Tr: EOnation: Share Retention by Employees

["Marc Mathieu" <marc.mathieu@pi.be>]

 Dear Aidan,

 My own experience and my information suggest that employees generally hold
 their shares at the end of required holding periods and even for a long
 term.

 1. My own experience in the biggest Belgian companies. My company, BBL was
 the second Belgian bank. Since 1981 or 1982, Belgian companies had the
 possibility, once a year, to sell shares to their employees with a maximum
 discount of 20% and a required holding period of 5 years. Each employee had
 the possibility to buy these shares for a maximum of 20.000 Belgian francs
 (500 EURO) a year. This is a low amount. We were about 12.000 employees,
and
 each year we bought about 0,50% of the capital of the firm, with this
 legislation called "Monory-law". After 17 years of such operations, we know
 that the employee shareholders of BBL had 8% of the capital in their hands.
 This suggests that most employees held their shares at the end of the
 required holding period. All major Belgian companies having made such
 operations showed the same experience.
 2. There was an inquiry made in March 2000 in France in 9 main French
 companies. The inquiry was piloted by ParisBourse, Hewitt Associates and
the
 French Federation of Associations of Employee Shareholders. 2.300 inquiry
 forms were received.
 Question 11 was: "Do you expect to hold your shares after the required
 holding period?"
 The answers were as following:
 - Yes: 50%
 - Yes, maybe: 36%
 - No: 9%
 - Don't know: 5%
 This is a very interesting indication about the meanings of employees.
 Question 1 was: "Since how much time do you hold shares of your company?"
 The answers were:
 - No more than 2 years: 13%
 - 2 to 5 years: 37%
 - More than 5 years: 50%
 These are facts.
 The complete results were published in the French "Guide de l'Actionnaire
 Salarié" (Employee Shareholder's Guide" in October 2000 (186 pages, Edition
 Indice, 17 quai de Stalingrad, F-92100 Boulogne).

 We discussed the point some weeks ago in the Executive Office of EFES - the
 European Federation of Employee Share Ownership,  and our intention is to
 organize such inquiry at European level in the next times.
 May I take the opportunity to call here for partners for such inquiry?

 With very best regards

 Marc Mathieu

 Marc Mathieu
 Secretary General
 EFES - EUROPEAN FEDERATION OF EMPLOYEE SHAREOWNERSHIP
 FEAS - FEDERATION EUROPEENNE DE L'ACTIONNARIAT SALARIE
 Avenue Voltaire 135, B-1030 Brussels
 Tel/fax: +32 (0)2 242 64 30
 E-mail: marc.mathieu@ping.be
 See our web site: http://www.efesonline.org
 EFES' objective is to act as the umbrella organization of employee owners
 and all persons, companies, trade unions, experts, researchers,
institutions
 looking to promote employee ownership and participation in Europe.



 ----- Original Message -----
> From: Langley, Aidan (UK) <alangley@deloitte.co.uk>
> To: <EOnation@cog.kent.edu>
> Sent: Thursday, April 19, 2001 9:13 AM
> Subject: EOnation: Share Retention by Employees
>
>
> >      Jacquelyn Yates asked me to comment on whether employees tend to
> >      retain their shares at the end of required holding periods.
> >
> >      I am not aware of any recent research on this topic. My experience
> >      suggests that employees generally cash in their shares sooner
rather
> >      than later. They do this either to diversify their portfolios or
> >      because they need the cash.
> >
> >      It is difficult to see how government policy can change this, given
> >      that government only has the blunt weapon of fiscal incentives.
There
> >      is very little government can do to encourage someone who has an
> >      urgent need for cash to hold onto his shares. Ad as for the
employee
> >      who wishes to diversify his portfolio, he is doing what
conventional
> >      wisdom, and any independent financial adviser, would tell him.
> >
> >      The UK now has what I consider to be the most generous fiscal
> >      incentives in the world for employee share ownership, following the
> >      2000 legislative changes. But the UK government will not achieve
its
> >      stated objective with the changes it has made. The stated objective
> is
> >      to double the number of employees who participate in share
ownership
> >      plans.
> >
> >      There are lots of things to talk about in the new UK legislation,
but
> >      the two things which are most relevant to this topic of employee
> share
> >      retention are: the new All Employee Share Ownership Plan ("AESOP")
> and
> >      the enhanced taper relief for employee shareholders.
> >
> >      The AESOP is somewhat like the US ESOP, except that it is not
> designed
> >      as a retirement benefits plan, and the tax reliefs are more
generous.
> >      Employees who hold shares in an AESOP for at least five years can
> then
> >      withdraw them without any tax consequences at all.
> >
> >      The Government is trying to encourage employees to retain their
> shares
> >      in the AESOP following the end of the five-year period. The way it
is
> >      doing this is by making the "base cost" for capital gains tax the
> >      value of the shares on the date of withdrawal from the AESOP. In
> other
> >      words, the employee will only pay capital gains tax in relation to
> any
> >      growth in value of the shares following their removal from the
AESOP.
> >
> >      The employee is obliged to remove the shares from the AESOP if he
> >      terminates employment, but otherwise he can keep the shares in the
> >      AESOP until retirement. In principle, therefore, this makes it more
> >      attractive to retain an investment in an AESOP than in almost any
> >      other investment vehicle. It is even more attractive than a pension
> >      plan - because you will eventually have to pay tax on the pension.
> >
> >      But the attractions are only superficial because very few people
> >      actually pay capital gains tax anyway. There are other reliefs
> >      available from capital gains tax. These mean that it is a tax paid
> >      only by wealthy investors with substantial private investment
> >      portfolios.
> >
> >      Therefore this apparently generous relief, although aimed at all
> >      employees, is really only going to benefit a few individuals in
each
> >      company, who are probably already highly compensated.
> >
> >      Similar comments apply to the enhanced taper relief for employee
> >      shareholders. This is a general relief available to any employee
who
> >      acquires shares in his employing company - whether or not through a
> >      tax-qualified plan. It operates by reducing the effective top rate
of
> >      capital gains tax from 40% down to 10% for any employee who holds
the
> >      shares for four years or more. This should be contrasted with the
> >      position of a non-employee investing in the same company. The
> >      non-employee can reduce his effective tax rate down to 26%, but to
do
> >      so he must retain the shares for ten years or more.
> >
> >      Clearly, this does provide a reason for not diversifying your
> >      portfolio. But only if you actually pay capital gains tax anyway,
and
> >      most people do not.
> >
> >      So the effect of the changes will be to encourage
highly-compensated
> >      individuals with substantial investment portfolios to be
"overweight"
> >      in shares in their employer. I don't think that will achieve the
> >      Government's objectives. But on the other hand, I don't believe
those
> >      objectives are achievable without a fundamental change in the tax
> >      system.
> > ---------------------------------------------------------------------
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