m 4 EUROPEAN COMMISSION PROPOSAL FOR AN EC RECOMMENDATION CONCERNING THE PROMOTION OF EMPLOYEE PARTICIPATION IN PROFITS AND ENTERPRISE RESULTS (INCLUDING EQUITY PARTICIPATION) INTRODUCTION 1. The purpose of this consultation document is to seek views on the European Commission's proposal for an EC recommendation concerning the promotion of employee participation in profits and enterprise results (including equity participation). The text of the proposal, which was published on 3 September 1991, is attached as an annex to this paper. 2. Please send your comments to: Mr M Lott Industrial Relations Division Employment Department Room 334 Caxton House Tothill Street LONDON SW1H 9NF The telephone number for general enquiries and additional copies of this document is 071 273 5379. D3e.cCeomnbseurltetehsatwilellevbeenawaofrethtehattweiltvewasMemabgerreedStaattesMaa(sntorticihntcluondin1g0 the UK) would be free to pursue social measures together under a separate agreement. 4. This proposal falls to be considered under Article 235 of the Treaty of Rome which was not amended by the Maastricht Council. It is unlikely to be affected by the agreement referred to above. The UK therefore expects the proposal to continue to be considered by all Member States on the present Treaty basis. 5. As negotiations on this draft Recommendation may well take place during the Portuguese presidency of the EC, which runs from 1 January to 30 June 1992, it would be very helpful if comments could reach us by 28 February 1992 Comments on any aspect of the . proposal will be very welcome, but you might like to give particular attention to the questions at the end of this document. THE PROPOSAL 6. This proposal for a recommendation arises from the European Commission's Social Action Programme. 7. The Commission announced, in the Social Action Programme, its intention to present a Community instrument on equity sharing and financial participation by employees. Subsequently, as a preparatory step, it commissioned the production of a report on the Promotion of Employee Participation in Profits and Enterprise BrintedimagedigitisedbvtheUniversityofSouthampton LibraryDigitisation Unit . . Results in the Member States (the so-called PEPPER Report). This report (copies of which can be obtained direct from, the Commission) was first published in June 1990 and a revised edition issued in March 1991. The report indicated the great variety of financial participation schemes already established in the Community a8c.knTohweledgteexttheofptohteentdiraalftbeRneecfoimtmsendofatioan wiindveitresuMseembeorf Staatebsroatdo variety of financial participation schemes, including profit sharing and employee share ownership, and recommends that they take a number of steps to encourage the development of such schemes It further recommends that Member States should encourag.e consideration of certain 'key issues' (based on those identified in the PEPPER Report) when new financial participation schemes are being prepared or when existing schemes are being reviewed. These issues are set out in the Annex to the draft Recommendation. The proposal also envisages the setting up by the Commission of a working party to examine the possibilities for the creation at Community level of formulae for financial participation schemes. LEGAL BASE 9. The proposed recommendation is based on Article 235 of the Treaty of Rome. This article, entailing unanimous voting, provides for measures to attain, in the course of the operation of the common market, one of the objectives of the Community. GOVERNMENT VIEW 10. The Government is committed to securing the extension of effective means of employee involvement in the UK on a voluntary basis. It believes that the strength of the voluntary approach is the flexibility it allows employers to develop the arrangements best suited to their own particular circumstances and the needs of their employees 11. One of the most effective ways of increasing employee involvement and commitment is through financial participation. The Government has indeed encouraged such participation both through its privatisation programme and through a variety of tax incentive schemes introduced and improved in successive Budgets. It therefore welcomes the European Commission's recognition of the importance of financial participation. It considers that the Commission can make a constructive contribution in this area by disseminating information and promoting good practice. 12. The Government will however want to ensure in negotiations that the recommendation does not in any way limit an organisation's freedom to choose the form of financial participation appropriate to its particular circumstances. PrintedimagedigitisedbvtheUniversityofSouthampton LibraryDigitisation Unit COMMENTS SOUGHT (TO BE SENT TO THE ADDRESS IN PARAGRAPH 2) 13. The Government would be particularly interested in views on the following aspects of the Commission's proposal: (i) Would adoption of this recommendation usefully contribute to the promotion of employee financial participation, and therefore to employee involvement and commitment? *• (ii) Do you agree that the recommendation should not seek to limit an organisation's choice of the forms of financial participation best suited to its particular circumstances, or the methods of their introduction? (iii) Do you consider that any of the key issues detailed in the annex, as currently drafted, would limit the choice referred to in (ii) above? (iv) If you consider any of the key issues inappropriate, would they become acceptable to you if the wording were more clearly in line with the intention expressed in Article 7, i.e. that the key issues are matters for consideration? (v) Are there any other parts of the draft recommendation which you would wish to see altered or deleted? (Vi) Do you consider that there are any matters not currently addressed in the draft recommendation or in the annex which should be addressed? (vii) Would it be useful for an EC working party to examine the possibilities for the creation at Community level of formulae for financial participation schemes? IR A3 January 1992 PrintedimagedigitisedbytheUniversityofSouthampton LibraryDigitisation Unit (PreparatoryActs) COMMISSION Proposal toraCopurnocfiitls,raencdomemnetnedrpartiisoenrecsounlctser(niinncglutdhiengpreoqmuiottyiopnartoifciepmaptlioony)eeparticiPpationin (91/C 245/16) COM(91)259final (Submittedbythe Commissionon 16July1991) THE COUNCIL OFTHE EUROPEAN COMMUNITIES, contribute to z number of positive effects, including tHhaevrienofg11r10egCarodmmtoumthteyT»reaantdymestapbalritsihciunlgarthAertEiuclreope2a35n iamnpdroinvetmheentcosmpientietmipvlenoeyseseomfoetnitveartpiroinsesa;nd productivity Having regard to the proposal from the Commission, Worhoemfrimenuaamnsceiyaitl,ispwaiartpthip^ocriuoptpartsiieaoetnkeisntcgohaepnmreoasmcotwitiveethahianlramtrohgneeirzEadutirfiofopunseiaoonrn Silent ” 0pim'0" °f the schemes^0” *“ Widc ranSc °f avaiIabIc S)dSgCo^ttee° ^ °pinion of the Economic and sWienhlietvieraset;ia'vse^witlhlemtVou°ltaViemmlaaetrengtes°euxfctcee^nsts dsoeofcpieanitdhiPsoa™nCeorthmsemutanhciteitmv-ye fpWpWwirrhoonereoasTnkrgeceneeritraaaUrlssmaTmpttaeCihrhnoteCmirichmteCrisullpoarnamtcttiicmoinrtiomgynsm°su£binity^noioscnwtaortFtruhaiukmenoeennrnn<otsiuW;mcnonpocnltneeacmdeeIqerunniiSttitosanyctgiiisanolhtntaehRrneiitognifhagotcnstatinhotodoenf pWmaaherrvetekirceeoitappsamitetiinonintsthnmeoefcpcerosotnsfrtaiaertnxsystnataonotfidostntheauenltdecyrofpmtorphrilesmeeutploiraseoessniubliotflfsoi;rttiheeesmifpnoltroerytnehaeel pWahteiroenasmaprroefpiotrstaonndtheentperrpormiosteiorensuolftsemipnlothyeeeMpeamrtbiecir- moWnheetrhoeefacstohuetrhsoeebjpeorcfetsietvnhetesaoocpfteirtoahnetiaoCpnopmeomafursntihneteycc,eossmamroyntomaarttkaeitn’ gCasrtoneamdtametswuhvnaeoirrrtieyetat,hsyeiitnEnhciusltruhoedrpieentpgyoaprnetcsaChsooahfsmmpseaucsynhtmaieebmtnleytisshe,henadcssohtuabhnreateete-nrbteahpsdereredeipnaiarstnehddea I.HEREBYINVITESTHEMEMBERSTATES: WcgimWopdhoentaehemnrvetaetfeporenriiralrensecanvraauatieenlsesdeomcadfiserwaen;phleatnbricmcoylphpfoaeoiilrufeettortnv-iyhatisceeeeghniremageppbrpamroitslaienidhosngoaeyybtnsree,eosteab-ftctsywoehehrCweeminoimmpldenmepiierslrmssitotuhecryhniaianeepblniceudotstsrpuyiecrroivshsoanlaeegegrtarmvioioreeenfoclssbughs;seotfahasebotseofygecwuprnheeteetsaaahmlttseheteioehsrraf IomteIow.mer1.npoaHaelanpttcErodsaohksyRtenvheieEoaioeonirBwfpnssnilYuterreoptrieerrdRyonfodgeEftbouerihfpycCrtartet-tosOiadhsfcoeMhlinhtceatMopegsoroaimmEoitlnebfnaeNgsinsn,tDntttdhtiahriSoaoeustlcrieirtTnofnbuetnHocetrcenrrheEroeeomsrpfmafsorisMmaiutebresEgsooeenhtftModhhafaBer.dfeetaiEemspinquapRwaolurlnintatcosd;SitiyecTeaeirleApeitTautoptEshasiSeeraohr:tlnaoilrcfbobeiwy-y-a oenfefeercretwsaoerfmeisunscguhffesivcciihedenemtnecseinidnoifcpartsaictotrnioscnegdtoohveaetsranlsolutcahydevtasnpctrhaoegvmeiesds,e 2.se»uncchocuornaatsigdeefritshcetalhientoprroosdsuoictbtihileiortnyoffoifncaenerctciacailonrdsaicdnhvgeamneitsna;cg'eenstivteos IInix/^itvofSouthampton I ihrarvDigitisation Unit 20.9.91 OfficialJournal oftheEuropeanCommunities NoC245/13 0 9. 3. to encouragetheuseofsuchschemesbyfacilitating financial participation by employees and to the supply of adequate information to all relevant communicatetheresultstotheCommission; parties; to enhance social partners1 awareness of the above 4. totakeaccountofexperiencesacquiredelsewherein matters. the European Communitywhen considering giving preferentialtreatmenttoparticulartypesoffinancial m.TAKESNOTEOFTHECOMMISSION’SINTENTION: participationschemes; 5. ttooupntiietonynssutroeocnthhoaottsheethefbrasosomicsiaalosfpuafrftcincoienersnsutllthyaatVwfiicodnsetherbaeontpgwpeeoreo-nf 10. ttfooihrnedsaeencrtcrieuaaplttoiaopanwroitarmitkpciiraponavgtCeiopoamnrmtthuysencthioetomeypexpsaolmervitbenulyneiotpefiomsespsfiloboriylmfieuotelrisea,setfhooierfn employersandemployeesortheirrepresentatives; applicationundercomparableconditionsthroughout 6. to ensure that this choice can be made at a level tihnecludCeomthmeunfoiltlyowionfgtshurecehtyspcesh:emes; these would which,takingaccountofthenationalpracticeinthis rtehgeaerndt,eripsraissec;loseaspossibletothe-employeeandto (a) aprofit-sharingscheme; 7. to encourageconsiderationofthekeyissuessetout (b) anemployeeshareownershipscheme; in the Annex when new financial participation schemes are being prepared or when existing (c) astockoptionsscheme; schemesarebeingreviewed; 11. tosubmitareporttotheCouncilontheapplication 8. to examine, after a period ofthree years following of this recommendation within four years of its the adoption of this recommendation, the data adoptiononthebasisoftheinformationsuppliedto available at a national level on the development of itbytheMemberStates. 4. ANNEX Ke5.yissuestobeconsideredwhennewfinancialparticipationschemesarebeingpreparedorwhenexisting schemesarebeingreviewed 16..Regularity:schemesbenefitfromapplicationonaregularbasisandfromawardingany‘bonus’atleast onceayearorovershorterperiods. 2. Pre-determinedformula:the formula setting employeebenefits shouldbe determined unequivocally beforethebeginningofeachreferenceperiod. 3. No substituteforwage negotiations:the existence offinancial participation schemes is not to be considered a substitute for normal negotiations dealing with wages and other conditions of employment. Voluntaryparticipation:bothenterprisesandindividualemployeesshouldbeabletochoosewhetheror nottheywanttoapplyfororparticipateinschemes. Calculation ofemployeebenefits:bonusesshould notbefixedin advancebutvariableandlinkedto enterpriseperformance(expressedintermsofprofitsorsomeotherenterpriseindicator)overacertain period oftime, according to apreviouslyagreed formula;thisformulashould alsospecifyunequi- vocallytheindicatorofenterpriseperformancetobeused. Amounts:inordertoproducetheexpectedmotivationaleffectstheaveragesizeofbonusesshouldon theonehandbesignificantinrelationtothefixedpartofemployees’wages,whileontheotherhanda ceiling(inamountsorinpercentages)mightbeadvisableinordertoavoidwidefluctuationsintotal income. PrintedimagedigitisedbytheUniversityofSouthampton LibraryDigitisation Unit NoC245/14 OfficialJournaloftheEuropean Communities 20.9.91 7. Risks:apartfromsomeincomevariabilityinherenttoschemes,employeesmayincuradditionalrisks whentheyacquirerisk-bearingsecurities(e.g.sharesorbonds);whentheserisksarehaevilyconcen- trated(e.g.issuedbytheemployingfirm)andlargeinrelationtotheemployee'stotalassetsthepossi- bilityofsomeformofinsuranceagainsttooheavylossesinthevalueoftheseassetsmeritscareful examination. 8. Beneficiaries:beneficiariesareprimarilyemployees,i.e.wage-earnerscoveredbyemploymentcontracts; asfaraspossibleaccesstoschemesshouldbeopentoallemployeesoftheenterprise.Moregenerally, workersinthesameobjectivesituationshouldhaveequalrightswithregardtoaccesstoparticipation schemes. »• . 9. Enterprisetype:schemescanbeappliedbybothprivately-ownedfirmsandpublicenterprises,aslongas suitableindicatorsofenterpriseresultsorprofitsare,orcanbe,madeavailable. 10. Enterprisesize:smallandmedium-sizedfirmsshouldhaveadequateopportunitiestoapplyfinancial participation schemes; in particular it is important to ensure that administrative obligations are reasonableandminimumfinancialrequirements,ifneededatall,arenottoohigh;inlargerenter-/ prises,especiallymultinationalcompanies,itmaybeusefultolinkallorpartofemployeebenefitsto theperformanceofseparateprofitunits,ratherthantooverallenterpriseresults. 11. Complexity:schemesofacomplexnaturearetobeavoided,astheresultsarelikelytobebetterifthe schemecanbeeasilyunderstoodbyallemployees. 12. Informationandtraining:forthesuccessofanytypeofschemeasubstantialeffortwillberequiredto supplyadequateinformationandtraining,ifnecessary,toallemployeesconcerned.- PrintedimagedigitisedhvtheUniversityofSouthampton LibraryDigitisation Unit