Low incidence of financial participation schemes in companies

Although employee financial participation is high on the agenda of the political parties in Germany, companies rarely provide share ownership and profit-sharing schemes. Just 2% of establishments offer their employees the chance to participate in a share ownership scheme while, in 9% of workplaces, employees can share in the company’s profits. However, the proportion of employees involved in these schemes is considerably higher.

Employee financial participation in the companies for which they work ranks high on the political agenda. Both the Social Democratic Party (Sozialdemokratische Partei Deutschlands, SPD) and the Christian Democratic Party (Christlich Demokratische Union, CDU) – together with the latter’s Bavarian sister party, the Christian Social Union (Christlich-Soziale Union, CSU) – recently adopted proposals that aim to increase the number of employees allowed to participate in employee share ownership (ESO) programmes. The parties propose to achieve this objective by amending tax legislation as well as implementing policies that will increase incentives for savers.

New results (in German, 982Kb PDF) from an establishment panel survey conducted by the Institute for Employment Research (Institut für Arbeitsmarkt- und Berufsforschung, IAB) show that the prevalence of ESO or profit-sharing schemes is, at present, very low. The 2001 and 2005 waves of the establishment survey, which is conducted each year, covered the topic of employee financial participation.

Coverage and density of ESO schemes

The findings presented in Table 1 suggest that ESO schemes are of minor significance in German companies. Only 2% of workplaces had such a scheme in place in both 2001 and 2005. However, as a high proportion of employees in these companies participate in the scheme, the total average of employees throughout Germany who are thus covered by ESO corresponds to 4% in 2001 and 3% in 2005. The incidence of share ownership programmes increases the larger the size of the company, in terms of the number of employees. For instance, just 2% of establishments with between one and 49 employees had an ESO scheme in place in 2005, compared with 7% of organisations with 500 or more employees. This feature may be attributed to the high capital or ‘sunk’ costs incurred when implementing a share ownership scheme.

Table 1: ESO coverage and density, by % of establishments and employees involved
Share ownership programmes remain of minor significance in German establishments.
  2001 2005
Establishment size (no. of employees) % of establishments Average % of employees involved % of establishments Average % of involved employees
1–49 employees 2 54 2 44
50–249 employees 4 47 3 64
250–499 employees 6 68 4 68
500 or more employees 12 75 7 65
Total 2 54 2 46

Source: IAB Establishment Panel Survey, 2001 and 2005

If ownership is shared, the scheme tends to be broad-based rather than selective. Almost half (46%) of the employees in companies that had such a programme in place in 2005 held shares in their company. The corresponding proportion was even higher in 2001, at 54% of employees. Unfortunately, the IAB Establishment Panel Survey provides no information on the proportion of the company’s total equity which is held by employees.

Coverage and density of profit sharing

Profit-sharing schemes are more widespread. According to the IAB data, the proportion of establishments in which employees held a share of their company’s profits stood at 9% in 2005 (Table 2). This figure corresponds to some 12% of all employees in Germany. As with the ESO schemes, the incidence of profit sharing rises as the company size increases. In 2005, only 8% of workplaces with fewer than 50 employees offered their employees a profit-sharing scheme, compared with one third (34%) of establishments with 500 or more employees.

Table 2: Coverage and density of profit-sharing schemes, by % of establishments and employees involved
Only about one in 10 establishments offer profit-sharing schemes.
  2001 2005
Establishment size (no. of employees) % of establishments Average % of employees involved % of establishments Average % of employees involved
1–49 employees 8 65 8 65
50–249 employees 20 49 23 47
250–499 employees 26 46 28 52
500 or more employees 30 58 34 56
Total 9 62 9 62

Source: IAB Establishment Panel Survey, 2001 and 2005

However, contrary to the evidence on ESO schemes, the density of profit-sharing schemes is highest in the smallest companies. Almost two thirds (65%) of employees in workplaces with between one and 49 employees were covered by a profit-sharing scheme in 2005, compared with 47% in companies with between 50 and 249 employees and 56% in companies with 500 or more employees. Nonetheless, since the number of smaller establishments considerably exceeds the number of larger ones, the overall average proportion of employees involved, at 62%, was quite close to the proportion for the smallest sized companies.

Comparison with European Working Conditions Survey

The figures based on the IAB establishment panel slightly exceed the coverage rates observed in other surveys – most notably, those outlined in the findings of the European Foundation for the Improvement of Living and Working Conditions on the financial participation of employees in the EU (310Kb PDF). The latter report is based on the results of the European Working Conditions Survey (EWCS). The differences between both surveys may be a result of the sample design. The IAB panel covers establishments, whereas the EWCS interviewed employees directly. Nevertheless, both surveys show that the significance of employee financial participation in German establishments is rather low. This holds true from both a national and an international perspective.

Oliver Stettes, Cologne Institute for Economic Research (IW Köln)

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