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COMMUNICATION FROM THE EUROPEAN COMMISSION TO THE COUNCIL, THE EUROPEAN PARLIAMENT, THE ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS “On a framework for the promotion of employee financial participation” (Brussels, 05.07.2002, COM (2002) 364 final)

In the following document, we reproduce the main practical points of the Communication…

Comment 1: This Communication will surely be a new tool for promoting employee share ownership in Europe, in general. This is positive.

However, the main practical measures, actions and funding are not mentioned in the Communication. Following the European Parliament Resolution in January 1998, EFES proposed a programme that would facilitate this promotion. The Belgian Minister of Finance Didier Reynders stressed as well the importance of clear actions, in his opening speech to the International Conference organized by EFES with the support of Belgian Presidency of EU in Brussels on November 23, 2001, and mentioning EFES’s proposals:

"I make a point of encouraging the European Commission in the development of its next Communication on Financial Participation and the Action Plan which will accompany it. I also make a point of congratulating EFES on the organization of this international conference and I applaud the work undertaken by its members in recent years.

Indeed, since its creation, EFES has made a major contribution to the advancement of employee share ownership and employee participation. In support of this I would ask that you note the recent response (October 23, 2001) by EFES to the working paper of the Commission staff relating to "Financial participation of workers in the European Union". EFES insists in particular on:

1- the installation of a permanent working party composed of representatives of both sides of industry and associations of employee shareholders, members of the European Parliament, experts of the Commission and representatives of the Member States;

2- the implementation of a European program with adequate financing in order to promote the exchange of information, good practice and training;

3- the creation of a European Institute for employee share ownership and participation.”

What about these 3 main points in the Communication? They seem to be absent. Why?

Comment 2: This is a Communication from the European Commission to the Council, the European Parliament, the Economic and Social Committee and the Committee of the Regions. What is the legal statute of such communication among other EU documents? What can be done and what is to be done by receiving institutions: Council, European Parliament, Economic and Social Committee, Committee of the Regions? What is the agenda?

Almost at the same time, in July 2002, the Commission published a Communication on Social Dialogue and a Communication on Corporate Social Responsibility. The dissemination of these two communications was very much wider: they are mentioned on the web site of DG Employment & Social Affairs, etc. Why these differences in the treatment?

1. Introduction: While employee financial participation has already had a long and successful tradition in a number of Member States, in many others only very little progress could be observed for a long time. This has changed more recently. Many Member States have now embarked on initiatives (…)

At the Lisbon summit in March 2000, the EU has set itself the objective of becoming “the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion”. Employee financial participation can make an important contribution to realising this goal (... )

Many studies and many concrete examples clearly indicate that if it is introduced in the right way employee financial participation does not only enhance productivity and the competitiveness and profitability of enterprises, but that it can at the same time encourage workers’ involvement, improve the quality of work and contribute to greater social cohesion.

The positive experiences with financial participation schemes in many countries have certainly contributed to putting this issue on the political agenda throughout the EU. In particular the experience of the US shows the important impact financial participation can have in terms of economic growth, fostering industrial change and making sure that all workers participate in this growing prosperity (...)

Main objectives

Following the announcement of a Communication and an action plan on financial participation in the Commission’s Social Policy Agenda of June 2000, the main objectives of this Communication are to

· provide orientation for the further development of employee financial participation in Europe by outlining a set of general principles,

· promote a greater use of employee financial participation schemes across Europe by presenting a framework for Community action for the years 2002-2004,

· address the trans-national obstacles which currently impede the introduction of European-wide financial participation schemes, proposing concrete actions for overcoming them.

(…) This Communication reflects the outcome of an extensive consultation process which was launched by a working paper published in July 2001 and which involved all key stakeholders and in particular social partners.

All the responses from Governments, social partners, experts etc, welcomed the Commission’s initiative to relaunch the debate on financial participation and encouraged further actions to promote its wider use. Broad consensus existed in particular on the general principles identified in the working paper, on the need to tackle trans-national obstacles, and on the desirability of an intensified exchange of information and experiences, including a benchmarking exercise and the identification of good practice (...)

Comment 3: Despite what is mentioned about the extension of the consultation process, there is a main concern about the lack of transparency of this process. On the contrary of what was done for the consultation on corporate social responsibility, the responses were not published. The Commission should publish all responses on a dedicated web page, as it was done for the consultation on corporate social responsibility.

2.1. Forms of financial participation: The Pepper reports and the Council Recommendation identified two main categories of financial participation schemes: profit-sharing and employee share-ownership (...)

2.2. Benefits of financial participation: The participation of employees in profits and enterprise results is associated with a number of potential benefits for enterprises, employees and the economy as a whole. (…) A number of studies also suggest that financial participation has a positive impact on employment levels and that it can in particular improve the stability of employment over the business cycle. Financial participation can also enhance the link between overall income and productivity, in the sense that enterprises with higher productivity levels are likely to enjoy higher profits for a time, in which employees will share. This may also have beneficial effects on labour market functioning and employment levels. Especially in connection to the financing of start-up firms and the provision of venture capital to new enterprises financial participation schemes can play an innovative and important role with regard to economic growth and industrial change (...)

Comment 4: We insist on the positive impact and benefits of employee ownership and participation on economic growth and employment. Promoting employee ownership and participation is and should be clearly included as a key element in the European strategy for employment.

Many empirical studies on the impact of financial participation have found a positive relationship between financial participation and different performance measures. This link is strongest and best established with regard to profit sharing (... )

Comment 5: This is the most surprising element in the Communication. On the contrary to what is written here, the researchers show that the strongest impact comes from employee ownership , linked to participative management methods, while the impact of profit sharing is weaker or even negative. This point should be clarified.

2.3 Recent trends in employee financial participation: Two main features characterise the development of financial participation schemes in Europe:

· The overall use of employee financial participation is limited. While profit-sharing is more developed, share ownership in particular is not very widespread.

· In addition, financial participation is very unevenly developed in different Member States. While some Member States have a long tradition in promoting employee financial participation, in others it is used only at a very limited scale (...)

More needs to be done in order to promote the use of financial participation even further. In addition, the uneven development across Europe makes this an area where the exchange of experiences is particularly useful. This Communication therefore proposes a number of concrete actions aiming at such an intensified exchange of information and experiences as well as the identification of good practices.

In view of the upcoming enlargement of the EU, special attention has to be given to the situation in candidate countries…. This Communication will suggest a number of measures which are particularly aimed at addressing the specific situation in candidate countries (...)

Comment 6: We confirm and insist that special attention and appropriate funding must be given to the candidate countries in this field. We stressed the fact that:

- in year 2000, no project was funded by the Commission for promoting financial participation in the candidate countries under budget line B3-4000;

- in year 2001, only one project was funded by the Commission for 52.921 Euro = 0,48% of budget line B3-4000 (which amounted 11.000.000 Euro).

2.4 Synergies with other Community initiatives: The different benefits of employee financial participation make it an integral element in achieving the Lisbon objectives. Financial participation is an excellent example of a policy which can simultaneously address economic, employment and social objectives in a mutually reinforcing way. When introduced in the right way, financial participation can render enterprises more profitable and competitive, improve the motivation, commitment and job satisfaction of workers, enhance the quality of work and last but not least contribute to a more equitable distribution of income and wealth (...)

Especially when compared to the experiences in the US, there exists still a huge, largely unused potential for the further development of financial participation as part of an overall strategy aimed towards stimulating the growth of new, dynamic companies. The promotion of financial participation is thus also part of the structural reforms needed to realise Europe’s potential for growth, employment and social cohesion.

Financial participation is thus also closely linked to the European Employment Strategy and the Employment Guidelines (...)

Comment 7: We confirm the importance and the link between the dissemination of employee financial participation and the European Employment Strategy.

By contributing to a closer alignment of employees’ interests with those of other shareholders, and by ensuring that employees take a more active and long-term interest in the development of their enterprise, financial participation also supports the emergence of more transparent and effective corporate governance.

The recent discussion on corporate social responsibility shows very clearly the importance for enterprises to take into consideration the interests of their various stakeholders (…)

2.5 Challenges for employee financial participation: Legal aspects concerning Community initiatives in the field

The purpose of this Communication, which is in line with Article 140 of the EC Treaty, is to promote financial participation across the EU by relaunching a Community wide debate there on, improving knowledge on various schemes and suggesting some actions which should be undertaken at all levels for the intensification of the relevant efforts (...)

Comment 8: The purpose of mentioning the alignment with Article 140 is not clear to us.

3. General principles

The overview of different forms of financial participation has shown the great variety of financial participation schemes. At the same time, there also exist a number of core elements and principles which characterise most financial participation schemes and Member States policies. The general principles identified here reflect this basic consensus and can act as a reference point for the identification of good practice. They should thus inspire the promotion of financial participation schemes across Europe and serve as a guideline for Member States, social partners and enterprises (...)

Comment 9: It is of the highest interest that the Commission presents a list of general principles which should inspire and serve as a guideline for Member States and other actors.

4. Transnational obstacles

A closer co-ordination of current practices in the field of financial participation, the formulation of certain voluntary guidelines, or an agreement on certain general principles (concerning, e.g., such issues as the timing of taxation, retention periods or coverage ratios) could already make an important difference. Other options would include steps towards an easier mutual recognition of existing systems, or the development of one or more European financial participation schemes which would be adaptable to different national contexts.

· The Commission will set up a working group of independent experts in 2002. The mandate of the group will be to identify and analyse the existing trans-national obstacles in more detail and in particular with regard to the Treaty rules, and to explore the different options that are available for alleviating them. Member States experts and social partners will be closely associated in the work of this group. The group is to present its final report and a set of recommendations in 2003. Based on this report a decision on further actions will be taken. As regards the taxation problems these will primarily be dealt with in the context of the follow-up to the study on “Company taxation in the internal market”.

Comment 10: It is said that the Commission will set up a working group. The scope looks to be limited to the question of trans-national obstacles. This is far from what the European Parliament asked in its resolution of January 1998 (and of what Belgian Minister of Finance Didier Reynders repeated above, following EFES). In any case, how will this working group be selected? Will EFES be invited to be a part of the group? How will Member States experts and social partners will be associated? What about the role of EFES?

5. Towards a wider dissemination of financial participation

5.1. Developing favourable environments for financial participation: It will be important that Member States continue and intensify their efforts in providing a favourable legal and fiscal environment (…) The general principles of financial participation outlined above should give orientation and act as a guideline in this respect.

Given the different state of development of financial participation in different countries, there is a huge potential for an intensified exchange of information and experiences. So far, there have been only little initiatives in this regard and it seems that there is still a widespread lack of information on the potential and possibilities of employee financial participation.

Comment 11: We confirm. EFES first priority was to organize the international exchanges of information. This led to the installation of a website, organizing this information and giving links to all organizations interested in the promotion of employee share ownership and participation in Europe. We will be happy if the Commission will increase its support.

Actions

The Commission will promote the exchange of information and identification of good practice through the following actions:

· Financial participation will be included in the peer review programme under the Employment Guidelines. A first peer review concentrating on the UK Partnership Fund will be organised in 2002. Member States are invited to present further initiatives to this peer review programme.

Comment 12: This is not clear to us. What is the peer review programme? How Member States will present further initiatives? When?

· In order to organise a more structured exchange of information the Commission will prepare a benchmarking of national policies and practices. In this respect, a feasibility study will be carried out in 2002, which will explore practical and conceptual issues. The actual benchmarking exercise will be carried out in 2003. The results will be presented and disseminated in 2004. After this first round of benchmarking it will be decided whether this should become a regular exercise and at what intervals this should best take place. The results of the feasibility study and the benchmarking exercise will be submitted for discussion to the Group of Directors-General for Industrial Relations.

Comment 13: This is not clear to us. Who will carry out the feasibility study and the benchmarking exercise? What is the Group of Directors-General for Industrial Relations?

· The Commission will continue to support projects, studies and the creation of networks that aim at a larger dissemination of information about financial participation.

Comment 14: We will be very happy if the Commission supports projects with adequate funding. We stressed that, during the last years, this support was low; only 6% of B3-4000 budget went to projects on employee financial participation in 2000, only 3,7% in 2001, and probably even lower in 2002:

· The Commission will promote the organisation of national conferences which bring together the key stakeholders in the field of financial participation, aiming at the transfer of information and experiences across Europe.

Comment 15: This is an interesting step forward. Which new budget will be affected to these new developments? Under which budget line?

· In order to tackle the particular challenges faced in candidate countries, the Commission will continue to support initiatives aimed at

– raising awareness for the benefits and possibilities of financial participation,

– improving information about existing policies and schemes,

– developing appropriate legal and fiscal frameworks,

– establishing and developing networks.

Comment 16: We will be very happy if the Commission supports projects for candidate countries, again, with adequate funding. We stressed that, during the last years, this support was too low, i.e. no projects were supported in 2000 on budget line B3-4000, only 0,48% (1 project organized by EFES), and probably even lower in 2002:

Employee financial participation in candidate countries: 52.921 € for 1 project, i.e. 0,48%

5.2 Developing social dialogue

Social partners have a crucial role to play in the further development of employee financial participation. In many cases, social partners have already taken a very constructive approach with some remarkable results. In a number of cases, however, there exist still a number of reservations and apprehensions especially on the part of trade unions (…)

· The Commission will place particular emphasis on supporting initiatives of social partners on financial participation, including

– the exchange of information and experiences,

– the creation of networks,

– research and studies.

· Social partners are invited to explore further the possibility for social dialogue, including at sectoral and multinational level.

Comment 17: Good thing that social partners will be supported. On the other hand, EFES groups many people and organizations, among them important European social partners. DG Enterprise of the European Commission recognized EFES as a “Business Organization”. Will EFES be recognized by DG Employment & Social Affairs as well, and when?

5.3 Extending the coverage of financial participation

SMEs face a number of particular problems in relation to introducing financial participation schemes for their employees (...) At the same time, employee financial participation schemes entail some important advantages specifically for SMEs (...) The unique problems and opportunities of SMEs with regard to employee financial participation call for specific targeted solutions and measures of support.

· The Commission will give special attention to the particular situation of SMEs in its different initiatives proposed in this Communication.

· The Commission will carry out studies and promote research on the particular problems faced by SMEs in introducing financial participation.

Comment 18: We encourage the Commission in this way. Being particularly in charge of SMEs, will DG Enterprise be mainly involved in these specific supports? Which dedicated budget will be affected to these new developments?

· The Commission will support research and other initiatives studying the possibilities for extending financial participation to the public and non-profit sector.

Comment 19: We encourage the Commission in this way. Which new budget will be affected to these new developments?

5.4 Improving information through research and studies

Despite the significant amount of information and research that has become available over the past decades on various aspects of employee financial participation, there still remain some important gaps. More research is for instance needed on the framework conditions that need to be satisfied for a successful introduction of financial participation. Other aspects, including inter alia the links between financial participation and employment also merit further attention. The same is true for macroeconomic implications of financial participation schemes (...)

Actions

The Commission will continue to support and to carry out research projects which are aimed at filling existing gaps. Particular attention will be given to the following dimensions:

· Implications of financial participation for enterprise performance, employment, the quality of work and social cohesion.

· Links between financial participation and other elements of enterprise policies and industrial relations.

· The situation and particular problems for the development of financial participation in the candidate countries.

Comment 20: We encourage the Commission in this way. Which new budget will be affected to these new developments?

The Commission also invites the European Foundation for the Improvement of Living and Working conditions to continue its work in the area of employee financial participation.

5.5 Building networks

It is also important that the different measures envisaged in this Communication are supported and accompanied by a continuous debate between all actors concerned. In order to provide a more permanent basis for this, the creation of networks or the extension of existing networks will be particularly useful. The Commission will therefore continue to support the building of such networks at all relevant levels.

Actions

The Commission will promote and support the building of networks in the following areas:

· Academic networks,

· Networks of experts,

· Social partners,

· Companies,

· Institutes,

· Associations active in the field of financial participation.

Comment 21: We encourage the Commission in this way. We stressed that EFES was developed as a network of all people and organization interested in the promotion of employee ownership and participation in Europe, including academics, experts, social partners, companies, institutes and others. Will EFES be recognized by the Commission – in its specific role? Which support and specific budget will be available for networking? At this stage, the Commission seems to be unable to support networking easily, because it is considered as functioning costs, which are not eligible for grants. In practice, we see in our projects that the costs aimed at networking are rejected and that only costs for conferences and or events received grants. For instance: EFES asked a grant for the project of “Strenghtening the Central and East European Employee Ownership Network to promote financial participation of workers”, and the Commission answered that: “the grant agreement takes only into account expenses related to the main event: conference in Slovenia”; this was a great shock for our colleagues in the CEECs, because they’d like to put more interest in networking than in events or conferences. What changes can we hope concerning these aspects?

5.6 Financial support for initiatives on financial participation

Financial support for the actions identified above will be available through different channels:

· Promoting employee financial participation is one of the key objectives under budget line B3-4000 on Industrial Relations and Social Dialogue. Projects and initiatives to be supported within this framework concern especially the exchange of information and best practice, raising awareness, improving knowledge of financial participation systems, and the provision of training for the social partners.

Comment 22: We will be very happy if the Commission supports projects through budget line B3-4000. We stressed that, during the last years, this support was low; only 6% of B3-4000 budget went to projects on employee financial participation in 2000, only 3,7% in 2001, and probably even lower in 2002:

Which will be the changes in the use of budget line B3-4000? Which part of the budget will be affected to projects aimed at promoting employee financial participation?

· Projects on employee financial participation can also be supported in the framework of Community Incentive Measures on Employment. This concerns particularly initiatives exploring the links between employee financial participation and the European Employment Strategy, notably in relation to the adaptability pillar and the entrepreneurship pillar. The Council and the European Parliament reached a political agreement on these Community incentive measures, covering the period 2002-2006, in February.

· Under Article 6 of the European Social Fund Regulation, the Commission can finance innovative measures that seek to promote new approaches and identify examples of good practice which can subsequently improve the implementation of the operations supported by the ESF, including especially in the areas of corporate social responsibility or the modernisation of work organisation.

· Research on employee financial participation will also be eligible for funding under the Commission’s Framework Programme for Research and Technological Development.

6. Conclusions

The actions outlined in this Communication initially cover the period 2002-2004. At the end of this period, the progress made in relation to the objectives set out in this Communication will be assessed, closely associating all the stakeholders in this issue. On the basis of this evaluation a decision on appropriate future initiatives will be taken.

Comment 20: We encourage the Commission in this way. We look forward to specific actions and programmes, as well as increased collaboration, communication and support.

2.5 Challenges for employee financial participation: Legal aspects concerning Community initiatives in the field

3. General principles

4. Transnational obstacles

5. Towards a wider dissemination of financial participation

5.2 Developing social dialogue

5.3 Extending the coverage of financial participation

5.4 Improving information through research and studies

5.5 Building networks

5.6 Financial support for initiatives on financial participation

6. Conclusions