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Financial participation in Europe: overview of similarities, differences and trends

The distribution and significance of employee financial participation in Europe are at first glance no more uniform and structured than in the case of workplace representation. Analysis shows examples and cases of good practice concerning financial participation in all European countries, even if the political and economic preconditions vary between strong legal foundations for the active promotion of financial participation (as in France and the UK) on the one hand, and rather poor recognition of such practices at enterprise level by the social partners, on the other.

Historically, approaches and instruments for financial participation have emerged for the most varied reasons. In some farsighted companies it has always been a matter of inculcating in the employees a stronger commitment to the company. Particularly after 1945 there were also socio-political motives for promoting wealth creation among employees that, in the meantime, have been found in many European countries (France, Germany, the UK). Today, these instruments are used partly to compensate for deficient state old age pensions. In countries such as the UK and Ireland financial participation traditionally plays a major role in the composition of old age insurance through pension funds (in association with saving plans). Employees and their trade unions frequently have a seat and a vote on the supervisory board of such pension funds in order to oversee proper use of the money. But there are also strong traditions in the cooperative movement that have nurtured a tradition of financial participation (for example, in Spain).

As with the codetermination debate analyses of approaches to financial participation in Europe tend to emphasise the differences in the details and so overlook the great similarities. What at first glance seems very diverse can be categorised in terms of a few basic schemes that are to be found in all countries. The most important differences concern:

  • the form of participation (participation in profits and/or equity);
  • the form of use or investment of the proceeds of participation (lump sum, accumulation of shares or feeding old age pension plans);
  • the determination of which employees are entitled to participation.

In all European countries distinct participation models have developed around these coordinates that, due to national peculiarities in terms of taxation, state support, forms of enterprise, and so on, can look very different in detail. As time goes on, the spread of financial participation schemes in individual countries has necessarily become extremely differentiated (for example, the relatively high significance of profit-sharing in France or employee share ownership schemes in the UK).

The new EU member states find themselves in a special situation in this connection: on the one hand, in all these countries – although with different national emphases and intensity – financial participation has formed an essential component of privatisations in the post-socialist transformation process. This led at least temporarily to a dramatic leap in the proportion of company assets in the hands of the employees. The current incidence of employee share ownership schemes in most new EU Member States is relatively low compared with the rest of Europe. More recent studies and surveys on the incidence of various participation models in the new Member States point to profit-sharing schemes playing a much more important role than employee share ownership schemes.

Differences notwithstanding, most European countries are pursuing a national policy promoting financial participation – mostly deliberately linked to political goals of strengthening participation and wealth creation among employees.

These national policies are based mainly on two fundamental rules:

  • on the one hand, the principle of a far-reaching twofold voluntariness: as a rule, neither employees nor employers are forced to implement financial participation (only in a few countries are there legal provisions that prescribe financial participation, for example, partly in France);
  • on the other hand, separation of financial participation from employees’ and employee organisations’ collective bargaining autonomy (trade unions): financial participation schemes are predominantly not regulated by collective bargaining.

It is difficult to clearly separate the basic types of financial participation empirically according to form of participation and scope. Basically, we can say that profit-sharing is more common in European companies (especially in the form of ‘cash-based profit-sharing’) than equity participation, and more companies have participation systems for managers and executives than for employees as a whole.

A number of studies in past years have attempted an overall assessment of EU countries. According to a survey by the European Foundation for the Improvement of Living and Working Conditions (the 2009 European Company Survey)1 , 5% of companies in the EU with 10 or more employees offer employee share ownership schemes, with 14% offering profit-sharing schemes. Denmark takes pole position in employee share ownership with a figure of 13%, closely followed by Belgium, Romania and Sweden, each at 11%. It should however be noted that the schemes practised in Sweden and Romania are designed to target specific groups (managers and professionals) and not so much the whole workforce. The study, based on a survey of more than 27,000 HR managers throughout Europe, also looked at the incidence of profit-sharing schemes. France came out top with an incidence of 35%, followed by the Netherlands (27%), Sweden (24%) and Finland (23%). Generally speaking, the schemes are offered to the whole workforce. The countries with the lowest incidence of profit-sharing are Italy (3%) and Greece (4%). The profit-sharing schemes in these countries are generally tailored to specific groups of employees. One general finding is that the incidence of profit-sharing schemes increases in line with company size. Whereas only 13% of companies with 10-49 employees have such, schemes, the figure rises to 22% for companies with 50-199 employees and to 28% for ones with 200 or more employees. A further finding of the study is that there is a connection between the existence of a employee representation body and the introduction or existence of a profit-sharing scheme, irrespective of the size of the company. Employee financial participation schemes exist in 21% of private-sector companies with an official employee representation body, whereas this is only the case in 10% of companies without such a body.

Profit-sharing

Profit-sharing is the simplest form of financial participation. This can be understood as a collective regulation that, in addition to the stipulated wage, provides a variable income component dependent on enterprise profits.

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Employee share ownership

Employee share ownership In European countries is strongly determined in detail by the relevant company and tax law. Basically, forms of both individual and collective participation can be found which are related to the company in which the employee is employed or also to other company shares.

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Trade union positions

The positions of employees and trade unions in Europe with regard to employee financial participation are basically just as disparate as the participation schemes practised in the individual EU Member States. There is however one common strait to be found in trade union positions, i.e. that (collectively agreed) wage increases and reliable and transparent pay have priority over participation schemes.

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EC initiatives to promote financial participation schemes in Europe

Alongside initiatives in individual European countries the EU itself has cautiously taken the first steps towards the political support promotion of the idea of financial participation since the beginning of the 1990s.

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Bibliography

A selection of relevant publications and articles

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Overview table

The Situation of Employee Financial Participation in the EU-28

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Wilke, Maack and Partner (2014) Country reports on Financial Participation in Europe. Prepared for www.worker-participation.eu. Reports first published in 2007 and fully updated in 2014.

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