Financial participation is an arrangement operating in some companies whereby employees are able to participate in the company’s financial results. This may take the form of a share in the profits, over and above the remuneration normally paid to employees, or a share in the ownership of the firm. EU interest in employee financial participation was evident in the publication of the so-called PEPPER reports of the Commission on the Promotion of employee participation in profits and enterprise results. The first report, published in 1991, was followed by Council Recommendation 92/443/EEC of 27 July 1992 concerning the promotion of employee participation in profits and enterprise results, including equity participation. This highlighted the importance the Community attached to the use of financial participation schemes and called for the direct involvement of Member States and the social partners. A second PEPPER report by the Commission issued in 1997 (COM (96) 697 final) was based on replies to a questionnaire sent to Member States. Most national legislation involved fiscal or other incentives such as the tax-free issue of shares to employees, some of which may be made subject to conditions, such as minimum percentage of personnel covered by the scheme, eligibility criteria, retention periods, etc.
Arising from the findings of these PEPPER reports, and other work, the European Commission launched a Communication on a Framework for the Promotion of Employee Financial Participation, in July 2002 (COM (2002) 364). This established a working group of independent experts to analyse legal and legislative obstacles to the transnational diffusion of employee financial participation, with concrete proposals for actions to tackle them. The Commission also proposed the following framework for Community action: to include financial participation in the peer review programme under the EU employment guidelines; to support cross-national research into employee financial participation; and to support transnational networks of financial participation experts and practitioners. In response to this Communication, both the European Economic and Social Committee and the European Parliament drafted opinions, in which they in particular expressed their interest in studies on the topic of financial participation in SMEs.
In 2004, the European Commission published the report of the high-level expert group on ‘cross-border obstacles to financial participation of employees for companies having a transnational dimension’. The report identifies six broad categories of barriers to cross-border spread of Employee Financial Participation (EFP) schemes:
- the diversity of the legal, fiscal and social framework in force in the various countries;
- the variety of rules laid down by the stock exchange authorities of each of the Member States;
- the different ways in which labour law takes account of financial participation;
- the different conceptions of the governance of enterprises;
- the variety of systems of industrial relations and of the cultural conceptions underpinning them;
- the costs of implementing the participation plans.
In order to promote an EU-wide benchmarking exercise of national financial participation practices, the European Foundation for the Improvement of Living and Working Conditions published in 2004 two reports aimed at developing a set of EFP indicators (Financial Participation in the EU: Indicators for benchmarking) and at testing the indicators by applying them to a real life case (Financial Participation in EU: a benchmarking study in Slovenia).
Research on the spread of financial participation indicates that it remains little used in most Member States and that it is very unevenly distributed across the EU (Financial participation of employees in the European Union: Much ado about nothing?). In 2007, the European Foundation published a report on Employee financial participation in the New Member States, which revealed that interest in employee financial participation and its use has declined in recent years despite the widespread use of EFP schemes during the economic and political transition in central and eastern European countries.
At national level, the social partners’ activities in this area are mainly in reaction to government initiatives and legislation. However, employer associations are generally favourably inclined towards financial participation (though with differences in detail associated with national differences in regulation and institutions). On the trade union side, there is arguably a general softening of opposition to financial participation in most European countries in recent years.
See also: Participation