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Financial participation is an arrangement operating in some companies whereby employees are able to participate in the company’s financial results. This may take the form of a share in the profits over and above the remuneration normally paid to employees (profit-sharing) or a share in the ownership of the firm (share ownership).
EU interest in employee financial participation was evident in the publication of the so-called PEPPER reports by the European Commission. The first report, published in 1991, was followed by a Council recommendation in 1992 which called for the direct involvement of Member States and the social partners in promoting financial participation schemes. A second PEPPER report, based on replies to a questionnaire sent to Member States, explored what Member States were doing to encourage the use of financial participation schemes and put forward ideas for further promoting their use. Most national legislation involved fiscal or other incentives such as the tax-free issue of shares to employees, with some incentives being subject to conditions such as a minimum percentage of personnel covered by the scheme, eligibility criteria and retention periods.
Based on the findings of these reports, the Commission launched a communication that established a working group of independent experts to analyse legal and legislative obstacles to the wider adoption of financial participation schemes throughout the EU, with specific proposals for actions to tackle them, such as including financial participation in the peer review programme under the EU employment guidelines, supporting cross-national research into employee financial participation, and supporting international networks of financial participation experts and practitioners.
In response to this communication, both the European Economic and Social Committee and the European Parliament drafted opinions in which they expressed their interest in studies on the topic of financial participation in small and medium-sized enterprises.
In 2004, the Commission published a report on the findings of a high-level expert group that identified six broad categories of cross-border obstacles to financial participation schemes:
To promote an EU-wide benchmarking exercise on national financial participation practices, Eurofound published, in 2004 and 2006, two reports aimed at developing a set of indicators, one of which tested the indicators by applying them to financial participation in Slovenia.
In 2007, Eurofound research on the spread of financial participation indicated that while financial participation has the potential to deliver real benefits for employees, enterprises and national economies, it remained little used in most Member States and was very unevenly distributed across the EU.
In 2018, the European Parliament adopted a resolution calling for greater use of and support for financial participation. Among other recommendations, the resolution advises negotiating employee savings schemes and tools at a branch-by-branch level in order to provide small and medium-sized enterprises and microenterprises with standard agreements that can be implemented directly and easily by these companies. It also highlights that financial participation should be open to all employees on a non-discriminatory basis, regardless of age, gender, nationality, full-time or part-time working arrangements, and so on.
The European Company Survey 2019 asked managers if variable pay schemes (four forms were listed), including profit-sharing schemes, were available to workers in their establishments. According to the survey, managers in 39% of establishments reported that variable extra pay linked to the results of the company or establishment (profit-sharing) was in place for at least some employees, and 19% reported that the profit-sharing scheme covered at least 60% of employees. Profit-sharing is most common in financial services, both in general (44%) and covering at least 60% of employees (27%), while it is least prevalent in construction, both in terms of broad coverage (13%) and generally (34%). Large establishments are more likely to have profit-sharing schemes generally (61%) and with broad coverage (18%) than medium-sized establishments (51% and 15%, respectively) or small establishments (36% and 12%, respectively).
Employment guidelines; European Economic and Social Committee; European Parliament
Eurofound (2024), Financial participation, European Industrial Relations Dictionary, Dublin
https://www.eurofound.europa.eu/en/european-industrial-relations-dictionary/financial-participation