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Financial Participation

The Finance Act of 1982 mark the entry of government into the field of financial employee participation. This legislation was intended to encourage the voluntary and widespread adoption of share-based profit-sharing. Finally, government offered tax concessions for companies and their individual employees. Indeed, such concessions would only be granted to companies establishing approved schemes.

In the 1984, 1986 and 1995 Finance Acts the government introduced a series of amendments considered to make the schemes more attractive to companies and participants.1 Since the early 1990s, government policy towards State-owned companies has changed in favour of increased privatisation and commercialisation. One aspect of this alteration in policy has been a provision for employees of State-owned companies to get shares in the company that employed them in the event of partial or full privatisation. The Finance Act of 1997 limited provisions to facilitate this outcome, though the legislation can also be applied to companies which are privately owned.

Financial participation schemes are widespread in Ireland in particular in large and multinational companies.2 According to the findings of the Annual Economic Survey of Employee Ownership in European Countries in 2012 62.5% of the largest companies in Ireland offered broad-based (share) participation schemes for their whole workforce (European average 52.8%).3 According to the results of the “European Company Survey“, a survey of more than 27,000 HR managers in Europe conducted in 2009, 11% of private-sector Irish companies with 10 or more employees offer their employees a profit-sharing scheme. Compared with other European countries, this is a slightly below-average figure (the 30-country European average is 14%). The prevalence of employee profit-sharing schemes does however rise in line with company size. 10% of companies with 10-49 employees, 13% with 50-199 employees, and 22% of companies with more than 200 employees have a profit-sharing scheme.4 The survey also shows that 6% of Irish private-sector companies offer their employees share ownership schemes (European average: 5%).

According to the results of the European Working Conditions Survey (EWCS, 2010), based on a questionnaire of employees, the level of incidence of profit-sharing schemes in Ireland is 5.7% and that of employee share ownership 2.4%.5

The National Workplace Surveys6 carried out in 2009 showed the following distribution of employee remuneration and participation systems in Ireland:

 


 

Public sector (%)

Private sector (%)

Total

Any reward system

72.1

64.8

66.4

Regular increments

60.0

40.7

46.9

Share options, profit-or gain sharing

2.8

21.0

17.0

Performance-related pay

6.1

21.5

18.2

Non monetary incentives

2.0

13.0

10.6

Bonus schemes

3.3

36.9

29.5


 

There are five key employee financial participation schemes in Ireland:7

Approved profit-sharing scheme (APSS)

An approved profit-sharing scheme (APSS) is an all-employee share model which provides a method of offering company shares to employees. The aim of an APSS is to encourage share ownership at all levels within a company. Profit-sharing concerns the sharing of company profits by providing employees with a variable income, added to their fixed income, which is directly connected with profits. Profit-sharing schemes may be share-based (i.e. shares are usually placed in a fund) or cash-based (i.e. immediate payment). Such schemes are mainly to be found in the software / information technology sectors.

In 2008 10% of private-sector employees participated in APSS schemes. APSS schemes are more widespread in large companies in comparison with smaller companies.

Employee share ownership plan (ESOP)

Employee share ownership plans (ESOPs) are most widespread in Anglo-Saxon countries. Such participation schemes play a role especially in the transfer of company shares to potential successors, the employees or external investors. Company shares can in this way gradually come into up to 100% employee ownership. The basic idea is that the employees do not necessarily have to provide their own capital, because the sale of the purchase of the company by the workforce takes place in several steps and is financed by profit-sharing on top of wages. If a larger proportion of company capital is to be taken on at short notice credit financing is generally used and serviced from company profits.

The shares are financed from payments by the company (out of profits) to an independent company or trust fund (ESOP trust) that has to be established or from bank loans to the fund serviced by the company. The fund holds the shares in trust for the employees.

Gainsharing (as a form of profit-sharing)

Gainsharing, which is similar to profit-sharing commonly involves a group incentive payment system whereby gains arising from quality, productivity, customer service or cost-reduction improvements over a particular time period are shared with employees. Thus, gainsharing directly rewards employees for outstanding performances / improvements in operational efficiency above a pre-determined target based on sharing financial gains. Criteria that may be used to determine gain-sharing bonuses also could include waste levels, defect rates, on-time deliveries, customer complaints, etc. There is no standard gainsharing plan which can be introduced into every single company. Furthermore, gainsharing is linked to an explicit measurement and is not universally beneficial.

Save-as-you-earn scheme (SAYE)

A “save-as-you-earn scheme” (SAYE) is an all-employee share scheme which can be built up by a savings plan with contributions (allocation of stock options, part of wages and/or cash savings) from employee and/or employer. The amount of participation can be between 12 and 500 euros a month.8 SAYE schemes are most common in the UK and in Ireland. Employees will be given the right to purchase a certain number of company shares at a fixed price at a particular time. These shares will be bought by using money the employees have saved under the SAYE arrangement. Generally, SAYE schemes require approval from the Revenue Commissioners. In cooperation with an authorized savings institution, employees save a fixed sum of money every month for a defined period of time. At the end of the savings period employees can either acquire shares of the company at a pre-determined price or take the cash. There were 125 SAYE schemes operating in Ireland in 2008. In terms of participating employees, these are the most widespread schemes.9

Employee share ownership trust (ESOT)

ESOTs are used as a mechanism to enable shares to be acquired, held and allocated to employees. ESOTs can raise a loan or borrow to acquire shares in the company that established it. This system is very similar to the American leveraged employee stock ownership plan whereby money can be borrowed for the purchase of employer securities or shares. ESOT schemes are not particularly widespread and are usually used in connection with APSS schemes.10

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.