Employee share ownership and stock options on the increase

In 1999, the Norwegian company Orkla ASA decided to offer company shares at a 20% discount to its 18,850 employees. By the end of 1999, the scheme had turned out to be a success, and approximately 25% of workers in Norway had acquired shares. Several studies indicate that a large majority of Norwegian employees are positive about employee share-ownership.

The boards of directors of Orkla ASA decided in 1999 to offer Orkla shares at a 20% discount to all the company's employees in Norway and those of its subsidiaries in Denmark, Finland and Sweden- a total of 18,850 people. Orkla is one of the largest listed companies in Norway, with core businesses of branded consumer goods, chemicals and financial investments.

The Orkla scheme

The purpose of the share scheme is to give the employees a stake in the company so as to provide them with incentives to take a long-term interest in the running of the firm. Orkla aims to continue this programme in the years ahead.

Participation in the share scheme is offered to all permanent employees working 50% or more of normal working hours. Each employee can buy up to 120 shares each at a discount of 20% on the current trading price. The total price for 120 shares (discount included) is NOK 11,184. To finance the purchase of shares, employees can obtain an interest-free loan from the company.

There are several kinds of tax incentives linked to this type of share scheme. First, employees are liable to pay income tax only if the discount exceeds NOK 1,500. Second, employees may buy the shares under the "saving with tax deductions" scheme (AMS). The tax deduction is 15% limited to NOK 750 for a single taxpayer ("class I") and NOK 1,500 for families ("class II"). The AMS scheme, however, is due to be abolished in 2000.

The benefit of the interest-free loan from the employer is not liable to tax and the dividends on the shares are tax-free. Employees have to pay wealth tax on the shares, based on the current trading price of the shares. Profits from sales of shares are also tax-liable but realised losses are deductible. The current tax rate is 28%.

The shares cannot be sold unless they have been held for a minimum of one year. Shares registered under the AMS scheme must be held for at least four years.

The results

So far the share scheme at Orkla has turned out to be a success. Approximately 25% of employees in Norway had bought shares by late 1999 and the majority had bought the maximum number of shares (120). The percentage is somewhat lower in the subsidiary companies in other Nordic countries, at approximately 15%. This is probably due to a lack of tax incentives in these countries and the fact that the company is better known in Norway.

Share-owning employees have the rights to dividends, to information about the company and annual accounts, and to participate and vote at the general assembly. The employees' voting rights, however, are severely restricted due to the fact that they only own a tiny fraction of the shares in the company. Tax incentives and the possibility of receiving more of the company's added value probably explain the positive response from the employees. It may be that financial motives are more important than achieving influence in the decision to buy shares.


Several studies indicate that a large majority of Norwegian employees are positive about employee share-ownership. There is no comprehensive overview of how widespread such share-ownership is in Norway, but it has been on the increase during the past decades. At the end of the 1980s, approximately 14% of all limited companies in Norway had some kind of employee share schemes. The majority of listed companies now have such arrangements, and in the early 1990s every fifth Norwegian employee of joint-stock companies owned shares in her or his employing company.

In the high-technology sector and in knowledge-based companies, employee share-ownership is the common rule, and stock options are also on the increase. This is due to changes in the taxation of stock options in 1999. From 1996, stock options were taxed both when they were issued and when they were sold. This has now been changed and benefits from stock options are taxed only when they are sold. The condition for exemption from taxation is that the benefits for the employee from acquiring the stock options do not exceed NOK 600,000 per year. With these changes in tax regulations, stock options have once again become an interesting pay-for-performance incentive for Norwegian companies.

In larger companies, stock options are normally part of executives' compensation packages. However, in smaller companies, and especially in the high-technology sector, stock options are used for larger groups of employees so as to recruit and retain specially qualified people. Stock options are seen as a good device for newly-established firms with low liquidity but a with high potential for growth and profitability - so-called "high-risk and high-return" businesses. In these companies, employees can accept a lower wage in exchange for stock options with the possibility of an increase in values of the stocks.

The spread of employee share-ownership may have several consequences. Employers regard employee share-ownership as a device to increase productivity, performance and organisational commitment. The overall aim for the company is to improve organisational efficiency. Results from several international studies, however, indicate that it is difficult both to prove and to separate any specific effects of such arrangements.

Employee share-ownership may also have impacts on industrial relations. Trade unions have traditionally been hostile or reluctant towards employee ownership on the grounds that it may weaken workers' solidarity and replace it with company solidarity. Unions also point out the double risk of share ownership - ie that of workers losing both their job and their savings if the company goes bankrupt. But as matters stand today, Norwegian trade unions have no alternative strategy to employee share-ownership and they seem to have accepted it as an element in human resource management practice. (Ove Langeland, FAFO Institute for Applied Social Science)

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