CELEX: 51992PC0193
Language: en
Date: 1992-05-05
Title: Amended proposal for a COUNCIL RECOMMENDATION concerning the promotion of employee participation in profits and enterprise results (including equity participation)

COMMISSION OF THE EUROPEAN COMMUNITIES
                                               COM(92) 193 final
                                               Brussels, 5 May 1992
                          Amended proposal for a
                          COUNCIL RECOMMENDATION
                       concerning the promotion of
employee participation  in profits and enterprise     results  (including
                           equity participation)
         (presented by the Commission pursuant to Article 149(3)
                            of the EEC-Treaty)
 ---pagebreak---                                   --1-
Amended proposal for a Council Recommendation concerning the promotion of
employee participation in profits and enterprise results (including
equity participation)
                           EXPLANATORY MEMORANDUM
The European Parliament and the Economic and Social Committee have
delivered opinions on      the proposal    for  a Council   Recommendation
concerning the promotion of employee participation in profits and
enterprise results (including equity participation) - C0M(91) 259.
The amended proposal, which the Commission now submits to the Council
under Article 149(3) of the EEC Treaty, takes account of Parliament's
amendments adopted on 9 April        1992 and the Economic and Social
Committee's opinion adopted on 27 February 1992. A number of technical
 improvements have been added in the interests of clarity and consistency.
Sect ion II
Paragraph 2
Parliament wished to indicate that schemes with certain characteristics
deserve particular support, for example those which suit the needs of
small and medium-sized enterprises.
Paragraph 2. new subparagraph
The Economic and Social Committee asked the Commission to include wording
recommending Member States to encourage the issue of voting rather than
non-voting shares to employees. Parliament, against the background of
some recent financial scandals, stressed the importance of preventing
misuse of shares owned by employees, when these are held in a fund or
trust .
Sect ion III
Paragraph 10
A number of modifications were proposed with regard to the working party
to be set up by the Commission. In addition a clearer formulation of its
objectives was asked for.
Parliament wants the social partners to be represented on this working
party and also added a fourth type of scheme to the non-exhaustive list
of schemes with which the working party would deal.
Annex
P-ai-agraph 7
The Economic and Social Committee is in favour of the inclusion of some
kind of "health warning" in all offers made to employees under financial
participation schemes. Parliament adopted an amended text for paragraph 7
which makes a clearer distinction between risks to income and capital
and which sets out separate possibilities for containment of these risks.
 ---pagebreak---                                        - s\ vvo —
Amended proposal for a Council Recommendation concerning the promotion of
employee participation in profits and enterprise results (including equity
part icipat ion)
              ORIGINAL TEXT                          PROPOSED AMENDMENTS
  Proposal        for       a      Council   Amended ProoosaI for a Counc iI
  Recommendation       concerning      the   Recommendation    concerning    the
  promotion           of          employee   promotion        of        employee
  participation       in profits       and   participation    in   profits   and
  enterprise      results       (including   enterprise    results    (including
  equity participation)                      equity participation)
  THE   COUNCIL     OF     THE    EUROPEAN   Unchanged
  COMMUNITIES
  Having    regard     to     the Treaty     Unchanged
  establishing         the        European
  Economic      Community,        and   in
  particular Article 235 thereof.
  Having regard to the            proposal   Unchanged
  from the Commiss ionS ) t
  Having regard to the opinion of            Unchanged
  the European Parliaments2^,
  Having regard to the opinion of            Unchanged
  the      Economic        and      Social
  Comm i 11 ee ^ *,
  Whereas     in    its    Communication     Unchanged
  concerning the Action Programme
  relating to the Implementation
  of the Community Charter of the
  Fundamental Social          Rights    of
  Workers the Commission announced
  Its    Intention      to     present   a
  Community instrument on equity
  sharing          and           financial
  participation by workers;
  (1) O.J. C-245 of 20.09.1991
  (2) Adopted on 09.04.1992
  (3) Adopted on 27.02.1992
 ---pagebreak---                                             - 2 -
Whereas a report on the promotion                 Unchanged
of    employee        participation        in
profits and enterprise results in
the Member States of the European
Community has been prepared and
whereas         this        report       has
established that there is a great
variety in the types of scheme
encountered        in    the     Community,
 Including cash payments, share-
based and deferred profit-sharing
schemes      and    various       types of
particular          employee          share-
ownership schemes;
Whereas           encouragement           at      Unchanged
Commun i t y level of schemes of
f inaneiaI         part ic ipat ion       by
employees is to be seen as a
means     of     achieving       a    better
d istr ibut ion      of      the     wealth
generated by enterpr i ses, wh ile
encouraging a greater involvement
of employees in the progress of
their companies;
Whereas       while      the      body    of     Unchanged
empirical       research       about     the
effects      of     such     schemes      in
practice does not yet               provide
overwhelming evidence of strong
overall     advantages,         there    are
sufficient indications that such
schemes contribute to a number of
positive        effects,          including
improvements             in        employee
motivation and productivity and
in     the       competitiveness          of
enterpr ises,
Whereas      it    is appropriate         to     Unchanged
promote a larger diffusion of
financial      participation schemes
within the European Community,
without        seeking       an      active
harmonization or a reduction in
the    existing        wide     range     of
ava ilable schemes;
                                                 Whereas, because     it   is  not
                                                 feasible    for    employees   to
                                                 participate in the equity of some
                                                 businesses and enterprises, there
                                                  is a need to develop models for
                                                 participation     outside     the
                                                 bus iness;
 ---pagebreak---                                      - 3 -
                                          Whereas,    while    in  some   cases
                                          shares issued to employees are of
                                          a type that do not carry votes, it
                                           is    desirable    to   reduce    or
                                          eliminate restrictions on employee
                                          shareholders' voting rights;
                                          Whereas, when employees' shares
                                          are held in a fund or trust, there
                                          is a need to prevent any misuse of
                                          the shares;
Whereas the ultimate success of           Unchanged
this Community initiative wiI I to
a large extent depend on the
active interest and involvement
of      the     social      partners
themseIves;
Whereas in the context of the             Unchanged
completion of the internal market
it is necessary      to study the
possibilities for the development
of   transnational    formulae   for
employee participation in profits
and enterprise results;
Whereas     the   present     action     Unchanged
appears necessary to attain, in
the course of the operation of
the common market, one of the
objectives of the Community,
                                         Recalls that with regard to pay
                                         Community         Law       prohibits
                                         discrimination on the grounds of
                                         sex< 4 ) or nationality;
(4) In part icular:
    Article 119 of the Treaty EEC;
    Directive 75/117/EEC on equal pay for men and women;
    Directive 76/207/EEC on equal treatment between men and women with
    regard to access to employment;
    Directive   79/7/79 on equal     treatment   between men   and women  with
    regard to social security.
 ---pagebreak---                                           - 4
    HEREBY      INVITES     THE   MEMBER      Unchanged
    STATES:
To    acknowledge       the    potential      Unchanged
benefits of a wider use of a
broad    variety      of    schemes    to
increase     the    participation      by
employees        in      profits      and
enterprise      results      either    by
means    of     profit-sharing,        or
through employee share-ownership
or by a combination of both.
I I. HEREBY RECOMMENDS        THE MEMBER      Unchanged
    STATES:
1.  To      ensure        that      legal     Unchanged
    structures are adequate to
    allow the introduction of the
    forms           of         financial
    participation referred to in
    this Recommendation;
 ---pagebreak---                                   - 5 -
To consider the possibility            To consider the possibility of
of according incentives such           according       incentives       such    as
as fiscal or other financial           fiscal      or       other       financial
advantages to encourage the            advantages       to     encourage       the
 introduction      of      certain     introduction of certain schemes;
schemes;                               in   this     connection        particular
                                       attention      could      be    given    to
                                       support for schemes with one or
                                      more        of         the        following
                                      character 1st ics:
                                       - schemes which will facilitate a
                                      more equitable          distribution of
                                       income and wealth;
                                            schemes        which        encourage
                                      employees to obtain and retain a
                                      stake in the company in which they
                                      work     and     which      enhance     the
                                       involvement       of     employees       in
                                      company decisions;
                                      - schemes which create conditions
                                      for     indirect      participation       in
                                      capital, in particular in cases
                                      where    business       and    enterprise-
                                      related      participation         is   not
                                      possible;
                                      - schemes which suit the needs of
                                      small          and            medium-sized
                                      enterpr ises;
                                      - schemes which include both part-
                                      time and full-time employees;
                                      2.b To encourage the issue of
                                      voting     rather      than     non-voting
                                      shares to employees and to ensure
                                      that where employees' shares are
                                      held    in a fund or trust, any
                                      misuse of the shares is prevented;
To encourage   the use of such        To encourage        the use of         such
schemes by    faciIi tat ing the      schemes by facilitating the supply
supply        of         adequate     of adequate       information to all
informat ion  to a I I re levant      relevant     parties      including     the
part ies;                             European Commission;
To      take      account      of     Unchanged
experiences              acquired
elsewhere    in the      European
Community    when     considering
giving preferential treatment
to    particular       types   of
financial          participation
schemes;
 ---pagebreak---                                       - 6 -
   To ensure that the social              To ensure that the social partners
   partners have the opportunity          have the opportunity to choose
   to choose from a sufficiently           from a wide range of options on
   wide range of options on the            the basis of consultations between
   basis      of       consultations      employers and employees or their
   between        employers        and    representat ives;
   employees          or         their
   representat ives;
   To ensure that this choice             Unchanged
   can be made at a level which,
   taking      account      of     the
   national     practice     in this
   regard,     is    as    close    as
   possible to the employee and
   to the enterpr i se ;
   To encourage consideration of          Unchanged
   the key issues sot out in the
   Annex    when     new    financial
   participation       schemes     are
   being     prepared      or     when
   existing schemes are being
   rev iewed;
   To examine, after a period of          Unchanged
   three years following the
   adopt ion          of          this
   Recommendation,        the     data
   available at a national level
   on     the     development       of
   financial     participation by
   employees and to communicate
   the      results        to      the
   Commi ss ion;
9. To enhance     social partners'        Unchanged
   awareness      of     the    above
   mat ters.
 ---pagebreak---                                       - 7 -
 III. TAKES NOTE OF THE                    Unchanged
       COMMISSION'S INTENTION
 10. To set up a working party to          To set up a working party, on
     examine possibilities for the         which the social partners will be
     creation at a Community level         represented,        to      study       the
     of    formulae   of    financial      practical problems and obstacles
     participation      schemes    by      facing enterprises at the present
     employees     ,  in order     to      time if they wish to extend access
      improve the opportunities for        to   a     financial       participation
     the       application      under     scheme     to     their    employees      in
     comparable            conditions     another       Member       State      under
     throughout the Community of          comparable conditions or If they
     such    schemes;   these   would     wish to set up a similar scheme
     include the following three          for them. In order to make such
     types:                               extension      across     the    Community
                                          easier     the Working        Party    will
     a) a profit-sharing scheme;          examine ways of simplifying the
     b) an employee share                 procedures       which     have    to     be
         ownership scheme;                followed by incoming enterprises
     c) a stock options scheme.           or employees in order to qualify
                                          for    any     form    of    benefit     or
                                          preferential treatment accorded to
                                           indigenous         enterprises          or
                                          employees in respect of financial
                                          participation          schemes;        this
                                          examination would in particular,
                                          but not exclusively, deal with the
                                          following types of scheme:
                                          a) profit-sharing;
                                          b)    employee        share      ownership
                                          schemes;
                                          c) stock option schemes;
                                          d) investment wage schemes.
11. To submit a report to the             To submit a report to the Council
     Council on the application of        and the European Parliament on the
     this    Recommendation    within     application of this Recommendation
     four years of its adoption on        within four years of its adoption
     the basis of the information         on the basis of the information
     supplied to it by the Member         supplied     to    it by      the Member
     States.                              States.
Done at Brussels,                         Unchanged
For the CouncI I
The President
 ---pagebreak---                                               - 8 -
                 ANNEX
 Key issues to be considered when                  Unchanged
new     financial          participation
schemes are being prepared or
when existing schemes are being
reviewed
    Regular i ty: schemes            benefit      Unchanged
     from application on a regular
    basis and from awarding any
     "bonus" at least once a year
    or over shorter periods.
    Pre-determined formula:               the     Pre-determined          formu la :        the
     formula      setting          employee       formula setting employee benefits
    benefits should be determined                 should be determined unequivocally
    unequivocally           before        the     and explained       to the employees
    beginning of each reference                   concerned before the beginning of
    per iod.                                      each reference period.
    No     subst i tute        for      wage      Maintaining wage negotiations: the
    neoot iat ions: the ex i stence               existence           of            financial
    of    f inane i a I par t i c ipat ion        participation schemes should not
    schemes       is      not       to     be     stand    in    the     way     of    normal
    considered a subst i tute for                 negotiations dealing with wages
    normal negotiations             dealing       and conditions of employment or of
    with       wages         and       other      setting      wages        and       working
    conditions of employment.                     conditions           through            such
                                                  negot iat ions.
    Voluntary part icipat ion: both               Voluntary      participation:           both
    enterprises        and      individual        enterprises         and          individual
    employees should be able to                   employees     should       be     able     to
    choose whether or not they                    choose whether or not they want to
    want      to     apply        for      or     apply    for     or    participate         in
    participate in schemes.                       schemes;      schemes         should       be
                                                  introduced      on     the      basis _o_f
                                                  agreement    between employers           and
                                                  employees             _or              thelr
                                                  representatives
    Caicut atiop        .of       employee        Unchanged
    benef its: bonuses should not
    be    fixed      in     advance       but
    var iable      and        I inked       to
    enterpr i se              per formance
    (expressed         in      terms       of
    prof i ts     or       some        other
    enterpr i se indicator) over a
    certa in     per iod       of      t ime,
    accord ing     to a         previously
    agreed formula; this formula
    should          also            specify
    unequivocally         the    indicator
    of enterprise performance to
    be used.
 ---pagebreak---                                         - 9 -
Amounts: in order to produce                 Unchanged
 the        expected        motivational
effects the average size of
bonuses should on the one
hand          be      significant      in
relation to the fixed part of
employees' wages, while on
the other hand a ceiling (in
amounts or             in percentages)
might be advisable in order
to avoid wide fluctuations in
total income.
R isks: apart from some income               RIsks: employees should be warned
variability              inherent      to    about the risks possibly attached
schemes, employees may incur                 to     financial          participation
additional           risks when they         schemes; a distinction can be made
acquire                     risk-bearing     between risks to income (arising
securities (e.g. shares or                   from reductions in profit-related
b o n d s ) ; when these risks are           pay or in dividends) and risks to
heavily          concentrated      (e.g.     capital (linked to fluctuations in
issued by the employing firm)                the value of shares or bonds or
and large in relation to the                other types of s e c u r i t y ) . Risks to
employee's total assets the                  income can be contained by the
possibility of some form of                  introduction  of     ceilings.        When
insurance against too heavy                 employees' financial participation
losses in the value of these                 takes    the   form        of      capital
assets             merits        careful     investments   which         are     hardly
examinat ion.                               diversified or not diversified at
                                            all (e.g. risk-bearing securities
                                             issued by the employer or other
                                            participatory securities) careful
                                            consideration should be given to
                                             the possibility of providing for
                                            mechanisms to protect against the
                                            risk of too heavy losses in the
                                            value of such assets.
Benef ic i aries: beneficiaries             Unchanged
are primarily employees, i.e.
wage-earners              covered     by
employment contracts; as far
as possible access to schemes
shou Id         be     open     to   all
employees of the enterprise.
More generally, workers in
the same objective situation
should have equal rights with
regard            to       access     to
participation schemes.
 ---pagebreak---                                           - 10 -
     Enterpr i se type .- schemes can           Unchanged
     be applied by both privately-
    owned      firms       and      public
    enterprises,        as      long     as
     suitable        indicators          of
    enterprise results or profits
     are,    or      can      be,     made
    ava ilable.
10. Enterprise size: small              and     Unchanged
    medium-sized        firms       should
    have adequate opportunities
     to        apply            financial
    participation         schemes;       in
    particular it is important to
    ensure     that     administrative
    obligations       are     reasonable
    and       minimum           financial
    requirements,        if needed at
    all , are not too high; in
     larger                enterprises,
    especially          multi-national
    companies, it may be useful
    to    I ink    all     or    part    of
    employee      benefits       to    the
    performance         of       separate
    profit units, rather than to
    overall enterprise results.
11. Complex i tv:      schemes      of     a   Unchanged
    complex     nature      are    to be
    avoided, as the results are
    likely to be better if the
    scheme       can       be      easily
    understood by a I I employees;
12. Information and training: for              Information and training: for the
    the success of any type of                 success of any type of scheme a
    scheme a substantial effort                substantial    effort   will    be
    will be required to supply                 required    to   supply   adequate
    adequate       information         and     information and training to all
    training,     if necessary, to             employees concerned.
    all employees concerned.
 ---pagebreak---                                                Sl^                   ISSN 0254-1475
                                                              COM (92) 193 final
                                                      DOCUMENTS
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                                Catalogue number: CB-CO-92-202-EN-C
                                                             ISBN 92-77-43934-3
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