NoC98/40 OfficialJournaloftheEuropeanCommunities 21.4.92
OpinionontheCouncilRecommendation concerningthePromotionofEmployeePartici­
pationinProfitsandEnterpriseResults(*)
(92/C98/16)
On13September1991theCouncildecidedtoconsulttheEconomicandSocialCommittee,
underArticle198oftheTreatyestablishingtheEuropeanEconomicCommunity ,onthe
abovementioned Recommendation .
TheSectionforSocial,Family,EducationalandCulturalAffairs,whichwasresponsiblefor
preparingtheCommittee'sworkonthesubject,adopteditsOpinionon14February1992.
TheRapporteurwasMrBell.
Atits294thPlenarySession(meetingof27February1992)theEconomicandSocialCommittee
adoptedthefollowingOpinionbyamajorityvoteto5with9abstentions .
whetherbasedoncashoronsharesorothersecurities.
TheCommissionemphasizesinparagraphH.32ofits
ExplanatoryMemorandum thattheRecommendation
doesnotcoveranumberofrelatedareas,amongthem
beingvariousaspectsofemployeepayandbenefitsnot
directlylinkedtoprofitsorenterpriseresults.
2.3.TheacronymESOP(EmployeeStockOwner­
shipPlan)originatedintheUStodescribepensions­
relatedschemesunderwhichemployeesparticipatein
atrusttoholdsharesontheirbehalf.Anumberof
MemberStateshaveschemesthataredescribedas
ESOPs,buttheyarenotnormallypensions-related in
Europe.1.Introduction
1.1.Thisproposalisconcernedwithschemesfor
employeesofenterprisestoshareinprofits,either
throughcashpaymentsbasedonenterpriseprofits,or
throughtheownershipofsharesinenterprises .
Employeesmayparticipateinsuchschemeseither
directlyorthroughfundsortrustssetupfortheir
benefit.
1.2.TheCommission'sproposalformspartofits
ActionProgrammeundertheSocialCharterandtakes
theformofanon-bindingRecommendation .TheCom­
missionhaschosentoproposeaCouncilRecommen­
dationinordertogaintheinvolvementofMinisters,
becauseoftheconsiderableattentionthesubjectmerits.
1.3.TheproposedRecommendation seeksto
encouragetheMemberStatestofostertheintroduction
ofschemesforfinancialparticipationbyemployeesand
takesnoteoftheCommission'sintentiontosetupa
workingpartytoexaminethepossibilityofdrawing
up,atCommunitylevel,'formulae'forfinancialpartici­
pationschemesbyemployeesinordertoimprovethe
opportunities fortheapplicationofsuchschemes
throughouttheCommunityundercomparablecon­
ditions;thefollowingthreetypesofschemewould
beincluded:profit-sharing ,employeeshareownership,
stockoptions.3.BackgroundtotheCommission'sproposal
3.1.Existingfinancialparticipationschemes
3.1.1.Financialparticipationbyemployeesismore
widelydevelopedintheUSandJapan(theEC'smain
competitors )thanintheCommunityitself.Financial
participationassuchexistsinallMemberStates,and
thereisanextremelywidevarietyofapproach.Insome
MemberStatestherehasbeennoformalgovernmental
involvement .Attheotherextreme,theFrenchandUK
governmentshavebeenquiteactive,andthesecountries
havethemostwidely-developed regimesforfinancial
participation .AllschemesinMemberStatesarevolun­
tary,exceptthatinFrancethereisacompulsoryscheme
forlargercompanies.2.Noteonterminology
2.1.TheacronymPepper(PromotionofEmployee
ParticipationinProfitsandEnterpriseResults)ispar­
ticularlyattachedtoareportdescribingtheresultsof
aCommissionresearchstudyonthesubject.
2.2.InthisOpinion,theterm'financialpartici­
pation'isusedtoencompassallvarietiesofscheme3.2.Itisgenerallytruetosaythatfinancialpartici­
pationisanexpandingphenomenon ,withincreasing
numbersofenterprisesandemployeestakingpart,and
acontinualgrowthinthevarietyofschemesonoffer.
Themethodsoffinancialparticipationinuseinthe
Communityinclude:
(!)OJNoC245,20.9.1991,p.12. —directcashbonusesbasedonprofit,

21.4.92 OfficialJournaloftheEuropeanCommunities NoC98/41
Commissionhasbaseditsproposalonverythrorough
preparatorywork.TheCommitteebelievesthataRec­
ommendation ,whichisnon-binding ,isthecorrectform
ofCommunityinvolvement ,andwouldnotsupport
anymandatorylegislation.
5.1.Theroleofgovernmentsandthesocialpartners
5.1.1.TheCommitteethinksitiscorrecttoencour­
ageGovernmentstoprovideabenignregimeforfinan­
cialparticipation inlegal,fiscalandadministrative
terms.ThisisparticularlytrueinthoseMemberStates
whoselawstendtodiscriminateagainstfinancialpar­
ticipationasagainstothertypesofsavingsorfinancial
benefit.—issueoffreesharesorothersecuritiesrelatedto
levelsofprofit,
—offersofdiscountedorspecialsharesorothersecuri­
tiestoemployees,
—savings-related schemes,
—schemesmakinguseofshareoption,
—schemesinvolvingfundsortrustsforthebenefitof
employees .
3.3.Thegreatdegreeofdifferentiationthatcanbe
observedisinpartduetothevarietyoflegaland
fiscalregimeswithinwhichfinancialparticipationtakes
place.InmanyMemberStates,employeebenefits,
whethercashornon-cash,aretaxedasincome,and
partlybecauseofthisGovernmentsoftenencouragethe
developmentofschemesbygivingfiscalprivilegesto
participants .
4.Theadvantagesanddisadvantagesoffinancialpar­
ticipation
4.1.Themainpotentialadvantagesmaybesummed
upas:
—Fortheenterprise :
•incentiveeffect,
—Fortheemployee:
•economicbenefit,
•moreparticipation .
4.2.Themainpotentialdisadvantagesare:
—Fortheenterprise :
•weakeningoftheroleofcapital(redistributive
effect),
•inefficiencyofgroupincentives,
—Fortheemployee:
•risktosavings,
•weakeningofcollectivebargainingpower.
4.3.Duetothedifficultyofcollectingcleardata,
thereisnoconvincingevidenceonewayortheother.
However,theCommission'sviewisthatthebalanceof
evidenceisinfavouroffinancialparticipation .The
Commission'sfavourableviewhasbeensupportedby
theParliamentin1983andsince.5.1.2.TheCommitteeagreesthatthedevelopment
ofschemesforfinancialparticipationshouldtakefull
accountoftheneedsandtheviewsofthesocialpart­
ners.TheCommitteenotesthatschemesmayarisein
avarietyofways:throughdirectactionbyGovernment ,
throughtheoperationofthemarket,throughaprocess
ofconsultation ,directlythroughcollectivebargaining,
orthroughcombinationsofthesemethods.
5.1.3.TheCommitteeagreeswiththeCommission
thatfinancialparticipationshouldbeavoluntarymat­
teronthepartofboththeenterpriseandtheindividual
employee;theoutlinesoftheparticipationschememay
belaiddownincollectiveagreements .Itisunderstood
that,howeverschemesarearrivedatinthefirstplace,
theenterpriseshouldinprinciplebefreetochoosefrom
amongtheavailableschemesforfinancialparticipation ,
whilerespectingexistingnationalpracticesandobli­
gationsarisingfromcollectiveagreements .
5.1.4.AlthoughtheCommitteeagreeswiththeCom­
mission'ssupportoffinancialparticipationschemes,it
isawareoftherisktoemployees.Insistenceonthe
voluntarynatureofschemesandtheirclearseparation
fromnormalbasicpayarethebestdefencesagainst
risk.TheCommitteealsonotesthatnoriskattachesto
schemesbasedoncashpaymentsasdistinctfromshares
orothersecurities.However,theCommitteewonders
whetherGovernmentscouldadditionallybeaskedto
ensurethatamandatory'healthwarning'isincluded
inalloffersmadetoemployeesunderfinancialpartici­
pationschemes.TheCommitteealsobelievesthatthe
possibilityofinsuranceorguaranteesagainstveryheavy
lossesbyanindividualemployeemeritscarefulexamin­
ation.
5.2.Thetypologyofschemes
5.Generalcomments
TheCommitteewelcomestheCommission'sinitiative
intheareaoffinancialparticipation ,andnotesthatthe5.2.1.TheCommitteewelcomestheexistenceofa
widevarietyofschemes,sincethisprovidesthegreatest
amountofchoicetoparticipants .TheCommitteenotes

NoC98/42 OfficialJournaloftheEuropeanCommunities 21.4.92
—theextenttowhichemployees'savingshavebeen
putatriskbyfinancialparticipationschemesand
themethodsbywhichtherisktoemployeeshas
beenorcouldbemitigated,includingthepartthat
couldbeplayedbyguarantees,
—therelationshipoffinancialparticipationschemes
topensionprovisioninthelightofproposedlegis­
lationregardingthecomplementarity ofretirement
regimes,andthewidespreadinvolvementoffinan­
cialparticipationinpensionprovisionintheUS,
—theproblemsexperiencedbytransnationalcom­
paniesresultingfromvariablenationalconditions
forfinancialparticipation .
5.4.2.Itappearslikelythattransnationalenterprises
facedifficultieswhenattemptingtoinstalfinancialpar­
ticipationschemesindifferentMemberStateswith
widelydifferinglegal,fiscalandadministrative regimes.
Thismaytendtolimitthegrowthofsuchschemes,or
maydisadvantageemployeesincountriesotherthanan
enterprise'sbasecountry.
6.SpecificcommentsthatindividualMemberStateshavesometimeslegis­
latedforparticulartypesofschemesforreasonsof
nationalpolicydistinctfromthematteroffinancial
participationperse.WhiletheCommitteedoesnot
wanttoseeanylimitationonthefreedomofindividual
MemberStatesinthisregard,ithopesthatwhenMem­
berStateschoosetolegislatetheywilldosoinaway
thatmaintainsthebroadestpossiblerangeofschemes.
5.3.Participationindecision-making
5.3.1.TheCommissionnoteswithapprovalthat
participationbyanemployeeinthesharecapitalofa
companygivesaccesstothecompany'sdecision-making
byvirtueofthevotesattachingtoshares.Thiswould
betruewhetherthesharesarehelddirectlyby
employees,orbyafundortrustontheemployee's
behalf.
5.3.2.However,insomecases,sharesissuedto
employeesareofatypethatdonotcarryvotes.Inthe
lightofcurrentproposalsbytheCommissiontoreduce
oreliminaterestrictionsonshareholders'votingrights,
whichhavebeensupportedbytheEconomicandSocial
Committee,theCommission isaskedtoincludeword­
ingrecommending MemberStatestoencouragethe
issueofvotingratherthannon-votingsharesto
employees .
5.3.3.TheCommitteeconsidersthatthedevelop­
mentofmechanismsforfinancialparticipationdoes
notandshouldnotalteranyexistinglegalrightsof
employees .
5.4.Furtherstudy
5.4.1.TheCommitteeagreeswiththeCommission
thatmuchremainstobelearntaboutfinancialparti­
cipationanditsbenefits,oritsdisadvantages .As
suggestedintheCommission'sRecommendation ,
MemberStatesshouldbeencouragedtostudytheoper­
ationoffinancialparticipationschemesandtocom­
municatetheirconclusionstotheCommission .In
addition,theCommitteesuggeststhattheCommission
shouldencouragestudyofthemanyaspectsoffinancial
participationaboutwhichrelativelylittleisknown,
particularlyincludingthefollowing :
—theactualimpactoffinancialparticipationschemes
inMemberStates,withquantitativeresultsasfar
astheycanbemeasured,
—acomparativeanalysisofthedifferenttypesof
scheme,intermsoftheirvariousadvantagesand
disadvantages ,
—theusefulnessorpracticalityoffinancialpartici­
pationasatoolinsmallcompaniesasopposedto
largeones,andintypesofenterpriseotherthan
normallimitedcompaniessuchascooperativesand
otherenterprisesformingpartofthesocialecon­
omy;particularlyinvestigatingwhethertheconcept
offinancialparticipationcantakeonadditional
meaningbasedonthebroaderconceptionofpartici­
pationrepresentedbythesocialeconomy,6.1.Paragraph11,7
6.1.1.TheCommitteewelcomesthestatementof
keyissuessetoutintheAnnextotheRecommendation .
InparticulartheCommitteeapprovesofsub­
paragraph3oftheAnnexandpointsoutthatincertain
MemberStatesprofit-sharing bonusesnegotiated
throughcollectivebargainingalreadyformpartofbasic
pay:theseneedtobedistinguishedfromtheadditionnal
formsoffinancialparticipationdealtwithbytheRec­
ommendation .
6.2.ParagraphII,8
6.2.1.TheCommitteeagreeswiththeinvolvement
ofMemberStatesinaprogrammeoffurtherstudy,
andsuggeststhattheycouldbeaskedtopayspecific
attentionintheircommunications totheindividual
goalsforstudysetoutunderparagraph5above.
6.3.Paragraph111,10
6.3.1.TheCommissionarguesthattheworking
partyshouldexaminepossibilitiesforthecreationof
Community-wide 'formulae'forfinancialparticipation
schemes.TheCommitteeagreesthatCommunityfiscal
andlegalregimesarelikelytoremainhighlydiverse,
andthatthiswillinhibitcross-borderenterprisesfrom
developingoptimalparticipationstructures.Thismay
beanargumentforstandardized (butofcourse
optional)schemesthatwouldbewidelyavailableto
enterprises,buttheCommitteewondershowthat

21.4.92 OfficialJournaloftheEuropeanCommunities NoC98/43
wouldbepossiblewithoutstandardlegalandfiscal
structures .Wouldstandardschemesthereforeneedto
belimitedtoenterprisesadopting(forexample)the
EuropeanCompanyStatute?Thisseemstoraisethe
objectionthatemployeesincross-bordercompanies
mightobtainprivilegedtreatment,andalsoraisesdiffi­
cultquestionsofcompetitionlaw.
6.3.2.TheCommissionsetsoutthreeparticular
typesofschemeforwhichthepossibilityof'formulae'
aretobeexamined.TheCommitteefeelsthatthiswork
shouldnotbelimitedtothosethreetypesofscheme,
butshouldalsotakeinothersuitablepossibilities .
6.3.3.WhiletheCommitteesupportstheeffortsof
theCommissiontofindmechanismsforCommunity­
widefinancialparticipation ,itdoesnotconsiderthat
thiswouldjustifyanymovetowardsharmonization offiscalorlegalregimesassuch.ThereforetheCommittee
askstheCommissiontomakeeveryeffortindesigning
programmesoffurtherstudytoensurethattheyare
clearlydirectedawayfromsuchanoutcome.
6.4.Withthesereservations ,theCommitteeagrees
thattheCommission shouldsearchforsolutionsto
theproblemsposedbythepatchworkofCommunity
systems,andshouldaddressalsothegoalsforfurther
studysetoutinparagraph5above,makinguseofa
workingpartyorothermethodsasseemmostappro­
priate.
6.5.Finally,theCommitteefeelsthattheCom­
missioncouldexaminewhetherthereisanypossibility
ofmanagementandlabouragreeingatEuropeanlevel,
underArticle118B,onadefinitionofreferencemodels
foremployeeparticipation inprofitsandenterprise
results.
DoneatBrussels,27February1992.
TheChairman
oftheEconomicandSocialCommittee
MichaelGEUENICH