Commission report links employee financial participation and productivity

A new Commission report on the Promotion of Participation by Employed Persons in Profits and Enterprise Results (PEPPER II) indicates a link between the implementation of such schemes and increases in productivity and - to a lesser extent - flexibility and employee participation.

In January 1997, the European Commission adopted a report on the Promotion of Participation by Employed Persons in Profits and Enterprise Results, including equity participation (PEPPER II). The report suggests that profit-sharing schemes lead to higher productivity, whatever method, model specification and data are used. The macroeconomic situation was found to have little effect on government or social partner support for such schemes, but recent debates relating to enhancing productivity and wage flexibility are stimulating discussions on proposals. However, in most member states, trade unions can be expected to oppose the use of financial participation schemes to promote wage flexibility.

The report also gives an overview of the ways in which member states have promoted the participation of employees in profits and enterprise results since the first PEPPER report was published in 1991 and following a Council Recommendation on the subject of 27 July 1992 (92/443/EEC). The 1992 Recommendation invited member states to acknowledge the benefits of a wider use of schemes to increase the participation of employees in profits and enterprise results by means of profit-sharing, employee share ownership and a combination of both.

The development of financial participation schemes was found to be strongly influenced by government action, and the availability of tax incentives in particular. The report found no great changes in the general approach of member state governments to PEPPER scheme since 1991. There have, however, always been differing traditions and practice concerning financial participation schemes in the countries of the European Union. While France and the UK have a long tradition of encouragement of financial participation, such schemes have only recently attained increased government support in Ireland, Finland andthe Netherlands. In these countries, reference is made to the need to achieve greater employee involvement, improved productivity, competitiveness and wage flexibility on labour markets. More recently, the governments of Germany, Spain andItaly have sought to encourage the social partners to promote these schemes in the course of their negotiations. In other countries PEPPER schemes have been discussed, but without official government support for their promotion.

With the exception of France and the UK, legislation in EU countries favours only certain participation schemes, with share-ownership being the most favoured. Most legislation aimed at providing an incentive for financial participation schemes provides for fiscal or other financial incentives, but despite some improvements in recent years, the level of such incentives remains modest.

The document concludes by making the following recommendations for further consideration by the member states and social partners:

  • consider the development of national framework legislation;
  • clarify the distinction between wages subject to social charges and the advantages derived from PEPPER schemes;
  • enhance the eligibility categories of beneficiaries to PEPPER schemes;
  • provide for a stimulating climate. The development of national institutional bodies that create systems for promoting PEPPER could be helpful;
  • set up PEPPER schemes during the privatisation of public bodies, thus gaining experience and creating awareness of the possibilities of such schemes among a wider audience;
  • integrate PEPPER schemes into programmes on employee involvement to free the creative power of the workforce and to improve competitiveness and quality of production;
  • make an appeal to the social partners to promote these schemes during their negotiations, and make references to the expected positive effects of the schemes on productivity, wage flexibility, employment and employee involvement;
  • avoid irresponsible risks for employees in the case of the issue of shares to employees when companies have economic and financial problems;
  • tackle the problems affecting intra-Community schemes of having subsidiaries in different national circumstances, by promoting the exchange of good information about the different rules and procedures of PEPPER in the member states;
  • promote the development of clear and understandable models and plans for the introduction of schemes that are manageable and understandable by management and labour, so as to avoid PEPPER schemes being complex and comprehensible only by experts; and
  • support demonstration projects on good practice and the promotion of exchange of information in workshops and conferences, and other communications. Preferably these actions should be directed at the social partners.
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