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Glossary

Abbreviations and Terms Related to Employee Financial Participation

Approved profit sharing scheme (APSS): An all-employee share model providing a tax efficient method of offering company shares to employees (especially in Ireland). Employees are entitled to convert an otherwise taxable profit-sharing bonus into shares in the company that employs them. Normally, the shares are held in trust for a definite period of time, for example two years. Depending on the holding period the shares can be sold free of income tax.

Approved scheme: A programme that is approved by the revenue and is in accordance with legislation; this makes the scheme eligible for tax concessions.

Asset accumulation programme: A programme that enables employees to set aside a portion of their pay (and perhaps receive contributions from the employer) in an account that is invested for a period of time (particularly common in Germany).

Bond: A certificate of indebtedness issued by a corporation (or a government entity), which pays a fixed cash coupon at regular intervals. The coupon payment is generally a fixed percentage of the initial investment. The nominal value of the bond is repaid to the investor upon maturity.

Broad-based plan: A programme open for all employees on similar or equal terms, which may be defined in a collective agreement; the opposite of a discretionary scheme.

Buy-One-Get-One-Free scheme (BOGOF): A scheme in which the company matches each share in the company purchased by an employee with a free share (especially common in the UK).

Capital savings: Employees are encouraged to financially participate in their own company’s capital and the capital of other companies, in principal within specific savings schemes. The regulations offer incentives depending on individual workers’ savings and employer contributions to their savings.

Cash-based profit-sharing (CPS): A predetermined share of the company’s profit is distributed among the employees and paid out directly and in cash.

Cranfield Network on Comparative Human Resource Management ( CRANET): A multi-country dataset on human resource management practices, coordinated at Cranfield School of Management (UK). In 1999/2000 and 2005 surveys were undertaken to analyse the incidence and characteristics of share ownership and profit-sharing schemes in EU member states. The data were collected by academic research groups in each of the constituent countries.

Deferred Profit-sharing (DPS): A predetermined share of the company’s profit is distributed among the employees. Employees may receive the bonus (whether in cash or shares) only after a predetermined period of time.

Discounted shares: Employees may buy company shares at a discounted price, often as part of a profit-sharing programme.

Employee Buy-Out (EBO): A form of acquisition where a company’s existing employees buy or acquire exclusively the company’s shares.

Employee Direct Participation in Organisational Change (EPOC): A survey conducted on behalf of the European Foundation for the Improvement of Living and Working Conditions in 1996 to chart developments in the changing world of work. The focus of EPOC was to show the extent of direct employee participation and its impact on the modernisation of work organisation. Therefore, the survey analysed the situation of financial participation in 10 EU countries.

Employee loans/staff loans: The employee grants the employer an interest-bearing loan that can be funded by wages or salaries, special payments (profit-sharing) or directly by the employee’s assets (widespread in Germany). The interest rate can be fixed or linked to company performance.

Employee share: A share held by an employee. The American term is employee stock.

Employee share investments: A share of company profits is held in trust and invested in the name of the employee. Investments may be made in the employee’s company, but also other assets may be acquired.

Employee Share/Stock Ownership (ESO): A general term for programmes in which the employee participates indirectly on the basis of participation in ownership in enterprise results.

Employee Share Ownership Plan (ESOP): A programme in which an agreed percentage of the share capital of the company is held in trust on behalf of the employees. Intermittently, shares are allocated to each employee’s ESOP account by the trust, run on behalf of the employees. Usually, an ESOP offers a tax advantage for both employer and employees.

Employee share ownership trusts (ESOT): The trusts are run on behalf of the employees. Elected representatives of the work force, trade unions and normally one professional trustee manage the ESOT.

Employee shareholding: Employees own one or more shares of stock in the employing company, other companies, or both. Employee shareholding can be individual or collective.

Employee stock options: Shares in the company that are offered to employees, in contrast to discretionary stock options

European Working Conditions Survey (EWCS): A research project conducted by the European Foundation for the Improvement of Living and Working Conditions every five years to provide an overview of working conditions throughout Europe. The survey has been carried out four times (1990/91, 1995/96, 2000 and 2005). In 2005, fieldwork was carried out in all EU-25 countries, plus Bulgaria, Romania, Turkey, Croatia, Norway and Switzerland, including analysis of the incidence of financial participation.

Financial participation scheme: A programme promoting employee participation in profits and enterprise results.

Gain-sharing: Gain-sharing is similar to profit-sharing. Rather than connecting bonuses with improved financial performance, gain-sharing directly rewards employees for improvements in operational efficiency above a predetermined target (especially in Ireland). Criteria determining gain-sharing bonuses may be waste levels, on-time deliveries, defect rates, customer complaints, and so on.

Individual employee share ownership: A share purchase plan through which a certain percentage of the shares of the company (either ordinary shares or special shares reserved for employees) are made available to individual employees. Offered at a discounted rate, the shares allow their owners to participate indirectly in the performance and results of the company through dividends or the appreciation of employee-owned capital, or a combination of both.

Leveraged buy-out (LBO): Deals in which a company is bought with predominantly borrowed money.

Leverage-Lease-Buy-Out (LLBO): A form of so-called liquidation privatisation applied not to incorporated companies, but to state enterprises. A newly established private company concludes an agreement with the State Treasury to lease the assets of the state enterprise for a definite period of time, for example 15 years. So-called employee companies emerged though LLBO privatisation (especially in the new EU member states).

Management Buy-Out (MBO): A form of acquisition where a company’s existing management (or executives) buy or acquire exclusively the company’s shares.

Management Employee Buy-out (MEBO): A form of acquisition through which both a company’s existing management (or executives) and employees buy or acquire the company’s shares.

Pension scheme: A plan set up by an employer to provide employees with income during retirement. A defined benefit plan guarantees a certain payout at retirement, according to a fixed formula that usually depends on the employees’ income and the number of years of membership in the plan.

Promotion of Employee Participation in Profits and Enterprise Results (PEPPER): A research project on experience with employee financial participation in Europe conducted on behalf of the European Commission. The survey has been carried out three times (1991, 1996, 2006). The present PEPPER III Report extends the previous two reports, which focused on the former EC/EU countries, to cover the new EU member states and two candidate countries.

Preferential employee share ownership: In contrast to ordinary shares, whose value depends on the size of the shareholding compared with the value of the company as a whole, preference shares have a fixed value. Whereas ordinary shares carry one vote for each share, preference shares have preferential rights to a dividend and to repayment. Preference shares are often considered as a loan in the form of shares.

Profit-related pay (PRP) scheme: A programme establishing a link between a percentage of employees’ pay and changes in the profits of their business (especially common in the UK and the US). Profit-related pay is mostly a matter of wage substitution.

Profit-sharing (PS): An agreement to pay employees a share of the profits or wealth created by the company in addition to their regular pay. The payments are explicitly and directly linked to the profits of the company, or some similar measurement of corporate performance in the form of cash bonuses, cash transfers to employee savings funds or free equity shares.

Restricted stock plans: Often an executive plan. Employees are awarded a future interest in shares, which is subject to certain restrictions, for example performance criteria. The shares are granted at a discount or at zero cost after a restricted period when the criteria are fulfilled.

Savings scheme/savings plan: A defined contribution plan to encourage employees to save. Employers often contribute to the plan, while making use of tax provision advantages.

Save-As-You-Earn scheme (SAYE): Normally in cooperation with an authorised savings institution, the employees save a fixed sum every month for a definite period of time (especially common in the UK). In this way no income tax is payable on the grant or exercise of an option, if the scheme has been approved. At the end of the savings period the employees can either take the cash or acquire shares in the company at a predetermined price.

Share allocation: Providing shares to employees under a scheme

Share-based profit-sharing (SPS): Depending on company profits, the programme offers employees the possibility to acquire shares in the company for free or on preferential terms. Besides distribution among the workforce, the shares may be held in trust on behalf of the employees.

Stock Appreciation Rights (SAR): Right granted to an employee to receive a bonus equal to the appreciation in the company’s stock over a specified period. Comparable to employee stock options, the holder benefits through SARs from an increase in stock price. The difference between a SAR and an employee stock option is that the employee is not required to pay the exercise price, but rather obtains the amount of the increase in cash or stock.

Stock option plan/share purchase plan: An arrangement for employees to acquire company shares in the future through previously arranged deals. By exercising the options, usually under favourable conditions, employees may increase their share ownership. Shares can be ordinary company shares or special shares specifically set aside for employees, such as preference shares.

Stock ownership: Employee Stock Ownership Plan is an American term that basically refers to stock option programmes. The difference between Employee Share Ownership Plans (ESOPs) and other stock ownership plans is that ESOPs address a greater number of employees.

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.

All Financial Participation

Sources:

Association of Employers of Slovenia ZDS (2006): Financial Participation of Workers in CEE. Recommendations and Prospects. Reference Book

Lowitzsch, J. et al. (2006): Pepper III Report: Promotion of Employee Participation in Profits and Enterprise Results in the New Member and Candidate Countries of the European Union

Poutsma, E. (2001): Recent Trends in Employee Financial Participation in the European Union

Voß, E., Wilke, P. and Maack, W. (2003): Mitarbeiter am Unternehmen beteiligen. Modelle, Wirkungen, Praxisbeispiele

Welz, C. and Fernández Macías, E. (2007): Financial participation of employees in the European Union: Much ado about nothing?