COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 08.01.1997 
COM(96)697 final 
REPORT FROM THE COMMISSION 
PEPPER II 
promotion of participation by employed persons 
in profits and enterprise results 
(including equity participation) 
in Member States 
1996 

TABLE OF CONTENTS 
EXECUTIVE SUMMARY 
I INTRODUCTION 
II OVERVIEW OF THE SITUATION IN TOE MEMBER STATES 
HI CONCLUSIONS 
Abu 
EXECUTIVE SUMMARY 
This report gives an overview of the ways Member States have promoted the participation by 
employees in profits and enterprise results since 1991, following the adoption of Council 
Recommendation of 27 July 1992 (92/443/EEC). It has been prepared on the basis of the replies 
by the Member States to a questionnaire. 
The consistency of the findings of the incentive effect of schemes on profitability is remarkable. In 
all cases profit-sharing is associated with higher productivity levels no matter what methods, model 
specification and data are used. Other positive effects of the schemes are on wage flexibility, 
employment and employee involvement. The development of financial participation schemes is 
strongly influenced by government action, in particular, by the availability of tax incentives. 
The divergency of government policies in individual EU-countries must be seen against a back­
ground of differing traditions and practices concerning financial, participation schemes. Since the 
first PEPPER report in 1991 there have not been any great changes in the general approach of 
government policy to PEPPER schemes in EU-countries. France and the UK have a long tradition 
of encouragement of financial participation. In Ireland, Netherlands and Finland government 
support for PEPPER appears to be increasing. In these countries reference is made to the need to 
achieve greater employee involvement, improved productivity, competitiveness and wage flexibility 
on labour markets. Very recently, in Germany, Spain and Italy, the authorities have made strong 
appeals to the social partners to promote these schemes in the course of their negotiations. In all 
other Member States, PEPPER has been discussed but official government support has been limited 
or lacking. With the exception of France and the UK, the legislation in the EU countries mainlv 
favours share-ownership. A number of countries reported the trend towards privatisation of public 
bodies as a possible vehicle for greater interest in PEPPER schemes. 
Most legislation on promoting financial participation schemes in Member States on PEPPER has to 
do with incentives such as fiscal or other financial advantages. Hie incentives range from the tax-
free issue of shares or bonds to employees to tax-free amounts on distributed profits. Other 
advantages are exemption from social insurance contributions. These incentives are provided in 
some countries for both the employer and the employee. In addition, sometimes employers are 
allowed to deduct the costs of the scheme. In some cases problems anse with social charges due to 
disputes about whether the benefits should be regarded as normal wages subject to social charges 
or as some other type of remuneration not subject to these charges. ' 
There are certain legislative requirements set in Member States that mainly relate to the 
possibilities of eligibility for tax relief. These requirements consist of a minimum percentage of 
personnel covered by the scheme, eligibility criteria, retention periods and statutory and trustee 
requirements, etc. 
Recent arguments for enhancing productivity, employment and wage flexibility are stimulating 
discussions on proposals. Occasionally companies issue shares to their employees when they are 
2 
facing economic and financial problems. Without sufficient information this cames great nsks for 
employees and has led to scepticism on the part of parties concerned. 
Active campaigns on promotion of PEPPER schemes are found in France, the UK, Finland, the 
Netherlands and Ireland. Other countries like Germany and Italy refer in this respect to the * 
responsibilities of the social partners. In Ireland, a specific National Programme was launched. In 
Austria representative parties have developed a learning programme which was included in the 
training for works councils and employers. There is at present no exchange of information between 
Member States regularly either on legislation or good practices. 
In the framework of their respective competence the following ideas for the reinforcement of 
PEPPER could be explored further by Member States, Social partners, and in matters of exchange 
of information and good practices by the Commission: 
• Consider the development of national framework legislation . 
• Clear the distinction between wages subject to social charges and the advantages derived 
from PEPPER schemes. 
• Enhance the eligibility of categories of beneficiaries to PEPPER schemes. 
• Provide for a stimulating climate. The development of National Institutional Bodies that 
creates systems for promoting PEPPER in the national context could be helpful 
• Set up PEPPER schemes during privatisation of public bodies thus getting experience and 
gaining and creating awareness of the possibilities of these schemes with a wider audience. 
• Integrate PEPPER schemes into programmes on employee-involvement to unleash the 
productive power of the workforce and to improve competitiveness and quality of 
production. 
• Make an appeal to the social partners to promote these schemes dunng their negotiations, 
and making references to the expected positive effects of the schemes on productivity, 
wage flexibility, employment and employee involvement. 
• Avoid irresponsible risks for employees in case of the issue of shares to employees when 
companies have economic and financial problems. 
• Tackle the problems with intra-community schemes of subsidiaries in different national 
circumstances by promoting the exchange of good information about the different rules and 
procedures of PEPPER in the Member States. 
• Promote the development of clear and understandable models and plans for introduction of 
schemes that are manageable and understandable by management and labour as to avoid 
the complex and expert character of PEPPER schemes 
3 
demonstration projects on good practices and the promotion of the exchange of information 
in workshops and conferences, and other communications. Preferably, these actions should 
be directed to the social partners. 
4 
I INTRODUCTION 
I. Scope and Objectives 
Council Recommendation (92/443/EEC) of 27 July 1992 on the promotion of participation by 
employed persons in profits and enterprise results (including equity participation) commits the ' 
Commission to prepare a report within four years of the adoption of the recommendation. This 
report has been prepared on the basis of the replies by the Member States to a questionnaire on 
possible actions based on the recommendations. 
The Explanatory Memorandum of the Recommendation of July 1992 contains an extensive 
description of the context within which the Recommendation was made. In the process of 
preparing this Community instrument of July 1992 the Commission had funded a research project 
with the specific aim of obtaining a good overview of "the state of the art" concerning financial 
participation by employees in the EC. The results of this project were described in the so-called 
"PEPPER-Report" (PEPPER standing for "Promotion of Employee Participation in Profits and 
Enterprise Results") . 
The Recommendation of July 1992 was largely based on this report. The Recommendation invited 
the Member States to acknowledge the benefits of a wider use of schemes to increase the 
participation of employed persons in profits and enterprise results by means of profit-sharing, 
employee share-ownership or a combination of both, taking into account the responsibilities of 
management and labour, in accordance with national law and/or practice. The Recommendation 
called upon Member States to: 
ensure that legal structures are adequate to allow the introduction of the financial 
participation schemes referred to in this recommendation; 
consider the possibility of according incentives such as fiscal or other financial advantages 
to encourage the introduction of certain schemes; 
encourage the use of such schemes by facilitating the supply of adequate information to all 
relevant parties; 
take account of experience gained in other Member States when deciding on which 
participation schemes to promote; 
ensure that in the context of the laws, regulations and practice possibly existing in the 
Member States the parties concerned have a wide range of options or arrangements 
available, the implementation of which would, when suitable, be the subject of 
consultations between employers and employed persons or their representatives; 
ensure that this choice can be made at a level which, taking account of national collective 
Publication: Supplement 3/91 lo Social Europe. 
5" 
bargaining legislation and/or practices, is as close as possible to the employed person and 
the enterprise; 
contemplate and/or encourage consideration of the points set out in the Annex of the 
Recommendation (see Annex II) when new financial participation schemes are being 
prepared or when existing schemes are being reviewed; 
examine, after a period of three years following the adoption of this recommendation, the 
data available at a national level on the development of financial participation by employed 
persons and communicate the results to the Commission; 
enhance management and labour's awareness of the above matters. , 
Finally, the Commission said that it would present a report to the European Parliament, the 
Council and the Economic and Social Committee on the application of the recommendations on the 
basis of the information supplied to it by the Member States. The questionnaire that was distributed 
to the Member States asked for developments and any actions in respect of the above 
recommendations. 
In general, the objective of this report is to give an overview of the ways Member States have 
developed schemes and performed actions to promote the participation by employed persons in 
profits and enterprise results since the Council Recommendation adopted in 1992. 
2. Overview of schemes for financial participation by employees 
There is a wide range of different forms of employee participation in enterprise results. These can 
be grouped into two main categories, which may or may not co-exist and may in some cases 
overlap: profit-sharing, and employee share-ownership2. 
A Profit-sharing 
"Profit-sharing" in a strict sense implies the sharing of profits by providers of both capital and 
labour, by giving employees, in addition to a fixed wage, a variable part of income direcdy linked 
to profits or some other measure of enterprise results. 
Profit-sharing provides employees with a regular bonus paid out of profits which would normally 
be allocated to capital but, contrary to traditional bonuses linked to individual performance (e.g. 
piece rates), profit-sharing is a collective scheme applied to all, or a large group of employees. 
In practice, profit-sharing can take various forms. At the enterprise level, it can provide employees 
with immediate or deferred benefits; it can be paid in cash, company shares or other securities; or 
it can take the form of allocation to specific funds invested for the benefit of employees. At higher 
levels, profit-sharing takes the form of economy-wide or regional wage-earners' funds. 
Cash-based profit-sharing links employee bonuses directly to some measure of company 
performance (profits, revenue, value-added, or other), most frequently providing an immediate 
payment. However, it can also be a deferred scheme: e.g. if a certain percentage of profits is 
allocated to company funds which are then invested in the name of employees. A distinction is 
also made between gain-sharing and profit-sharing although both are clearly related; gain-sharing 
typically consists of a group incentive pay system that is geared to productivity, cost reduction or 
other criteria, less comprehensive than profitability. 
Share-based profit-sharing consists of giving employees, in relation to profits or some other 
measure of company performance, a portion of shares of the company where they work. These are 
usually frozen in a fund for a certain period of time before the workers are allowed to dispose of 
them. When shares are subject to a minimum retention period the term "deferred profit-sharing" is 
used. 
B Employee share-ownership 
Employee share-ownership provides for employee participation in enterprise results in an indirect 
way, i.e. on the basis of participation in ownership, either by receiving dividends, or the 
appreciation of employee-owned capital, or a combination of the two. While such schemes are not 
See for more details on the theoretical discussion and empirical research The Pepper Report: Promotion of Employee 
Participation in Profits and Enterprise Results in the Member States of the European Community, by M. Uvalic, Supplement 
3/91 to Social Europe, Brussels, 1991 
directly related to company profits, they are related to company profitability and so enable 
participants to gain from the growth of company profits. 
Employee share-ownership can be both individual and collective. Shares can be in the company • 
where the employee works or elsewhere. However, the draft Recommendation mainly focuses on 
those employee share-ownership schemes set up with the explicit intention of providing employees 
with an additional source of income related to enterprise results. 
Employee share-ownership can take many different forms. Typically a portion of company shares 
is reserved for employees and offered at privileged terms; or employees are offered options to buy 
their company's shares after a determined amount of time, under favourable tax provisions. 
Alternatively, an employee benefit trust is set up through Employee Share-Ownership Plans 
(ESOPs), which acquire company stock that is allocated periodically to each employee's ESOP 
account. Workers' or employee buy-outs of their companies are a special form of employee 
share-ownership. 
In the literature, the generic term "employee share-ownership" is frequently used to denote both 
share-based profit-sharing, and employee share-ownership; "profit-sharing" is sometimes used to 
refer to both profit-sharing in the strict sense of profit-related pay. and to share-based 
profit-sharing. The distinction between individual and collective employee share-ownership is also 
not always clear-cut. 
This report refers primarily to those schemes which are: internal «'applied within a company); 
collective (available for all, or a major part of employees); continuous (applied on a regular basis); 
and providing for employee participation in some measure of enterprise performance (whether 
directly or indirectly). 
In summary, the following PEPPER schemes can be distinguished: 
PS: profit-sharing 
SPS: share-based profit-sharing 
BPS: bond-based profit-sharing 
CPS: cash-based profit-sharing 
DPS: deferred profit-sharing 
ESO: employee share-ownership 
SO: stock options 
DSO: discretionary share options 
ESOP: employee share-ownership plans 
EBO: employee buy-outs 
See for the abbreviations used: Annex 2 
3. PEPPER schemes and their effects 
Whereas employee participation in decision making had been widely discussed, more limited 
attention has been paid to PEPPER. In particular until the PEPPER-report of 1991, little was , 
known about the concrete application of PEPPER schemes in practice, their diffusion or conditions. 
The first PEPPER-report gave a first insight into the practice in Member States and highlighted the 
main findings on the effects of PEPPER schemes on company performance. 
A complete explanation of the reasons why firms adopt PEPPER schemes seems impossible on the 
basis of current evidence. However, they are found more often in larger, more profitable firms, 
multinatinationals, financial sector companies and firms with higher than average skills. A 
considerable body of evidence suggests that the introduction of profit-sharing is associated with a 
rise in the level of productivity in the firm. 
Productivity effects 
As increased competition in product markets has led to a search for better company performance, 
attention has been given to ways of rewarding workers for their output, rather than for their time 
(input). The consistency of the findings on the incentive effect on profitability is remarkable. 
Profit-sharing is associated with higher productivity levels in every case, regardless of methods, 
model specification and data used . The experience to date suggests that probably cash-based 
schemes may have had more significant incentive effects than share-based schemes. This is 
supported by both econometric estimates and by attitude surveys . To attain the same beneficial 
effects as from cash-based schemes, firms setting up share-based schemes would have to offer 
more generous conditions than has been the case to date. 
Wage flexibility and employment 
The effects of profit-sharing on employment through greater wage flexibility are much more 
debatable, as the econometric evidence is inconclusive. On the one hand some earlier evidence for 
the UK suggested that profit-sharing has a positive and significant effect on employment, but more 
recent estimates show that the size of the effect is not necessarily very large. On the other hand, 
evidence from France suggests that profit-sharing has resulted in greater wage flexibility, less 
frequent adjustments in employment, and in higher and more stable employment growth. For the 
United States, there is some evidence that profit-sharing firms display lower employment 
variability over the cycle . 
These results on productivity and wage flexibility could have at least two beneficial effects which 
favour public policy attention and support. First, it would reduce the level'of unemployment. 
Second, it would increase the degree of attachment between employees and their companies, 
encouraging skill formation. The Pepper-report of 1991 reports that the incidence of PEPPER is 
still comparatively low despite recent growth in some cases. Given its potential benefits, this is 
surprising and underlines the importance of efforts to encourage the flow of relevant information 
3 See Pepper-report (1991) pl87-188; OECD (1995) Employment Outlook. Pans, July 1995, p. 160; See for UK: 
Wadhwhani and Wall (1990); and, Cable and Wilson (1990). 
4 See Pepper-report ( 1991 ), p. 187 
5 See OECD (1995), p.160; see for UK: Bradley and Eslrin (1992). 
both about schemes and about appropriate ways of introducing schemes in different types of • 
companies and in different national circumstances. For example, some studies have noted that 
productivity gains are more likely to occur in firms with a participatory atmosphere, i.e. with more 
employee involvement in general (industrial 
10 
democracy and direct participation). In recent years there has been more discussion6 on the 
potential opportunities for public policy and action at other levels to promote employee 
involvement. 
Role of governments 
In addition to the above arguments in favour of PEPPER schemes, reference can be made to an 
important argument in the explanatory memorandum of the Commission's proposal for the 
Recommendation of July 1992. The development of financial participation schemes is strongly 
influenced by government action. Governments are primarily responsible for the creation of a legal 
and fiscal framework that may favour such schemes but may also impede their introduction. This is 
illustrated by the finding of the PEPPER-report that in those countries where a particular type of 
financial participation scheme has been encouraged by government, the schemes most commonly 
introduced by companies are indeed the ones promoted through official government measures. In 
particular the availability of tax incentives makes a big difference. Such incentives may only be 
needed temporarily: once the relevant scheme has gained a certain momentum, the incentive can 
often be reduced or phased out. The findings of the PEPPER-report suggest that the potential 
advantages of financial participation schemes are largely enhanced by tax incentives. 
Finally, governments can encourage the use of financial participation schemes by supplying 
adequate information to all potentially interested parties including in particular information about 
the experiences acquired in other Member States. 
Different official government positions in individual Member States must be seen against a 
background of differing traditions and especially large differences in actual experience in practice 
with regard to financial participation schemes. In 1991, it was reported that in France and the UK 
government policies had been actively encouraging the use of financial participation schemes, for a 
considerable number of years. In Belgium. Denmark. Germany. Greece. Ireland. Italy and the 
Netherlands, financial participation schemes of various types had been the subject of national 
debate but government support had either been limited or lacking, or had emerged fairly recently. 
An important issue in political discussions in many countries had been, and to some extent still is, 
whether schemes at company-level, or more central collective schemes, ought to be encouraged. In 
Denmark. Germany and Italy in particular, the issue of economy-wide wage-earners' funds was at 
the centre of the debate, but due to the absence of a general consensus and insufficient support for 
compulsory collective arrangements, none of the proposals advanced had been adopted. In 
Luxembourg. Portugal and Spain, the financial participation issue had so far received only limited 
attention, nor had it been among the priority issues for discussion between the social partners. In 
the next chapter we will investigate whether interest in financial participation matters has increased 
in some of these countries. 
II OVERVIEW OF THE SITUATION IN THE MEMBER STATES 
See for instance, Ida Regalia (1995) Humanize Work and Increase Profitability? Direct participation in organisational 
change viewed by the social partners in Europe. European Foundation for the Improvement of Living and Working 
Conditions, Dublin; and the follow up of the White Paper Growth, Competitiveness, Employment, of the Expert Working 
Group Flexibility and Work Organisation. Report by G. Bosch, Supplement 1/95 to Social Europe, Brussels, 1995. 
11 
V&#£! 
This chapter gives an overview of the situation in each Member State. The general PEPPER tables 
included in this chapter present the diffusion of the schemes in the Member States. 
Belgium 
Since the adoption of the EU-Recommendation on PEPPER-schemes in 1992, the Belgian 
govemment has not taken new initiatives for the promotion of employee financial participation. 
The growth of financial participation in Belgium is still hampered by the lack of a consistent and 
specific legal framework and tax incentives, particularly for profit-sharing. 
From 1994 until the end of 1996 the Belgian government has even prevented the further growth of 
schemes by prohibiting the establishment of new financial participation plans in the context of the 
general wage freeze. 
However, since June 1995 under the new govemment programme financial participation is beeing 
actively discussed in Belgium during the examination by the govemment of legislative measures to 
encourage profit-sharing, as part of income-policy and wage moderation to stimulate employment. 
These plans, although still unclear, are now beeing discussed by the social partners in the context 
of a revision of "the Competitiveness Act" of 1989 and the wage formation system. 
Current legislation offers tax deductions for the acquisition of new shares by employees in the 
employing company, which cannot be sold before 5 years, and regulates some forms of employee 
share-ownership, such as new share issues reserved to employees on preferential terms, and stock-
options plans. There is no specific legislation, nor tax incentives for profit-sharing, either cash or 
deferred.. 
There are no statistics available on the diffusion of Pepper-schemes in Belgium. A survey carried 
out in 1991-1992 indicated that share schemes are more widespread than profit-sharing plans. They 
are applied in a variety of sectors but seem to be more usual in large industrial and commercial 
firms, in the financial sector and in multinational companies. PEPPER schemes in Belgium are 
mostly established on the initiative of management and much less as a result of collective 
bargaining. 
Up to last year, the Belgian govemment has remained ver}' passive about the promotion of Pepper-
schemes. Experiences from other EU-countries have only served as inspiration for a few proposals 
for laws formulated in the nineties. 
12 
GENERAL PEPPER TABLE 1 
Country 
Belgium 
Denmark 
Germany 
Greece 
Spain General situation: 
unfavourable but dis­
cussed today; PS and ESO 
• prohibited due to wage 
freeze 
Discussions in 1994 
Favourable except for 
CPS; appeal to social part­
ners 
No discussions 
Appeal to social partners Legislation 
Specific laws & 
Year of introduc­
tion: 
ESO: (1983,1986) 
SO: (1984,1990) 
Preferential share 
offers (1991 Act) 
On SPS and ESO 
(since 1958) 
Some on ESO; 
minor changes: 
1994 
Some on CPS 
(1984) and ESO 
(1987) 
Only general provi­
sions in Workers' 
Statute &• EBO 
(1986) Tax benefits 
Rallier limited 
especially for ' 
ESO an SO 
Some for SPS, 
BPS and ESO 
Only for ESO 
For both finns 
& employees 
substantial 
Minor, except 
for EBO Diffusion of PEPPER schemes 
Prevalent types: 
ESO 
Various of CPS 
& DPS, incl. PS 
certificates 
BPS 
ESO 
SPS 
ESO & DPS 
d.n.a. 
CPS No. of schemes/ firms 
Involved: 
Quoted companies 
multinationals; financial 
sector, 10% of large 
companics(survey) 
27 (1995) 
16 (1994) 
d.n.a. 
1,500-2,000 firms 
d.n.a. 
No. of collective agree­
ments with clauses on 
CPS: 1,087(1994) Employees 
involved: 
1994: 36,900 
employees 
d.n.a. 
d.n.a 
d.n.a 
d.n.a. 
about 1.5 
million 
(inventory 
1994) 
d.n.a. 
Covered by 
these agree­
ments: 
1.8 million Employee benefits or 
profit share / employee: 
d.n.a. 
5% distributable profits; 
roughly 1,5% to 6% of 
salary 
d.n.a. 
d.n.a. 
d.n.a. 
300 DM per year=0.6% 
of the average gross 
wage 
d.n.a. 
d.n.a Change 1991-1995 
d.n.a 
govemment plans for 
legislation of PS in 
near future; 
-modest but relatively 
steady interest 
slight increase 
d.n.a. 
slight decrease 
d.n.a = data not available; for abbreviations used see annex 1 of this report 
13 
Denmark . • • 
In Denmark there was much discussion of national employee funds during the 1970s and 1980s, 
but none of the proposals has been implemented. Denmark currently has no legislation designed to 
encourage cash-based profit-sharing, which is thought to be rare. 
There are, however, three PEPPER schemes: two based on shares (SPS) and (ESO), and one on 
bonds (BPS). All schemes are voluntary in that it is up to the individual undertaking to apply for 
permission to apply them (schemes involve certain tax concessions and must therefore be approved 
by the Minister for Taxation). 
There are two separate schemes covering employee shares. The first allows employees to buy 
shares at a preferential rate. It is a condition that each individual employee is entitled to purchase 
shares with a value of up to 10% of his or her wage. Employees are not taxed on shares, but if 
they dispose of them the normal rules on share profit taxation apply. There are no special statistics 
on the number of schemes or the number of employees covered by such schemes. 
The second type of share scheme was introduced in 1987 and allows each employee to be allocated 
free shares with a value of up to DKR 6 000 per year (but not exceeding 10% of his or her wage). 
A condition is that the shares are retained for seven years. The shares are not taxed on allocation, 
but the normal rules on share profit taxation apply when they are disposed of. 
There are no statistics of how many employees are covered, but the number of schemes is as 
follows: 
1987 
1988 
1989 
1990 6 1991 
10 1992 
20 1993 
20 1994 14 
16 
16 
16 
The figure for 1995 is not yet available. 
Since 1958 it has been possible to issue bonds to employees free of charge and tax-free. 
Employees do, however, have to pay tax on dividends. As of 1 January 1996 there are no tax 
implications for the employer, up to DKR 1 800 per employee. If the value of bonds exceeds this 
amount, the employer must pay a levy of 45%. To compensate, the full cost, i.e. the value of the 
bonds plus the 45% lew and dividends, is tax-deductible for the employer. 
To be approved, a scheme must be open to all employees and the value of bonds plus the 45% 
levy must not exceed 10% of the employee's annual wage. Bonds must be retained for five years. 
No statistics are kept of the number of employees issued with employee bonds, but the number of 
schemes is as follows: 
1992 
1993 
1994 
1995 
1996 32 
25 
28 
27 
5 (first quarter only). 
14 
It is difficult to provide an overall view of the diffusion of PEPPER schemes in Denmark, as only 
those mentioned above (which require approval) are registered. Similarly, there are no statistics of 
the number of employees covered. The number of schemes approved suggests a relatively steady 
but modest use of PEPPER schemes. 
In recent years a number of public limited companies have been set up in the state sector. The 
operation of the individual companies is subject to market conditions and the laws setting up these 
companies provide for the possibility of issuing employee shares. Furthermore, it is possible to pay 
performance-related salaries to employees in the state sector. 
Germany 
German legislation provides no incentives for profit sharing. However, there is a considerable body 
of regulations designed to encourage employee share-holding and capital accumulation. Direct 
guidelines to the parties concerned are not considered to be a responsibility of the German 
govemment. Employees' savings are invested in accordance with agreements with workers. It is 
possible for the social partners to develop their own type of scheme. The German govemment has 
recently taken the initiative to develop legislative regulations in which individual firm level 
schemes could be promoted, developed, disseminated and sustained within the context of central 
agreements between social partners. 
The regulations offers incentives related to individual workers' savings. Concessions are offered to 
low earners (single people: up to 27,000 DM; married: up to 54,000 DM annual income) and if the 
participation is committed in a specific form of investment for a minimum retention period of 6 
years. 
The concessions offered consist of a low bonus paid by the State which amounts to 10% of the 
invested money in productive capital up to maximum of 936 DM per year. 
In addition the Income Tax Law enables employees, who are offered price-reduced shares by their 
employers, to receive for these benefits exemption from tax and social insurance payments up to a 
maximum tax-free amount of DM 300, on condition that companies subsidise the acquisition up to 
50% of the interest value and that shares are frozen for a period of 6 years. 
While .Germany grants no concessions to cash-based profit-sharing schemes, they are relatively 
common in the small number of firms which also have deferred or share-based schemes. The 
number of the schemes in Germany has changed only slightly. Specific figures on the number of 
general profit sharing schemes are not available. The value of employee capital has risen from DM 
15 billion to DM 20 billion. Other sources report a slight increase in the number of employees 
covered. 
In 1995, the German government appealed to the social partners to consider employee share-
ownership and other related schemes as part of their wage-agreements. The^possible advantages of 
that wage policy for employment-growth, a more equitable income and capital distribution were 
also stressed in new initiatives regarding employee share ownership. The German government has 
tried to convince the social partners to encourage these schemes, but despite this appeal their use is 
not widespread in Germany. The situation in former East Germany is expected to be even worse. 
The German govemment reports the need for new initiatives from the social partners to help to 
create an environment for private employee investments to enhance employment growth; to 
encourage employee participation in capital; and to improve employee involvemçnt in enterprise. 
Greece 
15 
During the 1980's, especially after 1987, the Greek govemment actively supported PEPPER 
schemes through legislation offering tax incentives to both companies and employees. There is a 
special legal framework for employee participation in both enterprise profits and assets. Provisions 
regulate two principal types of PEPPER scheme, namely cash-based profit-sharing and employee 
share-ownership. They are voluntary. Since 1990 no specific regulations have been reported. 
Companies are allowed to distribute part of their net revenue or profits to their employees in cash. 
This may not exceed 15% of annual net profit per financial year. Companies adopting this form are 
obliged to draw up a list enumerating the beneficiaries, and the amounts granted to each individual 
employee, a copy of which must be sent to the workers' council. Both the employees and the 
company are granted tax benefits. The employee benefits are considered as income from moveable 
goods. Distributed profits are not included in employees' social security contributions and also 
since 1990 these distributed profits are exempt from employers' social security contributions. 
Companies are also allowed to distribute shares to their personnel or to the personnel of ancillary 
firms. For the employees the income deriving from these shares is exempt from tax and from 
social charges, while dividends and interest payments on shares distributed to personnel are subject 
to income tax on moveable assets. For the company, capital allocated for shares to be distributed to 
employees is exempt from tax, but cannot exceed 20% of profits. 
The general attitude is that interested parties (employers and workers) can make arrangements for 
promoting these schemes on a national, local, sectoral or occupational level. The bodies concerned 
are responsible for any agreements made in respect of specific arrangements and subsequent 
practices. In addition parties may also introduce arrangements by means of individual contracts and 
regulations. Choices may be included in collective labour agreements. 
Spain 
In Spain, any provisions concerning extra payments are regulated by the Workers' Statute. There is 
no discussion of specific policy and activities regarding PEPPER schemes. Spanish legislation does 
offer the possibility of introducing employee participation in enterprise profits, although no special 
benefits are provided either to firms or to employees. A 1986-law regulates employee buy-outs. 
There are no plans to introduce legislation to change these tax arrangements. 
Profits can be distributed in two different ways: as direct labour compensation or through the 
establishment of funds for specific collective goals. According to company tax law these profits are 
considered as labour costs on two conditions: that such compensation is included in collective 
agreements, and that the motive behind the compensation is for work done. For the allocation of 
funds specific categories are treated as reducible expenses. From the fiscal point of view profits 
related payments to employees are treated as normal wages. 
Since 19M employees are allowed to take over companies, so called workers' companies 
(SSAALL). This type <T worker-owned company, in which no less than 51% of capital is owned 
by its employees, may uiuk-i certain conditions have tire right t a 99% tax exemption from capital 
transfer tax. 
Then* IT ^O specific statistics on the schemes. General infomiation on the content of collective 
agreements wl»n.h include clauses on financial participation, suggests a slight decline in the number 
of clauses concerning bonuses directly related to productivity. Tax investigation has revealed that 
mainly large companies use this kind of incentive for their workers. 
16 
As a result of the limited rules in Spain in this area the social partners choose which particular 
participation scheme they want to use. It is through collective agreements and individual 
employment contracts that the type of participation which companies and employees regard as 
appropriate is fixed. A basic criterion in all cases is that participation should not be part of the 
basic wage but a supplement to it. Recently, as a major breakthrough, in the negotiations now 
under way account is being taken of the Government's proposal to link increases in wages and 
salaries with productivity improvements. 
France 
As a result of continuous govemment support for employee financial participation since the end of 
the fifties, French legislation offers a legal framework and generous tax advantages to a variety of 
financial participation forms: voluntary cash-based profit-sharing, deferred profit-sharing, employee 
share-ownership and company savings plans. The political consensus that PEPPER schemes should 
further be encouraged through official govemment policies has led to new legislative initiatives in 
1993 and 1994. The principal objective was to give financial participation a new impetus by 
removing a number of obstacles originating from the 1990 legislation, a simplification of existing 
regulations in the legislative framework of 1986 and an extension of fiscal incentives. 
Besides the already substantial tax benefits, the law of 1994 has particularly increased the tax 
advantages for deferred profit-sharing and company savings plans. Notably, these measures which 
aim to encourage long term savings and investment, are combined in the same law with specific 
measures to stimulate short-term consumption and encourage work-sharing by means of profit-
sharing. 
Cash-based profit-sharing in France is intended to provide a supplement to basic wages, linked to 
some measure to the economic performance of the firm. The 1994 law has reinforced and adapted 
some of the conditions to be fulfilled for tax relief (including social security contributions), such 
as: 
- the collective and variable character of the scheme; 
- the principle of no-substitution with other forms of remuneration; 
- the increase of the maximum proportion of the total gross payroll allocated as profit-sharing to 
20% (10% since 1990); 
- the principle of uniform calculations for all categories of employees. 
More than 2.5 million employees are now covered by about 8,000 agreements for cash-based 
profit-sharing. After a period a spectacular expansion in the second half of the eighties, the number 
of agreements declined markedly in the early nineties, due to a number of extensions of the 
compulsory deferred scheme to smaller companies. Since 1993 the number of schemes for cash-
based profit-sharing increased again. Large disparities have been observed in the amount of the 
bonus in different sectors and companies of different sizes. 
Deferred profit-sharing has been an important vehicle for financial participation in France. France 
is the only European country where the participation in company profits is obligatory for 
companies of a certain size. All firms with a minimum workforce of 50 employees (100 in 1990) 
are required to establish a deferred profit-sharing fund. This explains why France is also the Euro­
pean country where financial participation is most widespread. Employees can only get the 
accumulated amounts at their disposal after 5 (or 3) years. The amounts are tfien exempted from 
income tax and social security contributions (in part). 
17 
The 1994 law extended the deferred profit- sharing schemes to smaller companies which apply the 
scheme or a voluntary bases (fewer than 51 employees), and has also increased the tax incentives 
for these companies. In 1994 the participation increased to nearly 16,000 agreements covering 
more than 19,000 companies and more than 5 million employees. 
In addition to the adaptations made the new law of 1994 introduced some remarkable new 
measures, inspired by industrial democracy and macro-economic developments, such as: 
- the encouragement of the participation of employee-shareholders in the management of the firm; 
- the possibility of introducing a "time savings account" by collective agreement, allowing 
employees to convert their profit-sharing bonuses into paid time off; 
- the possibility for companies to "un-freeze" their deferred profit sharing funds for the purchase of 
a new car or for construction works; 
- the creation of the Superior Council of Participation (CSP). 
The creation of the CSP illustrates thejmportance of the issue of employee (financial) participation 
to the French govemment. The principal objectives and responsibility of the Council are to watch 
over the application of financial participation and participation in management by French firms, 
coordinate all initiatives leading to their further extension and produce an annual report for the 
Prime Minister and the Parliament summarising all developments in financial participation plans 
(voluntary and compulsory profit-sharing and company savings plans) and in wage bargaining in 
those companies where voluntary profit-sharing agreements have been concluded. 
The involvement and information of the social partners has been activated by the presentation of 
an annual report on the use of the schemes promoted by the government and by the publication of 
brochures on financial participation by the Ministry of Labour. One possible new development 
which could result from the present discussions in the Superior Council would be the extension of 
company savings plans to retirement savings plans. 
GENERAL PEPPER TABLE 2 
Country 
France 
Ireland 
Italy General Attitude: 
very favourable and 
discussed 
Discussed in National 
Programme 
Discussed today, appeal 
to social partners 
(1993) Legislation 
Specific laws &. Year 
of introduction: 
Since 1995 on CPS 
and since 1967/70 on 
DPS, SO and ESO 
several changes; 
Important 
improvements in 
legislation in 1994 
Only for ESO, SPS 
and SO 
Some provisions in 
Civil Code and 
Workers' Statute fax benefits 
Substantial for both 
firms and employees; 
further improved in 
1994 
Considerable 
improvement in 1995 
No incentives Diffusion of PEPPER schemes 
Prevalent 
types: 
DPS 
CPS 
ESO 
DSO 
EBO 
CPS 
ESO, SPS 
& SO 
PS 
SO No. of schemes/ linns 
Involved: 
19,000 firms and 
15,780 agreements 
8,800 agreements 
200 quoted companies 
600 from 1984-1990; 55 
since 1992 (estimate) 
2500 to 3000 
d.n.a. 
300 schemes (estimate 
1991); Survey: in 21% of 
companies employee incen­
tives based on productivity 
quoted (privatised) com­
panies Employees involved: 
1993: 5.15 million 
2,5 million 
0.75 million 
d.n.a 
d.n.a. 
d.n.a. 
d.n.a. 
900,000 
(estimate 1991) 
approx. 6% of 
employees 
d.n.a. Employee benefits 
or profit share / 
employee: 
Average PS 4,2% 
of earnings 
average 2.9% of 
earnings 
d.n.a. 
d.n.a 
d.n.a. 
d.n.a. 
d.n.a. 
d.n.a. 
d.n.a. Change 1991-
1995 
Substantial 
increase 
Substantial 
increase 
Expected increase 
unknown 
slight increase 
d.n.a = data not available; see for abbreviations used annex 1 of this report 
19 
Ireland 
The legislation covering approved PEPPER schemes in Ireland is essentially set out in the Finance 
Act of 1982 and the Finance Act of 1986. Under such schemes, as approved by the Revenue 
Commissioners, companies can allocate shares to their employees. These are, subject to certain 
conditions, exempt from a tax charge on the initial value and subsequent growth of the shares. 
There are no specific legal provisions for cash-based profit sharing. 
The legislation grants certain tax relief to participants of approved shared-based profit sharing and 
stock option schemes. The Finance Acts of 1982 and 1986 introduced tax concessions for 
employees and for their companies under the obligation of the establishment of a trust, which 
acquires the shares on behalf of the employees. In order to gain full income tax relief, the shares 
must remain in trust for 5 years. The Finance Act 1995, increased the annual limit on relief for 
approved employee profit sharing schemes from £2,000 to £10,000. This substantial increase in the 
relief limit is expected to generate a proportionate increase in the number of approved profit 
sharing schemes, thus promoting greater participation by employees in the ownership of their 
enterprises with the consequent and attendant benefits of greater productivity, improved industrial 
relations etc. v 
Following the changes introduced by the Finance Act, 1995, a significant increase is expected in 
the use of PEPPER schemes. The adoption of employee share ownership schemes has received a 
greater degree of attention in view of the recent equity participation by employees in a number of 
high-profile semi-State organisations. 
Under a current National Programme in Ireland, the Programme for Competitiveness and Work, 
(which is a Programme agreed at national level between the Government and the social partners) 
both the Government and the social partners are committed to publicising and encouraging the 
adoption of a number of employment level initiatives including financial involvement by 
employees. The choice as to whether an organisation introduces a profit sharing scheme or a stock 
option arrangement is. however, ultimately a matter for the employer. 
Italy 
PEPPER related schemes were given a major breakthrough in Italy by the agreement of 23 July 
1993 between the Govemment and the social partners. This agreement made it possible to 
overcome the main obstacle to greater use in Italy of schemes to promote employee participation in 
a firm's profits and results, i.e. the wage-setting system, which gave businesses little scope for 
raising employee remuneration over and above the increases established by collective agreements. 
Through this agreement the Social Partners and the Govemment took note of the need to introduce 
all the necessary measures to increase participation by employees in company performance, by 
providing that at company level the amounts paid would be related to thexompany's economic 
results and based on three indicators: productivity, quality and profitability. 
There are currently two main forms of participation: participation of employees in a company's re­
sults and in its equity. There are no specific incentives. 
Workers may be remunerated in whole or in part through participation in company profits or yield. 
The contributions are linked to pay and may not exceed 10% (1993). The Civil Code and the 
Workers' Statute stipulate that any form of payment made to workers for whatever reason must be 
considered to be part of remuneration. 
20 
Employees are offered three ways of participating in equity: 
- a proportion of the shares which the business puts on the market is earmarked for employees at a 
price below the market value, but the majority of shareholders may decide that these shares will 
not be accompanied by voting rights; 
- a fixed number of shares offered to employees in the event of a public share offer; 
- an offer of investment plans to employees as part of the shares package earmarked for them. 
One interesting development which has certainly enhanced profit sharing in Italy relates to what is 
known as direct participation in business-employee relations. Total quality plans are to be used to 
establish forms of direct employee involvement in the production objectives of the business in 
order to emphasise in a progressive way significant shared interests of the business and its 
employees. 
There are, as yet, no official estimates of the incidence of financial participation schemes in Italy. 
A survey carried out in 1991 on a sample of 104 companies showed that employee incentives in 
21% of the companies were based exclusively on productivity. In 62% of the companies, payments 
were related to profitability, quality indicators and attendance indicators. In most cases these 
payments were based on in-company data. It has been estimated from other sources that, in 1991, 
around 900,000 workers were involved in 300 schemes providing for at least some element of 
profit sharing. These figures represent just under 6 per cent of the total number of employees in 
Italy. 
In recent years many companies have taken steps to offer shares to their employees, notably 
companies in the banking, finance and insurance sectors. In the past year in particular the 
acquisition of shares by employees has been encouraged, as public undertakings have been 
privatised. In collective labour agreements renewed in 1994 in the banking, textiles and clothing, 
chemicals, fruits and vegetable sectors and a number of industnal and manufacturing sectors, joint 
committees have been set up for the establishment of supplementary benefit funds. 
21 
GENERAL PEPPER TABLE 3 
.Country 
Luxem­
bourg 
Netherlands 
Austria 
Portugal 
d.n.a = data not General Attitude: 
Discussed; government con­
siders initiatives: Law pro­
posal on ESO by parties 
favourable and discussed 
favourable, but sceptical 
especially on ESO 
•Muior discussions 
available; see tor abbreviations Legislation 
Specific laws &. Year 
of introduction: 
None 
In 1994 improved 
legislation on CPS; 
BPS and SO on the 
basis of company 
saving schemes 
Labour Law 1974/ 
revised: 1994; 
Income Law 1994 
Since 1989 
privatisation law 
provides for ESO; PS 
b-jscd on 1969 law 
jsed annexe oTtfiis repo 'fax benefits 
No incentives 
Substantial 
improvements in 1994 
only for ESO 
Incentives for firms 
witli PS; ESO 
incentives for both 
finns and employees 
1 Diffusion of PEPPER schemes 
Prevalent 
types: 
CPS 
CPS 
SO 
"DPS" No. of schemes/ 
firms Involved: 
26% of com­
panies (mainly 
banks) (l995) 
5.2% of firms 
d.n.a. 
d.n.a. Employees 
involved: 
d.n.a. 
ll.5% 
d.n.a. 
d.n.a. Employee benefits 
Or profit share / 
employee: 
4.5-8% of net tax­
able profits 
5.7% of average 
earnings 
d.n.a. 
d.n.a. 
Data only for large enterprises 
ESO 
SO 
ESOP 
PS 
PS 
ESO 20 schemes 
l 
2 
l 
d.n.a. 
quoted com­
panies approx. 18,000 
400 
approx. 340 
d.n.a. 
d.n.a. 
employee share­
holders: 12.4% of 
shareholders 
(1994) l%-45% of capital 
d.n.a. 
d.n.a. 
d.n.a. 
d.n.a. 
d.n.a, Change 1991-1995 
slight increase 
increase in number of 
employees 
Expected increase due to 
integration with com­
pany- saving schemes 
Expected increase 
unknown 
unknown 
unknown 
unknown 
since 1989 increase 
under, privatisation 
22 
Luxembourg 
In Luxembourg there are still no legal structures to regulate or facilitate the introduction of 
employee financial participation, although there is a growing interest on the part of the government 
and the social partners in recent years. At present views about the type of schemes that should be 
encouraged, differ strongly among the parties concerned. 
Proposals to favour employee share schemes are not directly supported neither by trade unions, -
who fear the loss of control of their bargaining independence, nor by employers. Employers are 
more in favour of flexible pay, by adding a variable element of remuneration to a fixed base wage, 
whereas the government considers profit-sharing to be a voluntary and motivating instrument 
separate from wage negotiations. 
Despite the absence of a legal framework and tax incentives, a modest but real growth of financial 
participation practice has been observed since 1990, compared to the eighties. Cash-profit sharing 
is more widespread than share-ownership and occurs mostly in the financial sector and as a result 
of management initiatives. 
After minor interest in the eighties, financial participation is now being discussed seriously by the 
social partners and in Parliament. Up to now the government has not taken part in the debate, but 
is considering legal initiatives to encourage the growth of financial participation in Luxembourg. 
Netherlands 
In the eighties discussions on encouraging PEPPER schemes in the Netherlands took place at a 
national level. This resulted in a detailed proposal on tax-incentives for profit sharing. From 
January 1st 1994 a number of financial participation arrangements have been modified and some 
fiscal incentives enhanced in order to encourage employers to set up financial schemes and 
employees to participate in them (Law Veirneend/Vreugendenhil). The main basis of the law is for 
a saving scheme or personnel fund. It also provides an adequate legal structure for financial .. 
participation in general. 
In the Netherlands, the variety of profit sharing schemes is limited, certainly in comparison with 
other countries, sucn as the United Kingdom and France. There are two different profit-sharing 
schemes for which fiscal incentives are available: cash-based profit sharing and deferred profit 
sharing. However, cash based a profit sharing appears to be the prevalent form. Of course, 
employers can take other measures in order to calculate the profit sharing benefit, and instead of 
payments they can opt for options on stocks etc. A central feature of the 1994 Law is the wage-
saving scheme. The wage saving scheme and the premium saving scheme are the most important 
savings systems practised by companies. Both schemes were established with the aim of 
moderating annual wage growth. Workers are encouraged to save money, and employers to set up 
schemes, by means of fiscal incentives. It is possible to make use of both schemes at the same 
time. Savings can be converted into shares. However, there is no direct relationship between 
savings on the one hand and performance and results (profits) on the other. 
To encourage participation in profit-sharing, the Govemment in 1994 raised the tax free benefit 
and shortened the retention period. Employers who use this scheme need to pay a total charge of 
20% (instead of 35% before 1994). In exchange for payments, the employer may offer the worker 
an option'on the firms shares. The total value of this option is limited to a maximum of HFL 1580 
a year. r ... 
23 
Stock options can be part of a saving scheme and are subject to the same tax-incentives as the 
wage saving scheme. An additional requirement is that the value of the options is fixed at 7.5 per 
cent of the value of the respective shares. Any revenues from the use of these options is allocated " 
to a special savings account with a retention period of four years. The amount will be tax free to a 
maximum (HFL 1580 in 1995). This maximum will be determined yearly by the government. 
Some changes are in preparation. At the moment a total charge of 10% has to be paid by 
employers when they make use of the wage saving scheme. It is proposed that this change will be 
reduced to 0% provided that the saving sum consists of company stocks belonging to either the 
employers' company, or a partnership connected with the employer. The second adjustment 
concerns the charge of 20% of the cash based profit sharing employers have to pay. This charge 
might be reduced to 10%, but only if the employer requests a reduction. 
The total number of employees receiving a cash-based profit sharing benefit has grown, but at the 
same time the benefit level has dropped significantly. In 1994, this scheme applied to about 11.5% 
of all employees, against 7.3% in 1993. The total benefit averaged HFL 2426, in 1994, 5.65% of 
the average earnings hourly. This was about 55% lower than the average benefit in 1993. The 
existing arrangements do not discriminate between men and women or other categories of 
beneficiaries. This does not mean, however, that there is equal participation. As noted above, the 
extent of participation depends on several aspects, of which wage levels are the most important. 
For higher paid jobs, the benefit is about 1% of total average hourly earnings (non-participants 
included) and for low paid jobs less than 0.3%. 
In December 1994 almost 26% of all workers took part in wage-saving schemes. Reliable 
information on stock options and employee share ownership is not available. 
The introduction of profit-sharing systems is to the responsibility of employers. Because of this, 
and the fact that, generally, not all the workers in firms exercising cash-based profit sharing 
schemes are entitled to benefit, unions do not support their introduction. This is particularly true if 
such a system implies a lower rate of growth in the underlying level of wages or in lower basic 
wages. No figures are available concerning the extent to which cash-based profit sharing systems 
are the subject of collective bargaining. However, the figure is believed to be low. 
Austria 
Schemes to promote employee share-ownership or share based profit sharing in Austria have little 
impact. There is a legal basis only for profit sharing. The social partners are sceptical about share 
based-schemes. According to Austrian Labour Law the Works Councils and the employer can 
agree upon a profit sharing scheme. Parties can develop and regulate individual profit sharing 
schemes provided that they agree on certain conditions. The scheme cannot be eligible to 
individual employees as such, but must be company wide. 
In Austria the law allows the profit share bonus for white collar workers ("Angestelltengesetzes"), 
personnel cannot be made responsible for the company's losses. It also provides for the company's 
books to be inspected by the personnel. 
If there is any provision for tax-relief on profit sharing tt was not reported 
In general the law permits employee share ownership as part of collective agreements. Since 1994 
the law permits tax-free distribution of shares at a reduced price to employees. The maximum tax 
24 
free amount is 10,000 S per year. In addition, this scheme must be eligible to all personnel or to a 
specific group of personnel. Dividends are subject to normal tax regulations (22% tax) with the 
option for the amount to be taxed as income tax (which in most cases is beneficial to employees). 
In 1994 tax provisions on capital and capital gains were repealed. 
There are no statistics on employee share-ownership or profit sharing. However, the information 
available on employee share-ownership in large firms points towards a number of around 18,000 
employees. It is expected that this number will increase given the rather short period since the tax 
free arrangement was granted. PEPPER systems at branch level are mainly found in metal industry. 
Only recently has the question of PEPPER been discussed and evaluated by employee 
representatives. As a result the Bundesarbeitskammer has decided to make PEPPER part of the 
training programme for employee representatives and works councils. However, experience shows 
that employee share-ownership appears to be implemented only when the company goes on to the 
Stock Exchange or when the company has economic and financial problems. Because of the great 
risks the latter imposes on employees, the Bundesarbeitskammer and the works councils view these 
schemes with scepticism. 
Profit sharing is considered important in the collective agreements policy of the trade unions for 
developing more flexibility in the wage systems. However, PEPPER;agreements and discussions 
have a marginal impact and are treated somewhat sceptically. This situation is unlikely to improve 
in the foreseeable future. 
Portugal 
In Portugal employee participation in enterprise results is covered by labour law and since 1969 
has not been considered as remuneration. Equity participation is closely linked to the public sector 
privatisation policy which was introduced in 1989. The framework law on privatisation provides 
that a percentage of the equity to be privatised must be reserved for small subscribers and 
employees of the enterprise undergoing privatisation. 
The profit-sharing amounts can be deducted from the taxable profit for the financial year in 
question on condition that it will be paid or made available to the beneficiaries by the end of the 
following financial year. Participation in the profits of the company has ceased to be a basis for 
imposition of statutory deductions towards social security. 
Equity participation incentives include option plans for the subscription or purchase of shares under 
agreements between firms and their employees and the purchase of shares offered for public sale 
by the State. 
Tax incentives comprise: " 
- for employees: a deduction from total taxable income of 50% of the amount applicable in 1991 
to option plans created by employers, up to a limit of ESC 250,000. 
- for companies: a deduction from corporation tax equivalent to the losses and other expenditure as 
a result of employees exercising their rights to share subscription or purchase options. 
The tax concession granted with regard to the purchase of shares offered for public sale by the 
State, comprises a deduction from the total taxable income equivalent to 30% of .the amount 
applicable up to a certain maximum for a single person, and double the amount for both partners 
were they are not legally separated. 
25 
No information is available regarding the number of workers who have subscribed to option plans 
or who have purchased shares under privatisation schemes, nor with regard to profit-sharing. Since 
1991 there has been no charge to the tax structure. 
As far as the present situation is concerned, the only information available is that, in the case of 
equity participation up to the end of 1994, 130 operations modifying public participation in the 
share capital of 100 companies were carried out. The equity owned by small shareholders and 
employees in their own companies represents 12.4% of the total number of shareholders. 
It is important to note that Portugal does not have a tradition of financial participation by 
employees in profits and enterprise capital, a fact which is attributable mainly to historical and 
socio-cultural factors. Moreover, a large number of national companies (even quite sizeable ones) 
have been under continued ownership and management and are predominantly family-based. In 
addition, attention should be paid to the fact that the majority of businesses in Portugal are small 
and medium-sized businesses, which are not very likely to produce accumulated capital. The 
financial and insurance sector has been the main sector in which the application of this principle of 
participation and redistribution has been promoted. Recently, there has been particular interest in 
the subject, as demonstrated by the two tiade union confederations (UGT and CGTP), which 
attempted to include the subject in the Economic and Social Agreement for the year 2000. 
As a rule, the setting up of profit-sharing schemes is not negotiated beforehand with employees' 
representatives. However there are many cases in which prior consultation with employees' 
representatives does take place, which in some cases leads to substantial improvements in the 
profit-sharing scheme. 
One of the sources of inspiration for the system under the Law on privatisation was the French 
model. The regulations in the United Kingdom and Ireland also served as an example wth regard 
to tax incentives for the financial participation of employees in enterprise capital. 
26 
GENERAL PEPPER TABLE 4 
Finland 
Sweden 
United 
Kingdom General Atti­
tude: 
Aflinnativc and 
discussed with 
social partners 
Not discussed 
Very favourable 
& discussed 
Continuous 
improvements Legislation 
Specific laws & Year 
of introduction: 
Personnel funds (1990) 
with amendments in 
1996 
Only for profit-sharing 
funds 
SPS (1978); 
SO (1980) 
DSO (1984) 
CPS (1987) 
ESOPs(1989) 
ESO (1978-) 
In 1991, 1992 and 
1994: easing regula­
tions; All schemes 
improved in 1995: 
equal treatment for 
part-time employees 
July 1995:introduclion 
of new Company Share 
Plan (DSO), replacing 
the 1984 Executive 
Scheme 'fax benefits 
incentives for personnel 
funds; none for 
CPS/ESO 
For employees and firms 
on payments to the 
funds 
Substantial for both 
firms & employees 
In 1991, 1992 and 1994: 
increases in tax-relief 
DSO: Change from 
Executive Scheme to . 
Company Share Option 
Plan refocused tax relief 
onto those in lower and 
middle income ranges Diffusion of PEPPER schemes 
Prevalent 
types: 
DPS (per­
sonnel 
fund) 
CPS/ESO 
d.n.a. 
DSO No. of schemes/ 
firms Involved: 
41 linns or 
group of firms 
(1994) 
d.n.a. 
d.n.a. 
4,339 Employees involved: 
90,000 
d.n.a. 
d.n.a. Employee benefits or 
profit share / 
employee: 
1994 approx. 2% of 
year-income to funds 
1-2% of paid wages 
d.n.a. 
Substantial Change 1991-1995 
increase immediately after 
personnel fund introduction 
in 1990; since then very few 
new 
unknown 
d.n.a. 
Executive Scheme replaced 
by Company Share Option 
Plan with effect from July 
1995 '; 
27 
d.n.a = data n ot available; see lor abbreviations used annex of this report CPS 
SPS 
SO 
ESOP's 
Total 12,740 
868 
1,174 
27 
19,148 schemes approx. 3.5 million 
approx. 1 million 
approx. 1 million 
d.n.a. 
5.5 mln employees Maximum profit-
related pay of 20% 
pay or £4000 per 
employee (whichever 
is the lower) 
Average value of 
shares appropriated 
1994/95: £ 550 per 
employee 
Average value of 
shares over which 
options granted 
1994/95: £ 2,900 per 
employee very substantial growth suice 
1991 
strong increase, little change 
strong increase 
slow increase 
Numbers doubled since 1991 
28 
Finland 
In 1990, Finland introduced a deferred profit sharing scheme, the "Personnel funds and profit 
bonus system", which provides tax incentives to employers and is designed to facilitate the 
accumulation of capital by employees over the longer-term. Payments made by employers into 
personnel funds are deductible in taxation of employers and no social security contributions are to 
be paid. After 10 years from the beginning of the employee's membership in the fund, the 
employee is allowed to withdraw annualy one-tenth of the money in the fund, though the whole 
may be withdrawn on leaving the company. Income tax is payable only on withdrawals. The 
amendments to the Personnel Fund Act (1660/95) which came into force at the beginning of 1996 
shortened the waiting period for withdrawal from 10 years to 5 years and the proportion which can 
be withdrawn each year was raised to 15%. Amendments to the Income Tax Law (227/96), which 
also came into force in the beginning of 1996, eased the taxation of members of Personnel Funds, 
so that 20% of the earnings from the Personnel Fund are free of tax and the remaining 80% are 
taxable as income under income tax laws. 
The fund may invest its assets in the employer's company or in a company which belongs to the 
same group. If the fund invests its assets in the shares of the employer's company, the personnel 
will, through the fund, become a share owner of the company. When the fund invests its assets 
outside its own company, the investment must be secure and yield profit. The yield of the 
investment activity is added to the members' fund shares each year. 
In Finland there are no legal obstacles to cash-based and share-based profit-sharing schemes. The 
staff are given additional rewards in cash on the basis of the profit or other economic result of the 
company, but the law itself does not provide any special treatment. These profit premiums paid in 
cash are taxed in the same way as employees' other earned income. 
The Income Tax Law provides a right for employees to subscribe to shares or interests at a 
favourable price. The advantage is tax-free if the discount is at most 10 percent of the current 
price, with a further condition that the majority of the personnel has access to the advantage. 
When the-Personnel Fund Act came into force at the beginning of 1990, it was greated with 
considerable enthusiasm. The majority of the present fonds came into existence either in the year 
the law entered or during the following year. Since then very few new fonds have been set up. The 
main reason for the decline of interest has probably been the recession at the beginning of the 
1990's which did not create a climate for the establishment of new funds. 
In 1994, the general personnel fonds were found in 41 companies (or groups of companies) 
covering 90,000 employees. There is no reliable and complete information available with regard to 
other profit schemes in Finnish companies. According to a survey in manufacturing, construction 
and some service sectors, the profit-based instalments paid to manual workers were 1.2 percent of 
total wages. For clerical employees the share of the profit and incentive wages was 1.8 percent of 
the monthly earnings. The number of clerical employees who receive wages based on profit and 
performance has grown considerably during the last 10 years. In 1994 on average every fourth 
clerical employee received profit and incentive wages, in 1984 it was less than five percent. On the 
other hand the proportion of monthly earnings derived from profit and incentive wages has 
declined amongst those clerical employees who receive them. The share varied between 5 and 7 
percent in different groups of clerical employees in 1994 and in 1984 between 5 and 13 percent. 
The closest models for the Finnish personnel fond model are found in Swedish foundation-based 
voluntary fonds, in particular the Handelsbanken fond. The French systems of voluntary profit 
29 
premium and fund schemes have also served as models. 
During the last year there have been animated discussions regarding the funds. The negotiations 
concerning the social-economic, employment and labour market policy agreement for the years 
1996-1997 between the State and the social partners in Autumn 1995 also dealt with matters 
relating to the personnel funds. It is envisaged, that the lively discussion about personnel funds 
and law reforms with regard to the funds, when implemented, will promote the establishment of 
new fonds, and the introduction of other forms of profit-sharing schemes in companies. 
Sweden 
Sweden does not have any specific system for direct promotion of participation by employees in 
companies' profits. Swedish fiscal legislation is mainly based on the principle that all employment-
derived remuneration, in the form of wages or other benefits, is subject to tax. At present, 
result/profit participation schemes attract no special tax relief for either employers or employees. 
However, there is statutory provision, in the Act of 1981 on Social Contributions, for an exception 
aimed at promoting certain specific indirect benefits for employees. This applies to the transfer of 
profits to special statutory funds established by the employees or workers' organisation in an 
enterprise (known as "profit-sharing fonds"). Hie fonds transferred to the foundations are mainly 
intended to reward employees for their efforts. 
Employees do not pay tax on payments to a profit-sharing foundation at the time when the 
payment is made, nor does the payment create entitlement to benefit. Employers' contributions are 
therefore not payable on the fonds transferred. When fonds are disbursed from a profit-sharing 
foundation, the recipient is liable to tax on the payment received. However, the foundation is not 
required to pay employer's contributions on the disbursement, which therefore does not give rise to 
benefit entitlement. This exception applies only on the condition that the fonds 
- are to be held by the foundation for at least three calendar years; 
- benefit a substantial proportion (at least one third) of the employees on similar terms; and 
- are not paid to managers, co-proprietors or their relatives in close companies or firms with a 
small number of owners. 
United Kingdom 
There is a long tradition of financial participation in the United Kingdom. Since 1978. significant 
growth has been encouraged in legislation granting tax concessions to approved profit sharing and 
employee share ownership schemes. The legislation is pemiissive, in that it is designed to offer tax 
incentives which employers and employees can take up on a voluntary basis. 
Employers and employees can decide which scheme allows them to promote financial participation 
in the way best suited to their particular needs. The rules for the schemes have been updated in the 
light of experience. 
In the 1995 Finance Act significant changes were made to the eligibility criteria for all five of the 
United Kingdom tax-relieved employee financial participation schemes. The changes were intended 
to remove the previous restrictions on the inclusion of part-time employees from the schemes and 
to ensure that the tax reliefs give equal treatment to part-time employees, most of whom are 
women. The "new rules ensure that part-time employees are - for the future -^eligible to participate 
in those schemes. 
30 
The 1996 Finance Act introduced a new Company Share Option Plan aimed at middle managers 
and those in middle and lower income ranges. It replaced the 1984 discretionary "executive share 
option scheme" which was designed for high earning executives and senior managers. At the same 
time, improvements were made to the other share incentive schemes to make them more flexible 
and attractive to employers and employees alike. v ^ 
There are several types of statutory profit sharing, share ownership and share option schemes as - . / 
well as many non-statutory schemes. 
Profit Related Pay (PRP) schemes link a part of employees' pay to changes in the profits of the 
business they work for. PRP paid to employees under a scheme which has been registered by the 
Inland Revenue is eligible for tax relief up to a limit of 20 % of pay or £4,000 , whichever is the 
lower. The costs of setting up a registered scheme are tax deductible. Separate schemes can be set 
up for any unit producing separate profit and loss accounts, but must cover 80% of those employed 
in any unit covered by PRP. All employees must benefit on similar terms. At 31 March 1996 there 
were approx. 12,800 registered PRP schemes covering almost 3.5 million employees. 
Approved employee share schemes provide significant advantages. They allow employees to 
receive shares free or at a reduced price from their employer without paying income tax on the 
value of those shares. The costs a company incurs in setting up approved schemes are also tax 
deductible. 
There are three types of approved share schemes. The first two provide that all employees of a 
company with over five years' service must be allowed to participate by the employer. The third 
scheme allows a company to restrict participation to selected employees. If the employer wishes, 
new employees or employees with fewer years' service may be able to participate on similar terms. 
By the end of March 1994 about 3 million employees had benefited from all-employee profit 
sharing and share option schemes, receiving shares or options over shares initially worth some £14 
billion. 
In addition to the all-employee schemes, the Finance Act 1984 introduced tax relief for approved 
discretionary share option schemes (also known as executive share option schemes). By the end of 
March 1995, 4469 discretionary share option schemes had been approved and were still being 
used. This tax relief was removed with effect from July 1995 and replaced in the 1996 Finance Act 
by the Company Share Option Plan; 
in addition to the statutory schemes described above, there are many profit-sharing and share 
option schemes in existence which are not approved. 
Employee Share Ownership Trusts (ESOTs) provide a further means in which shares can be 
transferred to employees. There can be statutory or non-statutory ("case-law") ESOPs. Under the 
statutory scheme, companies set up a trust which acquires and distributes shares to employees. The 
trust is responsible for buying and selling the shares and for distributing them to employees, either 
directly or through an approved profit sharing scheme. Since 1996, and ESOT may also be 
operated in conjunction with an approved savings-related share option scheme and so may grant 
employees options over shares and may distribute shares to employees on their exercise of those 
options. Beneficiaries must include as a minimum all employees of the company and its 
subsidiaries who have been employed for five years or more. The Finance Act 1995 removed the 
requirement tiiat employees must work twenty or more hours a week. 
Some companies prefer to implement non-statutory or "case law" ESOTS. M/hile company 
31 
contributions under such schemes may qualify as deductions for corporation tax purposes - if the 
contributions fulfil certain conditions - they do not attract all. the reliefs which are available to a 
statutory ESOT. Evidence suggests that "case law" ESOTS are much more numerous than statutory 
ESOTS. Their rules are negotiated with the tax inspector, giving employers the flexibility to adapt 
schemes to the particular needs of the company and its employees. A significant development since 
1989 has been the growth of the use of ESOTS in medium-scale privatisation. It has been 
estimated that there have been about forty of these (see "Employee Share Ownership Plans", 
Incomes Data Services Ltd (IDS study 568), December 1994). 
The information on the UK in the PEPPER table demonstrates that the growth of financial 
participation has been impressive over the last decade or so. 
The UK Govemment supports a number of initiatives to promote financial participation and is 
actively involved in the dissemination of information and promotion of good practice. 
In 1991, the Inland Revenue published a report which indicated that there was a need to increase 
awareness of the tax incentives and benefits available for such schemes particularly amongst small 
firms and in the non-service sector, about the tax incentives and benefits available for such 
schemes. Subsequently, the UK Government launched a campaign. The importance of this 
campaign is that financial participation is embedded in a total integrated approach to employee 
involvement. In addition to initiatives involving the Govemment, a myriad of independent 
organisations and private companies provide information, advice, guidance, consultation, education 
and research on financial participation schemes, as well as promotion and publicity. 
The UK has taken note of other experiences in the rest of the EU and beyond. 
The present arrangements in the UK appear to be successful in encouraging financial participation. 
There have been regular developments throughout the 1980's and 1990's in both the range of 
schemes available and the scope of the tax incentives which accrue to them. The extensive 
programme of privatisation also has provided opportunities for employees to acquire a stake in the 
businesses they work for. 
32 
Ill CONCLUSIONS 
Legal structures and provisions for financial participation 
There has been no great change to government policy on PEPPER schemes in EU countries since 
the first PEPPER report was introduced in 1991, although the situation is improving slightly. 
Official govemment positions in individual EU countries still range from those which are strongly 
or partly in favour of PEPPER, to those with no defined view. France and the UK have a long 
tradition in the encouragement of financial participation and this also has been directed towards a 
variety of schemes. In the period under consideration (1991-1995) these countries have made 
regular improvements in both the range of schemes available and the scope of the tax incentives 
which accrue to them. 
In other countries, such as Belgium, Denmark, Germany, Greece, Spain, Italy, Luxembourg, 
Portugal, Austria and Sweden, the governments discussed PEPPER but official government support 
has been limited or lacking. Most of these governments have held that these schemes are mainly 
the responsibility of the social partners or the employer and employee-representatives in individual 
firms. However, we should note that very recently in Germany, Spain and Italy there have been 
strong official appeals to the social partners to promote these schemes when in negotiation. Spain 
reports that during current negotiations the notion of taking account of productivity is a new 
feature on the agenda. They expect a positive effect on productivity, wage flexibility, employment 
and employee involvement. In Italy, this has led to a tripartite agreement in which the govemment 
says that they will introduce tax concessions. This has not yet been implemented. In Luxembourg, 
requests were made to the govemment by representatives of private sector employees and 
executives and the Liberal Party to forther regulate participation in capital by means of share offers 
on preferential terms. These proposals were strongly opposed by the two principal trade unions 
fearing an intervention in their bargaining independence. This opposition is also found in other 
countries where PEPPER is less well developed: Belgium, Germany, Spain and Italy, and also in 
the Netherlands. 
In Belgium the govemment announced initiatives for legislation before the end of 1996, but 
previous proposals on profit sharing in 1993 did not receive any support. 
In Ireland, the Netherlands and Finland there appears to be a development towards increased 
government support for PEPPER. Very recently, in 1995, Ireland increased tax incentives by five 
times the earlier amount and promoted the schemes in a national Programme on employee 
involvement and productivity in co-operation with the social partners. In 1990, Finland introduced 
legislation on personnel fonds for profit sharing mainly directed towards share-ownership. The 
Finnish government made proposals in 1995 for forther improvements. In 1994, the Netherlands 
introduced more detailed legislative procedures and improved incentives for profit sharing to 
stimulate employee capital accumulation related to wage saving systems. These countries have 
mentioned as their objectives greater employee involvement, productivity and competitiveness and 
wage flexibility on labour markets. 
The macro-economic situation has not affected govemment support and that of the social partners 
for any proposals for financial participation. Recent debates relating to enhancing productivity and 
wage flexibility are also stimulating discussions on proposals. However, in most^of the Member 
states trade unions can be expected to oppose the use of financial participation'schemes to promote 
wage flexibility on labour markets. The perceived conflict between greater flexibility in labour 
terms on the one hand and the need for solidarity and greater involvement on the other hand 
33 
might, sometimes, hamper the introduction of proposals for financial participation. 
With the exception of France and the UK, the legislation in the EC countries only favours certain 
schemes. The share-ownership is most favoured while cash-based profit sharing is least favoured. 
Most Member States have no restrictive regulations that might hamper the introduction of financial 
participation schemes. However, there are certain legislative requirements set out in Member States 
that concern eligibility for tax relief. These refer, for example, to a minimum percentage of 
personnel covered by the scheme, eligibility criteria, retention periods and statutory and trustee 
requirements, etc. These requirements might reduce flexibility in introducing these schemes. 
However, in several cases the choices and options were improved. In other cases the possible 
administrative burden and/or set-up costs by the employer to meet the legislative requirements are 
deductible as operational costs. 
An important improvement in the UK's 1995 legislation is the extension of eligibility to part-time 
employees. In France, too, improvements have been made to eligibility criteria. In some countries 
both in legislation and in practice eligibility criteria prevent the participation of part-time 
employees and temporary employees on a short-term fixed contract. Further more, schemes are 
sometimes open only to personnel with a certain minimum length of employment in the company. 
Privatisation 
Several countries reported that the trend towards privatisation of public bodies bas given rise to 
greater interest in PEPPER schemes. In Portugal, specific legislation was developed in 1989 to 
provide for the issue of shares to.employees when their public organisation was privatised. The 
impact was a substantial increase in employee share-ownership. In Denmark, privatisation appears 
to have led to remuneration systems that are more closely related to the performance of the 
privatised firms and to possibilities to issue employee shares. In Ireland, the adoption of employee 
share ownership schemes has received a greater degree of attention in view of the recent equity 
participation by employees in a few high-profile semi-State organisations. The acquisition of shares 
by employees in Italy has been encouraged as public undertakings have been privatised. The same 
can be seen in the UK and the Netherlands. This suggests that governments can set up PEPPER 
schemes within this privatisation development, thus getting and gaining experience and creating 
awareness of the possibilities of these schemes for a wider audience. 
Incentives and tax provisions 
Most of the legislation on promoting financial participation schemes in Member States on PEPPER 
has to do with incentives such as fiscal or other financial advantages. In the period under 
consideration the main PEPPER countries, UK and France, have made forther improvements in the 
variety of incentives for the different schemes. 
No specific incentives for any scheme were found in Spain and Italy. Belgium, Denmark, 
Germany, Ireland and Austria reported incentives only for share-ownership schemes and not for 
profit-sharing schemes. Incentives range from tax-free issue of shares or bonds to employees 
through tax-free amounts on distributed profits, to more favourable tax arrangements. Other 
advantages include exemption from social insurance contributions. In some countries these 
incentives are provided for both the employer and the employee and sometimes they allow 
employers to deduct the costs of the scheme for tax purposes. 
34 
Occasionally problems arise with social charges especially when some argue that the benefits 
should be regarded as normal wages subject to social charges while others argue that this type of 
remuneration should not be subject to these charges. For instance, in Belgium, these discussions 
hamper the development of PEPPER schemes. 
The levels of incentives are modest. However, there have been recent improvements in this respect 
in Ireland (1995), the UK (1991) and France (1994). Other minor improvements in the period 
under consideration (1990-1995) were reported in Austria and the Netherlands in 1994, and in the 
1995-proposals in Finland. With the exception of Austria, these improvements in the latter 
countries also concern a reduction in the retention periods. 
Other incentives are the possibility of withdrawals before the end of the retention period for 
specific expenses (new housing, insurance and specific capital savings, retirement fonds and in one 
case even cars (France) without any or only minor taxation on these withdrawals. 
Noteworthy incentives were found in France: In 1994, France introduced the concept of a "time 
savings account" (compte d'épargne temps) allowing the allocation of profit sharing bonuses 
(intéressement) in the form of paid time off, for a minimum period of six months. Such schemes 
would enable employment. These examples of incentives illustrate that, at least for die countries 
with a well developed system for financial participation schemes, the policy on incentives and 
other financial advantages seems to have become an integral part of macro-economic policy in 
relation to wages and consumption. 
Diffusion of PEPPER 
Diffusion of PEPPER schemes (see also the general tables in chapter II) 
Belgium: 
Denmark: 
Germany: 
Greece: 
Spain: 
France: 
Ireland: 
Italy: 
Luxembourg: 
Austria: 
Netherlands: decrease of profit-sharing 
modest, but relatively steady interest in employee share and bond 
schemes, there are no date on profit sharing 
slight increase in number of schemes and employees involved 
there are no data available 
slight decline in profit sharing agreements; also in employees involved 
increase of all schemes 
there are no data available; increase expected due to 1995 increase in 
tax relief 
expected increase due to tripartite agreement and privatisation of public 
bodies 
increase of cash-based profit-sharing 
expected increase since 1994 
slight increase 
35 
Portugal: increase under privatisation 
Finland: increase; expected forther increase 
Sweden: there is no data available 
United Kingdom: substantial growth; doubling total number of schemes and employees 
involved. 
W^hile there are substantial developments in the schemes and the number of employees involved in 
countries with a longer tradition on PEPPER, UK and France, other States with only a modest 
govemment policy and legislative arrangements experience a slight growth (Germany), a steady 
situation (Denmark) or even a decline (Spain). In other countries where policy is being developed, 
there has already been an increase or one is expected (Finland, Ireland, the Netherlands and Italy). 
However, it appears that a growing disparity is developing between the acknowledge PEPPER 
countries and those countries that have less well-developed arrangements. 
Another observation is that with the exception of the UK and France, most Member States do not 
have a clear view of the development, the possibilities, the experiences, or the problems of 
PEPPER schemes in their countries because no specific registration is provided nor any minor 
research done on these schemes. 
In considering the development of PEPPER in EU-countries so far, we can conclude that France 
and the UK have reached the level of an integrated legislation and a policy of a high level of 
distribution of these schemes. Initially, a nationally supported, deferred profit-sharing scheme is the 
one that is supported most strongly. At a company level the most pronounced development arises 
from a nationally promoted company savings scheme. These observations suggest that countries 
might develop their scheme by introducing a modest deferred profit-ownership and company 
savings system as a framework for legislation and then carefully develop these forther with the 
integration of cash-based profit-sharing on the one hand and employee share-ownership on the 
other, gradually improving the offered incentives: The beneficial tax treatment in these schemes 
has without any doubt contributed to the spread of financial participation in the Member States. 
This development might be stimulated through an environment in which profit-sharing is 
considered as a voluntary and motivating instrument separated from wage negotiations leaving 
bargaining independence to the social partners. Also, given the positive relationship between the 
schemes' occurrences in the individual companies the development path suggested above might 
lead to in a situation in which PEPPER schemes became more independent later on. 
Encouragement 
Only a few countries encourage the use of such schemes by making sure that adequate information 
is available to all parties. Active campaigns for the promotion of PEPPER schemes are found in 
France, the UK, Finland, the Netherlands and Ireland. The information provided in the UK and 
France is impressive and exemplary. In this respect, the other countries see it as the responsibility 
of employers and their representatives. Only Germany and Austria reported that the employers 
organizations in the respective countries have set up campaigns for specific information. Austria is 
an interesting case because the Chamber of Labour has initiated different actions tto promote 
PEPPER both to employers and employees. They have also developed training programmes. 
Most countries that adopt a more developed policy to promote PEPPER are aware of the possible 
36 
arguments against it and are taking initiatives to convince the social partners of the positive effects. 
It is to be noted, however, that on occasions companies issue shares to their employees when the 
company has economic and financial problems. This carries great risks for employees and has led 
to scepticism on the part of the parties concerned. However in the best schemes, these risks can be 
avoided. Moreover, the amounts involved et consequent risks are generally more modest. 
Other criticism on PEPPER was also the subject of regulation in several occasions. For example, 
the UK legislation on statutory ESOTs was designed to avoid the criticisms levelled against ESOTs 
in the United States, where, for instance, ESOTs are often used as a substitute for employee 
retirement benefits or as a "poison pill" protection against take-overs, rather than as a mechanism 
to encourage individual employee share ownership. 
An interesting observation from the UK and Ireland is the integration of the promotion of PEPPER 
schemes with the promotion of employee involvement in general to unleash the productive power 
of the workforce and to improve competitiveness and quality of production. Italy also refers to this 
movement in the tripartite agreement between the government and the social partners. In France, a 
specific National Council promotes PEPPER in the general context of the employee involvement 
trend. This suggests that in line with the Council Recommendation Member States should develop 
a National Programme and/or National Institutional Bodies to develop systems for promoting 
PEPPER within the national context and particularly in relationship with the general employee 
involvement trend. 
Exchange of experiences between Member States 
In France, the latest PEPPER-Recommendations were considered along with the latest changes in 
the legislation of 1994. Some countries report that it learns from experiences of good (and bad) 
practices in other European countries and elsewhere. Other countries point to possible risks of 
placing too much emphasis on experiences from other Member States for the learning process in 
their country. This is due to varying industrial relations systems and legislation between Member 
States. There does not appear to be any regular exchange of information between Member States 
either on legislation or good practices. However, countries that have recently begun developing the 
scheme refer to other countries, for example Ireland refers to the French experiences and Finland 
to experiences in both France and Sweden. This observation suggest that an exchange of good 
practices between the respective parties from the different Member States might clear some of the 
problems of implementing PEPPER. It might also help the parties concerned to deal with the 
arguments against PEPPER and show them how these arguments can be resolved within the 
context of the schemes. 
Another important aspect of the promotion of PEPPER is, what in the earlier PEPPER report they 
called the intra-community dimension: e.g. what obstacles are encountered by practising a Pepper 
scheme in country A and what solutions can be offered to companies practising such a scheme? 
Companies referred to here are those diat have establishments in another EU country and which 
want to make the benefits available to their employees in die other EU country. The earlier report 
did not deal with these and similar questions. In France, it is noted diat the authorities would 
welcome EU-actions favouring group-level agreements (i.e. PEPPER schemes for a group of 
companies widiin one enterprise) on a European level. Italy also made similar appeals. 
This suggests that they also want to promote the exchange of information on different legislative 
rules and procedures promoting and monitoring PEPPER schemes. This could ^ serve to support the 
distribution of many options on PEPPER in the Member States. 
37 
Available options to parties concerned 
As has been put forward earlier, most governments have held that PEPPER schemes are mainly the 
responsibility of the social partners or the employer and employee-representatives in the individual 
firms. This means that any legislation or other regulations will provide a framework within the , 
details can be negotiated. However, in the case of tax-incentives, regulations might limit the 
available options. Of course, any legislation will set a limit to the variety of options available. In 
cases where there are elaborate legislative procedures like the UK, there is a need to provide for 
specific individual arrangements. In the UK for instance there are "case law" ESOTs that allow 
part of the tax reliefs even though these schemes do not folly, meet the general requirements. This 
tax reliefs can be allowed in negotiations between company or tmstees and tax inspectors. Again in 
the UK there are many non statutory schemes, reflecting the non-prescriptive nature of the UK 
approach. However, it should also be noted that these schemes run in parallel to statutory schemes. 
This positive relationship probably derives from a general positive attitude in the UK towards 
PEPPER schemes. In another case, the Netherlands, this possibility of tax negotiations became 
limited with die introduction of the central law on wage savings and employee capital 
accumulation in 1994. It should be noted that in most countries and for most schemes participation 
is voluntary. France is the only country where deferred profit-sharing is compulsory for companies 
of a certain size. 
There is also a need to reach a balance between general collective rules and provisions in cases 
where the possibility for PEPPER schemes, especially profit-sharing schemes, are based on 
collective agreements (Germany, Spain and in Italy). In these countries the government took 
initiatives to create negotiation space and enhance the choices made within the context of collective 
agreements. For instance in Italy, this was laid down in an agreement with social partners. The 
Italian govemment notes, that this agreement made it possible to avoid the main obstacle to greater 
use in Italy of schemes to promote employee participation in a company's profits and results, i.e. 
the rigid wage-setting system, which gives businesses little scope for raising employee 
remuneration above the increases established by collective agreements. 
These initiatives are also related to the govemment appeal to social partners mentioned above in 
other Member State to promote these schemes in practice. In these countries they were taken' 
initiatives to open up the possibilities for PEPPER. In Denmark, Greece, Ireland, and the 
Netiierlands options and choices within the context of the law are for the individual employer and 
might be subject to negotiations at company level. They are therefore less a subject for agreement 
on a collective level. 
If should be noted however that experiences in the past have shown that, in general, dissemination 
of the schemes could be improved when schemes are developed at a higher level, e.g. the social 
partners at a sector level. Schemes can then be applied at an individual company level, with clearly 
defined rules for individual employees at that level. This suggest that the recent appeal to the 
social partners in Germany, Spain and Italy, should be supported. The German govemment reports 
the need for new initiatives from the social partners, in order to create an environment for private 
employee investments to enhance employment growth, and to encourage employee participation in 
capital and also to improve employee involvement in enterprise. 
Good practices as mentioned in the Annex to the Recommendation, conceriiing conditions for the 
introduction of schemes and other recommendations, are found in the UK and France. Finland and 
Austria are also interesting in diis respect. When schemes are introduced, the latter countries have 
legislative provisions with regard to informing and consulting the respectives.parties and individual 
employees concerned. In Austria a collective institution made up of both representative parties is 
promoting the PEPPER schemes and provides for consulting and for training activities. In Greece, 
38 
companies adopting cash-based profit-sharing have an obligation to draw up a list enumerating the 
beneficiaries, and die amounts granted to each individual employee, a copy of which must be sent 
to the workers'council. 
Enhancement of management and labour's awareness 
In the UK and France activities concerning the enhancement of management and labour's 
awareness are almost institutionally embedded into different public and private bodies: These 
bodies provide for specific information campaigns and consulting practices directed to both 
employers and employees. We have already mentioned die official appeal to social partners in 
Germany, Spain and Italy. In Ireland, they launched a specific National Programme. Again Austria 
is an interesting case. There representative parties have developed a learning programme which is 
included in the training for works councils and employers. 
Ideas for the reinforcement of PEPPER 
In the framework of their respective competence the following ideas for the reinforcement of 
PEPPER could be explored forther by Member States, Social partners, and in matters of exchange 
of information and good practices by the Commission: 
Develop a framework law 
The analysis of PEPPER schemes in practice in EU countries suggests that there are not many 
legal obstacles to their introduction. However, certain modifications of existing laws, and the 
adoption of a framework law by Member States could be usefol to integrate the regulations for all 
possible PEPPER schemes. 
Clarify the distinction between wages subject to social charges and the advantages derived from 
PEPPER schemes 
Next to fiscal advantages most PEPPER schemes also provide exemption from certain costs and 
charges. Occasionally financial advantages such as the issue of shares or bonds at a price lower 
than the market price is regarded as income or wages that are subject to social charges. In some 
case these interpretations by the tax authorities are heavily debated and taken to court. Sometimes 
legislation has improved the matter but in other cases discussions are still going on. A clear legal 
distinction would be highly beneficial. 
Enhancement of eligibility 
Although most of the existing arrangements do not discriminate between categories of benefici­
aries, this, however, does not mean that there is equal participation. In some countries, both in 
legislation and in practice, eligibility criteria still prevent the participation of part-time employees 
and temporary employees on a short-term fixed contract ; in addition schemes are usually eligible 
only to personnel with a certain minimum length of employment in the company. The eligibility 
for PEPPER schemes should be improved. 
National wage saving system as a vehicle for share-ownership and profit-sharing « 
Nationally supported deferred profit-sharing schemes are most likely initially to promote die 
39 
development of PEPPER. This suggests that countries might develop their schemes by introducing 
modest deferred profit-sharing and a company savings system as a framework for legislation. They 
might then carefully develop these further with the integration of cash-based profit-sharing on the 
one hand and employee share-ownership on the other. In so doing they gradually improve the 
incentives offered. This might also end in a situation in which PEPPER schemes become more 
self-sustaining later on. 
Provide for a stimulating climate 
The development of PEPPER will be stimulated through an environment in which profit-sharing is 
considered as a voluntary and motivating instrument, in most cases separated from wage 
negotiations and leaving bargaining independence to the social partners. The establishment of 
National Institutional Bodies that develops systems for promoting PEPPER in the national context 
could also stimulate developments in Member States. 
Set up PEPPER schemes in the course of privatisation of public bodies 
Many countries reported the trend towards privatisation of public bodies as a possible vehicle for 
greater interest in PEPPER schemes. This suggests that governments can set up PEPPER schemes 
during this privatisation process thus gaining experience and creating awareness of the possibilities 
of these schemes among a wider audience. 
Integrate PEPPER schemes into programmes on employee-involvement 
It is interesting to note that sometimes the integration of the promotion of the PEPPER schemes is 
linked with promotion of employee involvement to unleash the productive power of the workforce 
and to improve competitiveness and quality of production. In line with the Council 
Recommendation this suggests that Member States should develop national or sectoral programmes 
that develop systems for promoting PEPPER in the national context in relationship with the general 
trend towards employee involvement. 
Make an appeal to the social partners 
Occasionally PEPPER schemes can be promoted by the introduction of provisions in collective 
agreements. Sometimes, in recent discussions during the development of collective agreements, 
some of the social partners have sought to place PEPPER on the agenda. An official appeal to the 
social partners to promote these schemes during their negotiations, making reference to the 
expected positive effects of the schemes on productivity, wage flexibility, employment and 
employee involvement could probably reinforce the process towards a higher acceptance of 
PEPPER. 
Avoid irresponsible risks for employees 
Occasionally companies in Member States issue shares to their employees when the company has 
economic and financial problems. Without sufficient information this carries great risks for 
employees and leads to scepticism on the part of the parties concerned. 
Tackle the problems for intra-EU schemes involving subsidiaries in different national circum­
stances 
40 
Another very important aspect of the promotion of PEPPER is the intra-EU dimension of the 
application of schemes to subsidiaries of a company in different Member States. These 
international companies face obstacles when they make benefits available to their employees in 
their subsidiaries in other EU countries. This also suggests the promotion of exchange of 
information about different legislative rules and procedures for promoting and monitoring PEPPER 
schemes to support the widening of many options on PEPPER options in the Member States, 
without attempting to harmonise approaches across Europe, since legal frameworks and practices 
vary greatly across the Member States. 
Promote the development of clear and understandable models and plans for introduction 
Given the importance of these schemes for productivity, wage flexibility, employment and 
employee involvement, it is quite disappointing that the use of these schemes in most Member 
States is so low. This is partly because the social parties often have a poor understanding of these 
matters. It is also related to the fiscal and legal complexity of the schemes. It appears that schemes 
are mostly designed by fiscal and legal experts. Clear models and plans for the introduction of 
schemes that are manageable and understandable both by management and labour could be helpful 
to avoid the myth of the complex and expert character of PEPPER schemes. 
Stimulate information exchange between Member States 
The situation in Europe regarding the application of PEPPER schemes has slightly improved. How­
ever, a growing disparity appears to be developing between the acknowledged PEPPER countries 
and the countries that have only modest policy and minor arrangements. There seems to be no 
exchange of information between Member States regularly either on legislation or good practices. 
Demonstration projects on good practices with a view to promoting the exchange of information in 
workshops, conferences, and through other means should be developed. These can be directed 
towards the social partners as they have a decisive influence on the acceptance of similar schemes. 
41 
Annex 1 
In the report the following abbreviations of PEPPER schemes are distinguished: 
PS: profit-sharing 
SPS: share-based profit-sharing 
BPS: bond-based profit-sharing 
CPS: cash-based profit-sharing 
DPS: deferred profit-sharing 
ESO: employee share-ownership 
SO: stock options 
DSO: discretionary share options 
ESOP: employee share-ownership plans 
EBO: employee buy-outs 
42 



ISSN 0254-1475 
COM(96) 697 final 
DOCUMENTS 
EN 04 08 
Catalogue number : CB-CO-96-706-EN-C 
ISBN 92-78-13771-5 
Office for Official Publications of the European Communities 
L-2985 Luxembourg 
</5