees are eligible for these schemes (Table 2). In most cases, these pay schemes are introduced by means of a works agreement, which indicates that the works council was involved in establishing such a scheme.

**Table 2: Forms of profit-related pay schemes in establishments where these exist (%)**
	Germany	West	East
Form
Annual bonus	92.7	92.6	93.1
Regular part of monthly pay	22.5	22.8	19.9
If annual bonus:
All employees entitled	54.3	52.9	63.7
Groups of employees entitled	45.8	47.1	36.3
If part of monthly pay
All employees entitled	17.9	17.9	17.8
Groups of employees entitled	82.2	82.1	82.2
Form of agreement
In writing	73.6	73.6	73.2
Collective agreement	15.4	16.2	9.6
Works agreement	71.6	72.2	66.8
Individual contract	44.8	44.5	47.6

Notes: Findings based on data from the 2007 WSI works councils survey. All findings related to establishments with 20 or more employees, but only to those which have profit-related pay schemes in place.

Source: WSI, 2008

Employee share ownership

Employee share ownership (Kapitalbeteiligung) is only found in 8% of establishments with 20 or more employees. As for profit-related pay schemes, employee share ownership is most widespread in the financial services sector (Table 3). There is no linear correlation to the establishment size.

**Table 3: Establishments with employee share ownership, by sector and establishment size (%)**
	Germany	West	East
All sectors	7.8	7.7	8.1
Raw material and industry goods	6.6	5.2	14.7
Investment goods	5.4	6.3	0.0
Consumer goods	6.8	6.7	7.4
Construction	5.2	6.3	0.0
Wholesale and retail trade	8	7.0	15.1
Transport and communications	6.1	4.8	13.4
Financial services	19.1	19	20.7
Other services	8.6	9.0	6.5
Size of establishment
20 to 49 employees	8.2	7.9	10.4
50 to 99 employees	5.8	5.2	8.9
100 to 199 employees	5.6	7.0	0.0
200 to 499 employees	13.6	14.8	5.1
500 to 999 employees	6.0	6.7	1.7
1,000 to 1,999 employees	18.6	20.4	0.0
2,000 or more employees	13.4	13.9	0.0

Notes: Findings based on data from the 2007 WSI works councils survey. All findings related to establishments with 20 or more employees.

Source: WSI, 2008

In those establishments where employee share ownership exists, it most often takes the form of shares or share options. In general, all employees are entitled to this kind of financial participation, but only a minority of those entitled effectively make use of it (Table 4). In about half of the cases surveyed, the works council was involved in the introduction of employee share ownership. It is most often introduced by way of a company guideline, which reflects the fact that no legal obligation exists to introduce such schemes. In 40% of the cases, employee share ownership took the form of a works agreement.

**Table 4: Forms of employee share ownership in establishments where these exist (%)**
	Germany	West	East
Form
Shares/share options	58.6	59.6	53.3
Profit participation rights (Genussrechte)	17.7	15.3	31.2
Dormant equity holding (Stille Beteiligung)	20.1	20.4	18.1
Loans (Mitarbeiterdarlehen)	28.2	27.7	30.7
Involvement of works council
Yes	55.0	54.7	56.7
No	45.0	45.3	43.3
Entitlement
All employees	87.9	85.7	100
Only management / managerial staff	1.4	1.6	0
Single employment categories	10.7	12.7	0
Usage by entitled employees
More than 50%	39.2	41.4	27.3
Between 10% and 50%	34.6	33.9	37.9
Less than 10%	18.4	18.9	15.7
Don’t know	7.8	5.8	19.2
Form of agreement
Works agreement	39.4	39.5	38.7
Guideline of company	56.2	55.5	60.2
Other	17.7	19.9	5.7

Notes: Findings based on data from the 2007 WSI works councils survey. All findings related to establishments with 20 or more employees, but only to those which have employee share ownership schemes in place.

Source: WSI, 2008

Works councils assessment

When works councils are asked what they think about employee share ownership, they show an ambivalent view regarding such schemes. Two thirds of all works councils surveyed – and even 80% of those works councils where such a scheme is established – agreed with the statement that employee share ownership is appropriate to contributing to positive business development (Table 5). At the same time, two thirds of all works councils – and almost half of those with employee share ownership schemes in place – agree that these schemes also bear risks for employees. A majority of works councils are convinced that employee share ownership primarily serves the company. Interestingly, scepticism regarding the benefit of this type of financial participation for co-determination is more widespread among works councils having experience with employee share ownership; almost 90% of these works councils do not agree that it is an appropriate means to extend co-determination.

**Table 5: Assessment of employee share ownership, by works councils (%)**
	Employee share ownership …
	… is appropriate to participate in positive business development
	Agree	Disagree	Don’t know
All establishments	66.7	30.7	2.8
Establishments with employee share ownership	80.1	18.5	1.4
	… also bears risks for employees
All establishments	67.1	29.7	3.2
Establishments with employee share ownership	46.6	53.4	0.0
	… serves primarily the company
All establishments	60.8	34.8	4.4
Establishments with employee share ownership	54.7	43.5	1.8
	… is appropriate to extend co-determination
All establishments	39.4	58.1	2.5
Establishments with employee share ownership	12.2	87.8	0.0

Notes: Works councils were asked whether they agree or disagree with the statements. Findings based on data from the 2007 WSI works councils survey. All findings related to establishments with 20 or more employees. Some of the data may add up to slightly more than 100% due to rounding of figures.

Source: WSI, 2008

Heiner Dribbusch, Institute of Economic and Social Research (WSI)

Eurofound recommends citing this publication in the following way.

Eurofound (2008), Employee financial participation in companies, article.