For more than 20 years the EU Commission has been striving to
stimulate a Union-wide discussion on employee participation models
– to date with moderate success. At the same time, the most
favoured models are already being implemented at many enterprises
in other countries such as the USA. Particularly against the
background of the approaching wave of successions at medium-sized
businesses, these models could gain greater importance.
Already in the early 90s, the Commission investigated the
"participation of employees in profits and enterprise" in
its ten existing member states at the time. The results led to the
PEPPER Report (Promotion of Employee Participation in Profits and
Enterprise Report) and in recommendations of the highest EU bodies
(inter alia Council Regulation EEC 92/443). They listed specific
key points which can still be applied today virtually without
limitation. Over the years, several further investigations were
conducted (PEPPER Re-ports II – IV), without this resulting
in a lively debate at the European level.
The European Economic and Social Committee made another attempt
at this with its owninitiative opinion on "Employee Financial
Participation in Europe" dated 21 October 2010. Substantial
aspects of the Opinion concern the creation of a European framework
concept for the financial participation of employees and to the
possible resulting improvement of the financial situation of small
and medium-sized enterprises. One of its focuses is the question of
employee participation in the context of succession regulations at
small and medium-sized enterprises – a wave of corporate
successions is approaching, and not just in Germany.
Key concepts of the EU are the cooperative society model and the
ESOP model. ESOP stands for Employee Stock (or Share) Ownership
Plan. In this model, the shares – in any form of enterprise
and in particular in small and medium-sized enterprises that are
not publicly listed – can gradually change to a degree of up
to 100% into indirect employee ownership. A fund holds the
employees' shares in a fiduciary capacity in their favour. They
do not have to contribute their own capital, but acquire shares by
means of profit participation granted in addition to their
employment remuneration. A decisive factor for the enterprise is
that the ESOP fund can be financed through the enterprise itself,
but also entirely through borrowed capital. The enterprise also
decides how many shares go into the ESOP.
ESOP is widespread in the USA and has also gained in importance
in Great Britain over the last few years; in the USA alone there
are said to be more than 11,000 enterprises with ESOPs. They
appreciate the advantages of this model: enterprises have virtually
total freedom of decision on the structuring of the ESOP, the
regulation of succession is secured, there is no additional
financial risk for the employees, and employee motivation is
In Germany, in contrast, there are only a few ESPOs. One reason
is that many enterprises simply lack knowledge about them. However,
this model also entails tangible disadvantages: from the
enterprise's perspective, the contractual regulation of the
structure is complex, especially if funded through borrowed
capital. This complexity affects employees' perception
Moreover, the capital participation via a trustee or holding
company can act as a deterrent for the employees. The key issue in
this connection is how shareholder rights can (and should) actually
still be exercised by the individual employees. After all, in the
event of the enterprise's insolvency the shares no longer have
any nominal value.
These and further points need to be clarified and structured
transparently if ESOP models are to also play a greater role in
future in Germany. As an increasing number of small and
medium-sized enterprises face the question of succession, the
political or business sector will sooner or later pick up the ball
from Brussels and develop the concept further to achieve
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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