Workshop Employee Financial Participation - Cilento

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Workshop Employee Financial Participation - Cilento

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Workshop Employee Financial Participation - Cilento

  1. 1. Restructuring Forum: The Impact of financial Investors on Entreprises Brussels 5 July 2010 Widespreading EFP practices: obstacles and solutions Marco Cilento - SINDNOVA
  2. 2. Why such practices are not dominant in Europe? A) company and employees have made a choice: they don't want to be covered by EFP. What are the reasons behind that mistrust? B) they would like to be covered but some obstacles prevent them from adopting it. We should investigate what reasons make EFP unaffordable to the concerned actors.
  3. 3. A) Employees don't want to be covered by EFP Prejudice: Trade union reservations often revolve around the fear that a presumptive conflict of interests can lead to under- remuneration of the labour factor and favour extra- profits for the capital factor.
  4. 4. A) Employees don't want to be covered by EFP 4 Objections: 1. Company based collective bargaining is widely spread and used in Europe 2. Productivity is distributed at company level and flexible salaries are frequent components of salary formation.
  5. 5. A) Employees don't want to be covered by EFP 4. Objections: 3. Soaring company profits calls for a further distribution of wealth. Labour (once it has been fully remunerated) can still claim for its part of extra-profits that employees have contributed to. 4. Corporate Governance has evolved. Thanks to EFP, trade unions would be better equipped to open a dialogue with investors. It is a new level of social dialogue that (never replaces but on the contrary) enhances the traditional ones
  6. 6. A) Companies don't want to be covered by EFP Prejudices: from the property side 1. Dominant groups of shareholders would be unlikely to alter the combination of factors that have determined their dominant position. 2. Encouraging a direct involvement of stakeholders in company ownership has the direct effect of enlarging the composition of the membership and it would likely induce a lower risk profile in corporate governance. 3. Employee-ownership makes the company less mobile and the governance less prone to speculate.
  7. 7. A) Companies don't want to be covered by EFP Prejudices: from the management side 1. EFP could raise the cost of labour. 2. EFP often comes along with a stronger involvement of employees in company decisions. 3. Management’s orthodox cultural background rarely fit to the demands of non-traditional shareholders.
  8. 8. A) Companies don't want to be covered by EFP Objections: the world has changed for them too. 1. Short-termism is under attack. 2. Financial speculations can hardly hide inefficiencies in the production structure. Employees can become allied of far-seeing managers. 3. Luxury remunerations for managers will not be viable anymore. Employees will claim their part out of the company profits. 4. In SMEs, generational succession will become a serious thread because of the aging population. Employee buy-out or leveraged buy-out can be taken up seriously under this perspective.
  9. 9. What are the reasons behind that mistrust? I am confident that several of the existing prejudices will finally end up in destroying themselves. But when? Each crisis is an opportunity to change for the better. We have to free energies now
  10. 10. Why such practices are not dominant in Europe? B) They would like to be covered but some obstacles prevent them from adopting it.
  11. 11. B) Obstacles: profit-sharing, allocation of shares and saving plans COSTS Building an award scheme based on company performances is something complex Tax regimes (on profits, allocation of shares, individual incomes, etc.) do not make it convenient. There are no ad hoc vehicles to manage resources delivered to the employees collectively. EFP is not embodied in a larger strategy that make it meaningful to a larger extent.
  12. 12. B) Obstacles: profit-sharing, allocation of shares and saving plans Undermining Motivational Requirements: For employees, carrying stocks can just appear meaningless. To perceive all their potential benefits employees must look at themselves as (co)owners. Compared to the holder, the owner encloses the - equity element, - legal status - a behavioural attitude.
  13. 13. B) Obstacles: profit-sharing, allocation of shares and saving plans The willingness to exercise such rights is entirely subjective. The fact that small shareholders can easily manage their shares collectively is a strong motivational element. Forming associations is a way of making employees' voice stronger. The absence of predefined vehicles for employee shareholders stays as a huge impediment to the diffusion of EFP in many member states.
  14. 14. EFP IN SMEs In SMEs, EFP can take a shape in the form of employee buy-out or leveraged-buy-out. But legal obstacles are sometimes impossible to overtake. Priorities: Mechanisms allowing share transfers and changing in the property leaving majority to employees. Protection against excessive risks Tax regimes can easily overcome the thresholds imposed by EU competition law Recognition of a special status of employee-owned-enterprises to which some advantages could be connected with: access to credit, access to public procurement, ad hoc governance measures, etc.

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