This document discusses the employee stock ownership plan (ESOP) implemented at Herend Porcelain Manufactory Ltd. in Hungary. [1] It provides background on Herend and Hungary's economic and political changes from the 1950s-1980s. [2] In the late 1980s, the idea emerged for Herend employees to participate in the company's privatization through an ESOP. [3] The ESOP was established in 1993 according to Hungarian law, with 50% of shares allocated to employees individually and 25% held collectively in an ESOP trust.

1. Employee Ownership
at the
Herend Porcelainmanufactory Ltd.
The Impact of Financial Investors on Enterprises
Employee Financial Participation
Brussels - 2010 July 5th

2. Introduction of Herend
Herend Village
Herend Porcelain Manufactory

3. Road to political and economic
independence for Herend & Hungary
• 1956 Revolution in Hungary
• 1968 Economic reforms (gulash communism)
• 1978 FIM Ceramic Holding Co. dissolved
• 1985 License to export independently
• 1987 Enterprise Council (Yugoslav model)
• 1989 East German migration via Hungary
• 1989 Berlin Wall

4. Idea of employee-s participation in
Herend’s privatization
Trade Union conference in Budapest (1989)
- Key Figures (Imre Palkovics, Janos Lukacs,
Robert Oakeshott)
Study visits in England (1990 – 1992)
- Oxford ESOP Conferences
- John Lewis - Baxi - Tullis Russel
- Chesterfield Transport

5. Preparations and Implementation of
ESOP at Herend
Hungarian Parliament’s resolution for ESOP
legislation - Law No. 1992. XLIV
First general meeting of the Herend ESOP Trust
was convened (1993)
- constitution accepted

6. Ownership within ESOP at Herend
Share Allocation
• 50 % acquired by employees - individually
- cash down payment
- transfer of company bonds
- ESOP Trust share distribution
• 25 % kept collectively by ESOP Trust
• 25 % remain with the Hungarian State

7. Primary function of the ESOP Trust
25% of Shares kept together by ESOP Trust
to ensure that active employees
own majority of shares, by:
- buying back shares from retired / leaving
employees
- issue / sell shares to new employees

8. Structure of the ESOP Trust
ESOP General Assembly (yearly)
1 500 employee – shareholders decide how the 25% „collective
shares” should vote on the AGM of the Ltd. Co.
Board of Trustees
7 elected trustees
Honorary position (no financial compensation)
ESOP Administration
2 part-time administrators
Accounting, financial transactions, share transactions, organizing of
General Assembly, documentation, etc.

9. Employee-s voice in
important decisions
• Annual Shareholders Meetings
(25 % collective + 50 % individual)
• ESOP Forums
• Management by “big coalition”

10. Employee-s voice in
important decisions
Balance of power
– Board of Directors - 1 ESOP delegate
– Supervisory Board - 1 worker delegate
– ESOP Board of Trustees (management and
independent delegates)
– Works Council (blue collar delegates)
– Trade Union

11. „Lessons” of employee ownership
• slow & complex decision making
• save company from “predator management”
• ensures worker-friendly management decisions
• laws & by-laws to prevent management buy-
out

12. CONCLUSION
ESOPs - as a form of self governance -
can offer a good economic model
following - the failures of the centrally-planned
communist economies
&
instead - of the stumbling capitalist market
economy with its current economic crisis

13. ☺
Thank you
for
your attention !