REPORT FROM THE COMMISSION - PEPPER II - promotion of participation by employed persons in profits and enterprise results (including equity participation) in Member States - 1996
Date: 1997-01-08
Institutions: European Commission
Subjects: exchange of information, member country, profit sharing, worker participation, workers' stock ownership

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 

I. 

I N T R O D U C T I ON 

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). 

profit-sharing 
share-based  profit-sharing 
bond-based  profit-sharing 
cash-based  profit-sharing 
deferred  profit-sharing 
employee  share-ownership 
stock  options 
discretionary  share  options 

In  summary,  the  following  PEPPER  schemes  can  be  distinguished: 
PS: 
SPS: 
BPS: 
CPS: 
DPS: 
ESO: 
SO: 
DSO: 
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 

General  situation: 

Legislation 

Diffusion  of  PEPPER  schemes 

Change  1991-1995 

Country 

Belgium 

unfavourable  but dis 
cussed  today;  PS  and  ESO 
• prohibited  due  to  wage 
freeze 

Specific  laws & 
Year  of  introduc 
tion: 
ESO:  (1983,1986) 
SO:  (1984,1990) 
Preferential  share 
offers  (1991  Act) 

Tax  benefits 

Prevalent  types: 

No.  of  schemes/  firms 
Involved: 

Employees 
involved: 

Employee  benefits  or 
profit  share  /  employee: 

Rallier  limited 
especially  for ' 
ESO  an  SO 

ESO 

Quoted  companies 

1994:  36,900 
employees 

d.n.a. 

d.n.a 

Various  of  CPS 
&  DPS,  incl.  PS 
certificates 
BPS 

multinationals;  financial 
sector,  10% of  large 
companics(survey) 
27  (1995) 

d.n.a. 

d.n.a 

5%  distributable  profits; 
roughly  1,5% to  6% of 
salary 
d.n.a. 

govemment  plans  for 
legislation  of PS in 
near  future; 

Denmark 

Discussions  in  1994 

On  SPS  and  ESO 
(since  1958) 

Some  for  SPS, 
BPS  and  ESO 

Germany 

Favourable  except  for 
CPS;  appeal  to  social  part 
ners 

Some  on  ESO; 
minor  changes: 
1994 

Only  for  ESO 

ESO 
SPS 
ESO  &  DPS 

16 (1994) 
d.n.a. 
1,500-2,000  firms 

d.n.a 
d.n.a. 
about  1.5 
million 
(inventory 
1994) 

d.n.a. 
d.n.a. 
300  DM  per  year=0.6% 
of  the  average  gross 
wage 

-modest  but  relatively 
steady  interest 

slight  increase 

Greece 

No  discussions 

Spain 

Appeal  to  social  partners 

Some  on  CPS 
(1984)  and  ESO 
(1987) 
Only  general  provi 
sions  in  Workers' 
Statute  &• EBO 
(1986) 

For  both  finns 
&  employees 
substantial 
Minor,  except 
for  EBO 

d.n.a  = data  not available;  for  abbreviations  used  see  annex  1 of  this  report 

d.n.a. 

d.n.a. 

d.n.a. 

d.n.a. 

d.n.a. 

CPS 

No.  of  collective  agree 
ments  with  clauses  on 
CPS:  1,087(1994) 

Covered  by 
these  agree 
ments: 
1.8  million 

d.n.a 

slight  decrease 

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 
10 
20 
20 

1991 
1992 
1993 
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  5 1% 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 

General Attitude: 

Legislation 

Diffusion  of  PEPPER  schemes 

Country 

France 

very  favourable  and 
discussed 

Specific  laws  &. Year 
of  introduction: 

fax  benefits 

Prevalent 
types: 

No.  of  schemes/  linns 
Involved: 

Employees  involved: 

Substantial  for  both 
firms  and  employees; 
further  improved  in 
1994 

Since  1995  on  CPS 
and  since  1967/70  on 
DPS,  SO and  ESO 
several  changes; 
Important 
improvements  in 
legislation  in  1994 

DPS 

19,000  firms  and 
15,780  agreements 

1993:  5.15  million 

Change  1991-
1995 

Employee  benefits 
or profit  share / 
employee: 
Average  PS 4,2% 
of  earnings 

Substantial 
increase 

Ireland 

Italy 

Discussed  in  National 
Programme 
Discussed  today,  appeal 
to social  partners 
(1993) 

Only  for  ESO,  SPS 
and  SO 
Some  provisions  in 
Civil  Code  and 
Workers'  Statute 

CPS 

ESO 
DSO 
EBO 

Considerable 
improvement  in  1995 
No  incentives 

CPS 
ESO,  SPS 
&  SO 
PS 

SO 

8,800  agreements 

2,5  million 

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 

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. 

Substantial 
increase 

average  2.9% of 
earnings 
d.n.a. 
d.n.a 
d.n.a. 

d.n.a. 
d.n.a. 

d.n.a. 

Expected  increase 

unknown 

d.n.a. 

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. 
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. 

v 

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 

General  Attitude: 

Legislation 

Diffusion  of  PEPPER  schemes 

Change  1991-1995 

.Country 

Luxem 
bourg 

Netherlands 

Discussed;  government  con 
siders  initiatives:  Law  pro 
posal  on  ESO  by  parties 
favourable  and  discussed 

Specific  laws  &. Year 
of  introduction: 

'fax  benefits 

Prevalent 
types: 

No.  of  schemes/ 
firms Involved: 

Employees 
involved: 

None 

No  incentives 

CPS 

Substantial 
improvements  in  1994 

CPS 

In  1994  improved 
legislation  on  CPS; 
BPS  and  SO  on  the 
basis  of  company 
saving  schemes 

26%  of  com 
panies  (mainly 
banks)  (l995) 
5.2%  of  firms 

d.n.a. 

ll.5% 

Employee  benefits 
Or profit  share  / 
employee: 
4.5-8% of net  tax 
able  profits 

slight  increase 

5.7%  of  average 
earnings 

increase  in number of 
employees 

Austria 

favourable,  but  sceptical 
especially  on  ESO 

Labour  Law  1974/ 
revised:  1994; 
Income  Law  1994 

SO 

d.n.a. 

d.n.a. 

d.n.a. 

Expected  increase  due to 
integration  with  com 
pany-  saving  schemes 

only  for  ESO 

"DPS" 

d.n.a. 

d.n.a. 
Data  only  for  large  enterprises 

d.n.a. 

Portugal 

•Muior discussions 

Since  1989 
privatisation  law 
provides  for  ESO; PS 
b-jscd  on  1969  law 

Incentives  for  firms 
witli  PS; ESO 
incentives  for  both 
finns  and  employees 

d.n.a  = data  not 

available;  see  tor  abbreviations 

jsed  annexe  oTtfiis  repo 

1 

ESO 
SO 
ESOP 
PS 
PS 

20  schemes 
l 
2 
l 
d.n.a. 

approx.  18,000 
400 
approx.  340 
d.n.a. 
d.n.a. 

l%-45%  of capital 
d.n.a. 
d.n.a. 
d.n.a. 
d.n.a. 

Expected  increase 
unknown 
unknown 
unknown 
unknown 

ESO 

quoted  com 
panies 

d.n.a, 

employee  share 
holders:  12.4% of 
shareholders 
(1994) 

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 

General Atti 
tude: 

Legislation 

Diffusion  of  PEPPER  schemes 

Change  1991-1995 

Specific  laws  &  Year 
of  introduction: 

'fax  benefits 

Prevalent 
types: 

No.  of  schemes/ 
firms  Involved: 

Employees  involved: 

Finland 

Aflinnativc  and 
discussed  with 
social  partners 

Personnel  funds  (1990) 

with  amendments  in 
1996 

incentives  for  personnel 
funds;  none  for 
CPS/ESO 

DPS  (per 
sonnel 
fund) 

41  linns  or 
group  of  firms 
(1994) 

90,000 

Employee  benefits  or 
profit  share  / 
employee: 
1994  approx.  2% of 
year-income  to  funds 

CPS/ESO 
d.n.a. 

d.n.a. 
d.n.a. 

d.n.a. 
d.n.a. 

1-2%  of  paid  wages 
d.n.a. 

DSO 

4,339 

Substantial 

Sweden 

Not  discussed 

Only  for  profit-sharing 
funds 

United 
Kingdom 

Very  favourable 
&  discussed 
Continuous 
improvements 

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 

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 

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 

CPS 

12,740 

approx.  3.5  million 

SPS 

868 

approx.  1 million 

SO 

1,174 

approx.  1 million 

very  substantial  growth  suice 
1991 

strong  increase,  little  change 

strong  increase 

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 

ESOP's 
Total 

27 
19,148  schemes 

d.n.a. 
5.5  mln  employees 

slow  increase 
Numbers  doubled  since  1991 

d.n.a  = data n ot available;  see  lor abbreviations  used  annex  of  this report 

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  2 0%  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 
v 
and  attractive  to employers  and  employees  alike. 

^ 

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: 

decrease  of  profit-sharing 

modest,  but  relatively  steady  interest  in  employee  share  and  bond 
schemes, there are no date on  profit  sharing 

Germany: 

slight  increase  in number of schemes  and  employees  involved 

Greece: 

Spain: 

France: 

Ireland: 

Italy: 

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 

Luxembourg: 

increase  of cash-based  profit-sharing 

Austria: 

expected  increase since  1994 

Netherlands: 

slight  increase 

35 

Portugal: 

Finland: 

Sweden: 

increase  under  privatisation 

increase; expected  forther  increase 

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: 
SPS: 
BPS: 
CPS: 
DPS: 
ESO: 
SO: 
DSO: 
ESOP: 
EBO: 

profit-sharing 
share-based  profit-sharing 
bond-based  profit-sharing 
cash-based  profit-sharing 
deferred  profit-sharing 
employee  share-ownership 
stock  options 
discretionary  share  options 
employee  share-ownership plans 
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