Opinion of the European Economic and Social Committee on the "Communication from the Commission to the Council, the European Parliament, the Economic and Social Committee and the Committee of the Regions on a framework for the promotion of employee financial participation" (COM(2002) 364 final)
Date: 2003-03-26
Institutions: European Economic and Social Committee
Subjects: EU action, Europe, action programme, exchange of information, labour relations, profit sharing, social dialogue (EU), type of business, wage earner, worker participation, workers' stock ownership

23.4.2003

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Official Journal of the European Union

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Opinion of the European Economic and Social Committee on the ‘Communication from the
Commission to the Council, the European Parliament, the Economic and Social Committee and
the Committee of the Regions on a framework for the promotion of employee financial
participation’

(COM(2002) 364 final)

(2003/C 95/09)

On 5 July 2002 the Commission decided to consult the Economic and Social Committee, under
Article 262 of the Treaty establishing the European Community, on the above-mentioned communication.

The Section for Employment, Social Affairs and Citizenship, which was responsible for preparing the
Committee’s work on the subject, adopted its opinion on 5 February 2003. The rapporteur was Mr Sepi.

At its 397th plenary session on 26 and 27 February 2003 (meeting of 26 February), the Economic and
Social Committee adopted the following opinion by 98 votes to five with six abstentions.

1.

Introduction

1.1.
The question of employee financial participation in
company profits and results has been the subject of numerous
Community initiatives aimed at supporting and encouraging
action by national governments and the social partners to
create an appropriate framework for the general introduction
of this form of participation. The work of the Foundation for
the Improvement of Working and Living Conditions figures
prominently among such initiatives, bringing considerable
knowledge and careful analysis to bear on this issue. In
addition, the European Parliament will shortly adopt a report
on the matter, having held a constructive meeting with the
EESC.

The purpose of the present communication is to give
1.2.
fresh impetus to the Community initiative in this area in the
light of the strategy defined at the Lisbon summit in March
2001, which set as its objective to increase the competitiveness
and dynamism of the European economy in order to develop
knowledge and social cohesion.

involving as many employees as possible both within each
company and throughout the entire production system, by
means of the active involvement of the social partners.

2.2.

This overall framework is built around three points:

identifying general principles for financial partici-
2.2.1.
pation, with the aim of forging a common approach for
initiatives by the Member States and by the social partners;

2.2.2.
identifying the main transnational obstacles currently
impeding adoption of financial participation initiatives on a
European or international scale, and devising the appropriate
measures to address such obstacles;

2.2.3.
identifying instruments for promoting wider dissemi-
nation of financial participation, encouraging exchanges of
information and experience, and research into this area.

The EESC warmly welcomes the Commission’s com-
1.3.
munication, in the belief that financial participation can play a
major part in European strategy. It also believes that the
conditions governing the applicability of financial participation
should be looked at more closely, giving proper consideration
not only to the opportunities, but also to the associated risks
and problems.

Regarding the general principles governing financial
2.3.
participation, the Commission has identified a core of funda-
mental elements on the basis of the experience gained in the
main countries and following the studies and discussions
which have taken place. These elements, on which a broad
consensus has been reached, are set out below:

2.3.1.
for both enterprises and employees;

voluntary nature of financial participation schemes,

2. The content of the communication

The communication sets out to provide a framework
2.1.
for Community action to promote the widespread introduction
of financial participation, in accordance with the principle of

2.3.2.
discrimination-free access to financial participation
schemes for all employees, while recognising some differen-
tiation of conditions reflecting the diversity of interests and
needs of different categories of employee;

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2.3.3.
clarity and transparency of participation schemes,
both in the set-up phase, when workers should be duly
consulted, and in day-to-day management, with the adoption
of predefined formulas for participation in company results;

2.5. With regard to the aim of extending the coverage of
financial participation, the Commission believes it should help
create favourable environments by means of a series of
initiatives designed to:

2.3.4.
exercises, but as far as possible a permanent
company/employee relations;

regularity of schemes. These should not be one-off
feature of

2.3.5.
to which they are exposed compared to other investors;

limits to the risk for employees, given the high level

2.3.6.
lementary to, rather than a substitute for, wages and salaries;

income from financial participation to be comp-

2.3.7.
compatibility of financial participation schemes with
worker mobility, to avoid creating barriers or deterrents to
mobility.

2.4.
Turning to the problem of supranational obstacles
impeding the dissemination of financial participation at Euro-
pean level, in the Commission’s view harmonisation of legis-
lation on financial participation, in order to offset the negative
effects of diversity in taxation, social security and legal
arrangements, is impracticable. The proper path to follow is to
make it easier for companies to adopt participation schemes
on a European scale, by encouraging Member States to
implement forms of coordination and agreement on general
principles, and to introduce mutual recognition of the different
participation schemes as widely as possible. Moreover, the
Commission favours
the possibility of
sounding out
developing one or more European financial participation
schemes which would be adaptable to different national
contexts.

2.4.1.
To this end, the Commission firstly points to more
intensive exchange of experience as a valuable way of overcom-
ing obstacles, particularly cultural ones.

In contrast,

the Commission considers specific
2.4.2.
measures to be necessary for other types of obstacle. Attention
is firstly drawn to the need to deal with the issue of double
taxation, either by interpreting existing OECD agreements or,
where this is not enough, by incorporating them in such a way
as to meet the specific requirements of EU Member States.

2.4.3. More generally, the Commission has set up a working
group to put forward practical proposals to deal with each type
of transnational obstacle to financial participation schemes.

2.5.1.
of national policies and practices;

foster exchange of information, with benchmarking

2.5.2.
stimulating and promoting initiatives by the social partners;

boost the social dialogue on financial participation,

2.5.3.
consider extending experiments with forms of finan-
cial participation to small- and medium-sized enterprises and
the public and non-profit sectors;

2.5.4.
improve information by promoting research and
studies, in particular for the systematic collection of data on
the use and dissemination of financial participation schemes,
and closer microeconomic analysis of financial participation
in terms of business strategic and financial policies and
industrial relations;

2.5.5.
facilitate the building of Europe-wide networks so
that information exchanges, analysis and research can be put
on a permanent footing.

2.5.6.
The Commission also plans to provide financial
support for such initiatives, making use of Community funding
channels.

3. General comments

3.1.
Employee financial participation is consistent with
recent developments in the European economy, within which
it can play a positive part in creating value through improve-
ments in terms of efficiency, flexibility, employee association
with company objectives, and management which is sensitive
to social dialogue in order to develop and strengthen cohesion.

3.1.1.
A number of factors, linked to changes to the ways
capital is allocated and factors of production are organised,
have boosted the importance of human capital, facilitating
progressively closer involvement of employees in carrying out
the function of the enterprise. This greater involvement is
paralleled by growth in employee participation in company
economic results.

3.2.
In most of the major EU countries, this participation
takes place on an individual level, through an increase in the
variable element in pay, such as incentive bonuses or stock/
share options for individuals or specific groups of employees
(usually with higher skill levels).

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3.3.
In contrast, forms of financial participation for all, or
broader categories, of workers are rare, and are very uneven
between the Member States, apart from the experience of
workers’ limited companies (WLCs).

In view of the potential

3.3.5.
importance of financial
participation in harnessing human capital and increasing
company transparency and communications skills, its exten-
sion to the entire economic system of European countries
should be encouraged, with specific forms of financial partici-
pation also being devised for SMEs and for the public and non-
profit sectors, which are a major element in the European
economic system.

3.3.1.
Precisely such broad forms of financial participation
can provide the greatest benefits for the European business
system, by reducing the element of conflict in industrial
relations, and they can help achieve the objective, laid down
by the March 2000 Lisbon summit, of making the European
economy ‘the most competitive and dynamic knowledge-
based economy in the world, capable of sustainable economic
social
growth with more and better
cohesion’ (1).

jobs and greater

4. General principles

3.3.2.
Financial participation can offer an efficient means
of making the most of investment — by both employers and
employees — in know-how and vocational skills, increasing
the value of human capital. It has been demonstrated (2) that
there is a positive correlation between introducing forms of
financial participation and investment in occupational training.
Investment in human capital, which requires companies and
workers to cooperate, is indeed facilitated by the longer term
relations and greater sharing of company aims which flow
from financial participation schemes.

3.3.3.
Financial participation also increases company trans-
parency. Implementing financial participation schemes firstly
requires that companies become more ‘open’ in information
terms, so that they can identify and monitor the profitability
indicators deriving from financial participation, and secondly
spurs companies to give a quantitative and qualitative boost
to communication with employees regarding strategy and
outcomes, so as to give real effect to the worker involvement
in company affairs which financial participation entails.

3.3.4.
This generates greater transparency in companies
involved in financial participation experiments, and in particu-
lar makes them more receptive to the idea of transparency.
This receptiveness can have a positive effect on relations with
the product and capital markets, especially for companies
which are not yet listed on a stock exchange.

( 1) See point 1.5 of

the Presidency Conclusions of

the Lisbon

European Council (23-24.3.2000).

( 2) See in particular the Dublin Foundation’s report on ‘Employee
share ownership and profit-sharing in the European Union’, 2001.

4.1.
No European Union strategy in this field can be defined
without firstly establishing a number of common principles
for financial participation schemes. These general principles
constitute an essential foundation for shaping financial partici-
pation in the EU countries, and for ensuring that its features
are compatible with the objectives of increasing the competi-
tiveness of European enterprises, improving the quality of
work and contributing to social cohesion, which underpin the
EU policy formally set out at the Lisbon summit.

4.1.1.
These principles must not result in a single, rigid
model for participation; rather, they should provide a basis for
seeking a common path for initiatives by the Member States
and the social partners, using flexible forms capable of fitting
in with the specific features of individual countries and the
economic settings in which they are implemented.

4.2.
The general principles laid down by the Commission
represent a valuable contribution to this end. The EESC would
emphasise in particular how important it is for financial
participation schemes to guarantee the principle of their
voluntary nature for both businesses and individual workers,
the principle of non-discrimination for workers, the principle
of clarity and transparency of schemes, with as much consul-
tation of workers as possible, and the principle of continuity.
Such schemes must not come to act as substitutes for regular
pay. This would allow excessive risk in financial participation
schemes to be avoided.

An equally important principle, which merits rather
4.3.
closer examination, is the principle that financial participation
should not be an obstacle to worker mobility. Financial
participation schemes indeed imply a trade-off between this
principle and the aim of encouraging worker ‘loyalty’ to
employers. This trade-off assumes particular importance in
the light of the wider introduction of flexible employment
arrangements in all the EU countries.

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financial participation
4.3.1.
The EESC’s view is that
schemes must also take proper account of
the specific
problems of workers who enjoy greater intrinsic employment
mobility.

Turning back to the general principles guiding financial
4.4.
participation schemes, collective bargaining in disseminating
such schemes is of key importance. As it develops, financial
participation can effectively play a major role in European
companies.

4.5.
Another point to make is that no distinction is made
in the Commission’s principles between different forms of
financial participation. Not only the practical implementing
arrangements, but also the purpose and applicability of the
two main forms of financial participation — participation in
results and share ownership — can vary substantially.

4.5.1.
Share ownership represents the fullest form of par-
ticipation, since a share in capital creates a more powerful and
enduring company-employee link, with employees becoming
an integral part of company life. However,
this greater
involvement goes hand-in-hand with greater risk-bearing on
the part of employees as a result of the possible fluctuation of
future share values.

Participation in the form of participation in results,
4.5.2.
on the other hand, is more practicable in settings other than
companies operating for profit, since it can be introduced in
a flexible way and adjusted to a range of organisational
structures.

4.6.
In the light of this distinction, the European Economic
and Social Committee would also highlight the contribution
that financial participation schemes, particularly in the form
of equity participation, can make to corporate governance.

4.6.1.
Employee shareholders can help improve corporate
governance in their companies, since they represent a type of
investor concerned with the long-term performance of the
business, compared with the pervasive short-termism which is
characteristic of market investors.

By playing an active part in company affairs through
4.6.2.
the machinery provided under company law (primarily share-
holders’ assemblies, but also other forms of shareholder
activity), employee shareholders can make a significant contri-
bution to monitoring company management: a function of
increasingly vital importance in ensuring that companies are
run as consistently as possible with the interests of all
shareholders.

4.6.3.
It is therefore suggested that the principles should
include that of making the most of the contribution of
employee shareholders to the corporate governance of those
companies which set up financial participation schemes,
fostering the active involvement of employees in company
affairs in ways compatible with the form of the enterprise and
the chosen participation methods. In this regard, collective
through freely decided forms of association
involvement
should also be encouraged,
in the shape of cooperatives,
foundations or associations.

4.6.4. More generally, the proposed increase in employee
involvement in company capital, through the development of
financial participation schemes, depends on a commitment
to ensuring that corporate government arrangements for
European businesses are ever more effective. This means
stronger safeguards for all minority shareholders, and more
robust arrangements for company democracy. Effective capital
formation of benefit to employees can be achieved through
employee participation. In this regard, the EU initiative on
corporate governance should be reinforced, with the specific
aim of devising means for striking a better balance in the
incentive and monitoring systems governing the ownership/
control relationship within European companies.

5. Transnational obstacles

5.1.
Differences between tax systems, in the general legal
framework and in the cultural environment, especially within
arrangements, can constitute major
industrial
obstacles for companies which wish to set up financial
participation schemes covering employees from more than
one EU country.

relations

5.1.1.
The Commission’s communication clearly identifies
these problems, and indicates a number of possible areas for
action to remove the main obstacles.

5.2.
The EESC agrees that a Community initiative aimed at
harmonisation of rules on financial participation schemes is
it could stand in the way of the flexibility
impracticable:
needed when framing national policies. Furthermore,
the
necessary legal bases may not exist.

5.3.
The European Economic and Social Committee urges
that priority be given to seeking closer coordination of current
practices, by means of guidelines and agreements between
the parties concerned on the general principles and the
introduction of measures to facilitate mutual recognition.

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5.3.1.
The EESC would also stress that the most effective
way of removing transnational obstacles is to define general
principals for financial participation schemes which are adapt-
able to the various national contexts, facilitating their trans-
posal to the European level.

economic systems, since in most European countries, com-
panies listed on regulated markets account for only a minor
portion of economic activity. More specifically, account must
be taken of the particular nature of three different sectors:
small and medium-sized enterprises, non-profit enterprises,
and the public sector.

It is also important, in this connection, to establish
5.3.2.
common treatment in offering shares or options to employees,
providing for exemption from the compulsory publication of
prospectuses, thereby removing the present disparities in this
area.

5.3.3.
The European Economic and Social Committee
would point to its opinion on the Proposal for a Directive of
the European Parliament and of the Council on the prospectus
to be published when securities are offered to the public
or admitted to trading (1), which argued that the proposal
inappropriately limited the scope of
the exemptions, by
excluding from them rights offerings and offerings of employee
share options.

5.4.
Care should be taken when drawing up the general
principles of financial participation schemes to avoid any
indirect encroachment on the competences of the Member
States.

6. Towards a wider dissemination of financial partici-

pation

6.1. Wider introduction of financial participation depends
to a considerable degree on the existence of a favourable
environment in the legal, tax-related, cultural and industrial
relations spheres.

6.2.
The European Economic and Social Committee con-
siders that the framework of initiatives proposed by the
Commission is at present commensurate with the objective of
promoting the dissemination of financial participation. One of
the areas which should be examined in greater depth is the
issue of financial participation in companies not listed on
regulated markets. Particular problems arise for such compani-
es in terms of
the quality, amount and promptness of
financial information. Moreover, in the case of shareholding in
companies not listed on regulated markets, further examin-
ation of the conditions and instruments for setting share values
and deciding whether they can be transferred, there being no
market on which prices are constantly set and opportunities
for sale provided.

The issue of financial participation in unlisted com-
6.2.1.
panies assumes particular importance if the aim is for such
feature of European
participation to become an integral

( 1) EESC opinion in OJ C 80, 3.4.2002.

In view of the considerable difficulties which SMEs
6.2.2.
fabric —
— an important strand in Europe’s industrial
experience in introducing financial participation schemes, the
sector needs to be studied in more detail. The Dublin
Foundation is currently preparing research in this area: the
results must be widely circulated as part of a broader drive to
disseminate know-how regarding both the most appropriate
forms of participation for SMEs, and the obstacles they face;
the experience of cooperative SMEs or of small WLCs can
serve as a frame of reference.

6.2.3.
The first problem arising with regard to SMEs is that
of ensuring proper transparency of results and profitability/
financing prospects. Under these circumstances, the provision
of specific financial participation measures must be flanked by
— and can contribute to — a more open approach to
information by SMEs.

Financial participation can also help locate sources
6.2.4.
of external funding to increase the rate at which they can grow
in size, especially for businesses with highly-skilled workforces
and operating in strongly innovative sectors. Preparing finan-
cial participation plans in such companies, especially in the
form of employee equity participation, can send a powerful
message to financial institutions regarding a company’s poten-
tial for growth. A message of this kind can help overcome the
in-built reticence of outside sources of finance towards young
and/or small businesses. While on the one hand employees, as
company ‘insiders’, are better informed on growth potential,
on the other this potential is boosted by the greater contri-
bution made by employees who are involved in company
outcomes.

6.2.5.
For SMEs, consideration should also be given to the
idea of studying forms of financial participation at company
pool level, particularly where businesses are operating within
designated industrial districts.

Lastly,

6.2.5.1.
in the form of
financial participation,
employee stock ownership, can play a part in helping strug-
gling businesses to survive. In this connection, existing good
practices regarding sectoral and inter-business funds in the EU
should be carefully assessed and promoted.

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6.2.6.
Turning to financial participation in non-profit bodi-
es and the public sector, it is firstly stressed that the entities
operating in these sectors are generally of a legal standing such
as to rule out financial participation in the form of equity
participation. Attention should therefore focus on partici-
pation in results. Here again, the particular nature of these
enterprises, whose results are reflected primarily in the quantity
and quality of services provided, should be borne in mind.
There have been some interesting experiments in this field, as
in the Irish public sector, which merit closer examination.
Under the Irish experiment, a fund was established with
amounts earmarked for decentralised bargaining, which are
distributed to public sector employees in proportion to the
specific service provision targets they meet in defined fields of
activity.

However, caution should be exercised when introdu-
6.2.7.
cing performance-related salary components in the case of
jobs where public servants are required to have a particularly
high degree of independence (public order officials, tax admin-
the judiciary etc.) and therefore an extremely
istration,
judicious approach is called for when it comes to introducing
any kind of profit-sharing. In any event, the independence of
such positions should be guaranteed by means of an appropri-
ate (fixed) salary.

7. Conclusions

7.1.
The communication from the Commission makes a
significant contribution to reactivating Community initiatives

Brussels, 26 February 2003.

on financial participation, and spurring the Member States
and social forces to take practical steps to encourage its
introduction. General principles must be established in this
regard, to serve as guidelines for the Community strategy,
while the practical forms of implementation retain the necess-
ary degree of flexibility.

7.2.
The EESC would point out that financial participation
is entirely consistent with the European Union’s established
objectives of social cohesion and economic development, and
therefore advocates stepping up efforts to promote this
instrument, by increasing knowledge about it and identifying
current obstacles. Such efforts should not be restricted to large
multinationals: consideration should also be given to the
particular needs of other sectors, such as SMEs, the non-profit
sector and the public sector, which are an important part of
the European economy.

7.3.
The EESC believes that the present opinion helps to
identify more clearly the structural features of the various
forms of financial participation, and the different settings in
which it can be practised.

7.4.
It is particularly important that financial participation
be viewed in the light of the present system of corporate
governance for European companies, and of its potential
contribution to growth and greater transparency in European
businesses. The social partners have an important role to play
here, determining forms of financial participation which foster
greater sharing of company aims and boost investment in
human capital, which are both key factors for European
economic development.

The President

of the European Economic and Social Committee

Roger BRIESCH