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Financial Participation

The commonly used employee financial participation schemes in France – voluntary gain-sharing, deferred profit-sharing and employee savings programmes – have three main characteristics: 1) the schemes are not mutually exclusive. An employee can engage in a number of schemes; 2) under certain circumstances, schemes can interact with one another; 3) each scheme has its own individual objective. Profit-sharing is not just seen as a financial motivation for the employee, but also entails the distribution of profits and their investment in employee shares or saving plans.

French legislation provides specific support for different forms of employee financial participation.1

Voluntary gain-sharing

Gain-sharing, the oldest form of employee financial participation, was introduced in 1959 and may be used by any company irrespective of its size, legal status or area of business on a voluntary basis. The level of participation is dependent key success figures in a company, for example: profit, productivity, reduction in accident rates or the level of rejects produced. In 80% of all cases company profit is used as the determinant. Distribution is in the form of a non-deferrable cash bonus. To benefit from tax incentives, the programmes have to meet the following requirements:

  • Open to all eligible employees (collective);
  • The payment of a bonus must contain an element of risk and be calculated on the basis of a company’s key success or performance figure;
  • Profits shared must not exceed 20% of the total gross wage bill.

Gain-sharing arrangements are set down either in a collective wage settlement, an agreement between management and trade union or works council, or agreed upon by a two-thirds majority of staff. The level of participation must not be pre-determined and is dependent on agreed factors (profit, performance, etc) determining a company‘s success within a given period (minimum three months of a calendar year). The level of gain-sharing can either be uniform or dependent on salary scale or seniority.

Monies invested in company savings plans are not affected by the profit-sharing limit (20% of the total wage bill). The amount of distributed profit per employee must not exceed half of the assessment ceiling used in calculating social security contributions. Employees can invest their profit share completely or partially in a company savings plan. The level of gain-sharing can be calculated for a whole company or individual business units. Payments must be made within seven months of the end of the given assessment period. They are exempted from social security contributions. They are also exempted from tax if the employee invests them in a savings plan for a set retention period. The company can claim tax benefits by deducting shared profit from taxable income (shared profits are deductible from corporation or income tax).

Compulsory Deferred Profit-Sharing

”Compulsory“ profit-sharing was introduced by decree in August 1967. All companies employing 50 workers or more are obliged by law to participate employees in the financial success of the company. All such companies must establish a deferred profit-sharing fund (RSP), the level of which is calculated on the basis of a legally binding or otherwise pre-determined profit-sharing formula.2 Companies sharing profits at a rate above the minimum RSP are permitted to use an amount equal to 50% of the sum exceeding the minimum RSP for tax-free investments. Companies with less than 50 employees can use this model on a voluntary basis. Any amounts paid within compulsory profit-sharing are eligible for income tax benefits, just as they are if paid within voluntary gain-sharing.

The same criteria are used for applying compulsory profit-sharing as for the voluntary schemes. Company agreements on profit-sharing can be entered for a limited or unlimited period. There is a legal requirement that annual profit must exceed 5% of a company’s equity before employee profit-sharing comes into effect. Provided the financial year ended with a profit, the level of profit-sharing is calculated according to the predetermined formula. The employer transfers this calculated amount into a special profit-sharing reserve. Each employee has a personal claim to his share of the reserve dependent on the height of his salary (up to a fixed limit). No employee may receive an amount exceeding 75% of the assessment ceiling used in calculating social security contributions.

In contrast to the voluntary gain-sharing there is a minimum retention period of five years on compulsory profit-sharing. In the absence of any specific company agreement this period is extended by law to eight years. Employees only have access to funds after the end of the retention period, though there are certain exceptions, for example when an employee marries, has a child or ceases employment with the company. The regulations on the administration of these profit-sharing reserves permit the conversion of funds into employee shares or other forms of employee savings in certain cases.

Due to their compulsory character deferred profit-sharing is more common in France than voluntary financial participation schemes.

Employee savings programmes

Employers may establish company voluntary savings programmes, through which employees can purchase stock under advantageous tax and social security conditions. The savings programmes are used for either broad-based investments, employee shares or retirement savings plans. The schemes arise from the idea that wealth formation, financial participation and old age provision should be linked. Three forms of savings programmes are available in France:3

Company savings plans (PEE – Plan d`Epargne Enterprise)

A company savings plan can be established either unilaterally by the employer or by joint agreement with employee representatives. To be eligible for tax and social security incentives, the plan must be registered with the French employment administration. One important way of implementing employee share ownership is a closed investment fund, the ‘Fonds Commun de Placement d’Entreprise’ or FCPE.4 FCPE are widespread in France. They are a kind of public fund for the employees of a company. The fund receives the company shares held by employees in accordance with the participation plan and comprises mainly the shares of the company or of the parent company. The fund can be supplied from several sources, mainly from employers’ contributions and employees’ payments, who can pay in up to 25% of their annual gross income.5

Employees who join a participation scheme acquire for payment share in the FCPE, in other words, in the fund. The shares have a retention period of at least 5 years. During this time the employees cannot have access to their shares. Only in a few exceptional cases, such as the ending of the employment relationship do employees have the right to dispose of their shares ahead of time. After the expiry of the retention period or in case of early release the resources accumulated in the FCPE are paid out on demand to each individual employee. For that purpose they must sell their shares to the fund, against which they receive the market value. Dividends arising on FCPE shares during the retention period are usually not paid out to the participating employees but reinvested by the FCPE.

The use of an FCPE makes the administration of bonds easier for both the shareholders and the enterprise. The fund is managed by an asset manager. A supervisory board is set up for the fund, comprising representatives from the firm and the employees. Its tasks include scrutinising the FCPE management report and the year-end accounts, exercising shareholders’ voting rights and approving changes in the FCPE.

The funds are offered as structured or traditional forms of investment. The structured kind guarantees a payment to the employee at maturity, even if the share price falls below the issue price. Dividends and markdowns on the issue price do not go directly to the employees, but a used partly to finance the guarantee. In the case of the traditional variant the employee receives 100% of the capital gains, but bears the full risk if the share price falls below the subscription price.6

Inter-company savings plans (PEI – Plan d`Epargne Interentreprise )

In order to give the employees of SMEs access to forms of capital formation the PEI represents s further capital formation plan whose establishment and administration costs are borne by several participating SMEs.

Company retirement savings plans (PERCO – Plan d´Epargne pour la Retraite Collective)

The PERCO scheme involving savings plans for company pensions targets retirement savings. Employees can pay monies from gain-sharing and profit-sharing schemes and the PEE/PEI savings plans into a company-based retirement account. This is a long-term investment, maturing on retirement. The amount saved is paid out as a pension or as shares. The PERCO scheme is exempted from tax and social security contributions.

A reform of the Pension Act gives greater support to PERCO pensions from 2011 onwards. For example, balances on an overtime account may be taken into account. In cases where no overtime account exists, five flexdays can be transferred to the PERCO. As part of every PERCO, a controlled fund (“fonds pilotés”) must be set up for the purpose of reducing the investment risk depending on the age of employees. Pension schemes applying to a specific group of employees are only allowed when a PERCO or a pension guarantee scheme also exists for all employees of the company.7

In 2012, almost 160,000 companies had PERCO schemes (8% more than in the previous year). 1,250,000 employees (30% more than in the previous year) had paid in more than €6.7 billion (34% more than in the previous year).8

In 2010 8.8 million employees were entitled to participate in at least one of the employee share ownership/profit-sharing or employee savings schemes. This corresponds to 57.3% of the employees in the private sector in France (except for agriculture).

Overall, mandatory deferred profit-sharing is most popular, applying to 44.8% of employees in France. PEE is available to 42% of employees, gain-sharing to 37.3% and PERCO to 14.4% (data for 2010).8

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.