Agreement reached on employee share plan in state gas company

In June 2007, management and trade union negotiators at Ireland’s state-owned gas company, Bord Gáis Éireann, agreed on a proposal for a 3.27% employee shareholding. However, crucial details of the employee share ownership plan remain to be finalised, such as ensuring a liquid market for the shares. Talks on these aspects and other issues are expected to take place in the coming months, with a final document likely to emerge during the autumn.

Extensive talks on an employee share ownership plan (ESOP) at Ireland’s state-owned gas company, Bord Gáis Éireann (Bord Gáis), have led to a proposal for a 3.27% employee shareholding, worth €36,000 per worker.

The financial aspects of the deal were always set to be one of the more difficult elements when negotiating the plan, which was first proposed back in the late 1990s. Since then, one of the main stumbling blocks has been the fact that Bord Gáis has a particularly high value amounting to about €1 billion when compared with the size of its workforce. At present, the workforce comprises some 900 employees.

Most of the ESOPs agreed to date in Ireland’s semi-state companies have had shareholdings of at least 5%, with employees holding assets as high as 14.9% in the company in many of the plans.

High value per employee

Given the higher value per employee status of Bord Gáis, a shareholding at the top end of this range would have amounted to a six-figure sum for every worker involved. This could have prompted unfavourable comments about ‘giveaways’ to public sector workers, as well as resentment among workers in other semi-state companies, whose shareholdings would have had a smaller absolute value.

Since 2001, the Irish government’s Department of Finance (An Roinn Airgeadais), which is ultimately responsible for public finances, has imposed a limit on shareholdings in semi-state ESOPs of €38,000 (expressed as IR £30,000 at the time). However, the trade unions involved in the privatisation of Bord Gáis had been seeking an employee shareholding of at least 5%, as this was the minimum agreed in other ESOP schemes. Nevertheless, given the length of the negotiations, it was felt that any deal was better than none at all. The proposed 3.27% employee shareholding amounts to €36,000 for each worker, which is close to the limit on shareholdings in semi-state companies set by the Department of Finance.

The figure was proposed after a valuation exercise, which estimated the value of Bord Gáis to be at €1 billion. The high company value relative to employee numbers is due to the fact that Bord Gáis holds valuable assets in the form of an important gas distribution network built up over the years, and also that much of the work of expanding the network is carried out by contractors rather than company staff. The latter concentrate on maintenance work instead.

Productivity changes

The total value of the shareholding, at €32.7 million, is being traded in return for productivity changes, some of which have taken place since 2005 and some of which are due to be implemented between 2007 and 2010.

Other ESOPs agreed in recent years include: Eircom, the former state telecoms company, where employees originally received a 14.9% shareholding (IE9807253N), eventually doubling their shareholding following privatisation; the electricity company, the Electricity Supply Board (ESB) where employees hold 5%; and the partially privatised airline Aer Lingus where the ESOP is also worth 5%.

Assuring liquidity

Several issues remain to be agreed before the three trade unions involved – the Services, Industrial, Professional and Technical Union (SIPTU), the Technical Engineering and Electrical Union (TEEU) and Unite the Union – ballot on the proposal. The most problematic issue will be ensuring a liquid market for the shares when a worker leaves the company, be it through resignation or redundancy. The company’s own ability to buy back such shares will constitute a key factor here.

Another issue concerns the number of company board members which the employee share scheme will be able to nominate. Talks on these and other issues are expected to take place in the coming months, with a final document likely to emerge during the autumn.

Commentary

While the percentage of Bord Gáis shares being made available to employees under this share scheme proposal is the lowest so far in an Irish state-run commercial organisation, the absolute value of the shareholding is certainly on a par with those of previous ESOP schemes in other companies.

Colman Higgins, IRN Publishing