1. Establishing a Legal Framework on ESO 

We should work to create an optional legal framework at the EU level that in particular would fa-cilitate cross-border ESO schemes. An EU framework is needed to establish a level playing field that would especially create opportunities for SMEs which are most affected by the consequences of the financial crisis. SMEs should receive more policy support, in particular considering the signifi-cant unexploited potential for ESO. In this context establishing a so-called 29th regime on Employee Financial Participation (EFP) appears a promising option. Hence, it seems justified that the Pilot Project should include a preliminary impact assessment of such a regime.

2. Promoting the exchange of best practice 

In order to establish a functioning exchange of best practice, systematic processing and editing of information is very important. Rather than producing “another study for the shelf”, we should look into the creation of one-stop shops. A “Virtual Centre for EFP” (as presented during the confer-ence) could be a first step in that direction.

3. Providing transparency with regard to fiscal treatment and tax incentives 

Tax incentives are not a prerequisite for successful implementation of ESO, but they do effectively promote such schemes. Therefore, while harmonisation is not a condition, transparency with re-gard to the different national fiscal treatment of ESO is key. In particular, an Effective Tax Rate Cal-culator (as presented during the conference) could provide a useful decision-making tool for com-panies with cross-border activities that plan to introduce EFP schemes.

4. Combining economic and labour market policies and reducing inequality 

ESO fits logically into the EU’s multi-dimensional approach of combing economic and labour mar-ket policies. ESO schemes may help to create and secure jobs, reactivate unemployed and facilitate business succession in SMEs. In order to establish equality of arms, we should develop recommen-dations at EU level for fiscal and other incentives for SMEs interested in implementing ESO schemes. In this respect, investigating and promoting the transferability of best practice ESO schemes like the Sociedades Laborales and Employee Stock Ownership Plans (ESOPs) is important.

5. Incorporating ESO into Corporate Governance and Long-Term Investment strategies 

Turning workers into shareholders of their employer company helps to improve corporate govern-ance by promoting transparency, sustainability and responsibility in corporate decision-making, which is one of the main objectives of the EU’s corporate governance policy. Therefore, integrating ESO into this policy should be strongly considered. Further, as ESO can foster growth of SMEs and facilitate business succession, financing ESO schemes should become one of the objectives of the Commission’s Long-Term Investment strategy. In particular it should be considered to integrate ESO in the EIB products for SME financing and incorporate ESO into the Commission’s proposal for the regulation on European Long-Term Investment Funds (ELTIFs).

In order to achieve these aims, social partners and all other relevant stakeholders should be closely involved in the process. Further, any promotion of ESO should respect the relevant fundamental princi-ples as identified by the 1992 Commission Recommendation on EFP and reiterated in the EP Own-Initiative Report of 15 January 2014. After many years of research and fruitful discussion the time has come for concrete actions: Let’s make ESO a positive priority in Europe!

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An increasing number of companies are turning to Employee Stock Ownership Trust financing as a means to simultaneously raise low cost capital and provide increased employee incentives and retirement benefits while reducing the cost of qualified plan benefits. The Employee Stock Ownership Plan is a qualified plan under Section 401(a) of the Internal Revenue Code. As such it is in the same family as pension plans, profit sharing plans and stock bonus plans. Nevertheless, The Employee Stock Ownership Plan (which together with the Employee Stock Ownership Plan, is referred to as the “Trust” or “ESOP”) is qualitatively different from other types of “qualified plans,” both in its concept and in its applications.

Because of its inherent flexibility, because of its ability to facilitate and enhance corporate growth and because of its separate status under the recently enacted Pension Reform Act, the ESOP possesses an assortment of unique advantages not possessed by other qualified plans. As a consequence the ESOP is destined to become an increasingly popular form of employee benefit plan. A general working knowledge of the benefits, advantages and uses of the ESOP is a “must” for corporate loan officers, trust officers, estate planners, deferred compensation specialists, employee benefit specialists, corporate financial consultants, CPAs, CLUs and other income tax advisors.

Advantages of ESOP

Inherent Flexibility

The ESOP is at one and the same time a plan of corporate finance, an employee incentive plan, an executive compensation plan, and an employee retirement plan. Moreover, the ESOP may be used by either a public or a private company and may be used either with or without financing. In addition, the ESOP creates a market, comparable to that of a publicly traded company, for the sale of a minority or controlling interest in a closely-held company. By using an ESOP a company also avoids the funding problems inherent in certain other types of qualified plans. Because 3n ESOP can be designed to simultaneously serve all of these functions, the ESOP is inherently more flexible than other types of qualified plans.

Facilitating Corporate Growth

Today’s capital starved economy has created a host of problems for the growing company. In addition to the unprecedented need for additional capital for corporate growth and expansion, the corporation of today is also faced with increasing demands of employees for greater employee benefits, with declining employee incentives and productivity, and with a newly enacted Pension Reform Act, which substantially increases the costs of funding conventional employee benefit plans.

Click here to read the rest of this Article on the Menke Group website.

The report was presented in the plenary yesterday. At that occasion, rapporteur Phil Bennion (ALDE) explained the benefits of EFP for companies and especially SMEs as “a concrete way for companies to share success”. In the Strasbourg hemicycle, Bennion called for the EU to act, pointing out the lack of information within the EU, the lack of legislative incentives in some Member States, the different national taxation as well as the multitude of existing ESO models hampering companies that operate cross-border. To overcome these problems, Bennion proposes to share best practice examples between the Member countries, possibly leading to mutual recognition of these schemes. At this regard, Bennion refers to the current EU pilot project and the benefits that a Virtual Centre for EFP as well as an effective tax rate calculator could bring in order to augment the available information. Finally, he invited the Commission to conduct an impact assessment for a 29th regime for EFP.

– These topics will be part of our Brussels conference “Taking Action: Promotion of Employee Share Ownership” that will take place on the 30th of January 2014. –

In the following contributions, MEP Sari Essayah (EPP) pointed out the importance of the exchange of information between Member States. Shadow rapporteur Evelyn Regner (S&D) mentioned the Spanish Sociedades Laborales (click here to read more about this topic) as a well-working example for alternative EFP models. She also highlighted the voluntary character of EFP schemes which should always come on top of basis pay.

In his speech Commissioner Janez Potočnik emphasised the role of EFP as a source for long-term investment and he underlined Barnier’s support for the idea of a 29th regime. He further referred to the conference on ESO on 30 January, presenting an opportunity to get the feedback from the various stakeholders.

On 21 October 2010, the European Economic and Social Committee adopted an own-initiative opinion on EFP in Europe referring to the 1992 Council Recommendation and the 2002 European Commission Communication on the issue. Following the release of the 2012 EP Study on EFP, the European Parliament is currently working on an own-initiative report to be voted in the beginning of 2014.

With the inclusion of ESO in the 2012 Action Plan on Corporate Governance, the European Commission underlines its economical relevance, especially with regard to ESO’s capacity for enhancing transparency, responsibility and competitiveness and for its positive impact on corporate governance. In the Action Plan the Commission commits itself therefore to “identify and investigate potential obstacles to trans-national employee share ownership schemes” and to “take appropriate action to encourage employee share ownership throughout Europe.”

Against this background, the EU pilot project on Promotion of Employee Ownership and Participation funded by DG MARKT aims to

(1)    assess EFP across the EU-28 including reasons for wide divergences in approaches between Member States and problems with cross-border implementation of EFP schemes, and

(2)    formulate possible regulatory and non-regulatory actions that might be proposed or undertaken by the Commission to promote EFP and in particular ESO.

The conference “Taking Action: Promotion of Employee Share Ownership – Debating concrete policy options in the context of the EC Action Plan on Corporate Governance” will present the interim results of the pilot project aiming for feedback from experts and practitioners as well as policy makers.

Introduction

Voestalpine AG—headquartered in Linz (Austria)—is mainly active in the production and treatment of steel. As a successful international corporate group with some 300 production and sales companies in more than 60 countries, it has nearly 40,000 employees (fewer than half of them in Austria). In conjunction with discussions about the full privatisation of the corporate group undertaken at the beginning of 2000, the group’s Board of Management together with the employee representatives developed and later implemented an employee participation scheme, which at that time was unprecedented in Austria. Through this, a large portion of the group’s workforce as well as a small group of ex-employees currently hold a 13.3 per cent stake (around 22 million shares) administrated by a private foundation (Voestalpine Mitarbeiterbeteiligung Privatstiftung).

The case of the Voestalpine AG

In 2000, the Austrian Government—under Chancellor Wolfgang Schüssler—enacted the so-called ÖIAG Act133 with the intention of accelerating the privatisation process among (partial) state-owned industrial companies. One of these companies administrated by the Austrian Industry-Holding Company Stock Corporation ÖIAG (Österreichische Industrieholding AG) was the Voestalpine AG. In 2000, ÖIAG administrated a state-owned stake of 38.8 per cent, which subsequently was slightly reduced in two steps to 34.7 per cent. In 2003, the Austrian Council of Ministers mandated ÖIAG to fully privatise the Voestalpine AG. Against all concerns, in the context of the so-called secret project “Minerva”, a hostile takeover by Magna was prevented, and since August 2005 the Voestalpine AG has been fully privatised (Auer, 2008, pp. 245-249).

Origin of the Voestalpine employee participation scheme

In response to the privatisation ambitions of the Austrian Government, in 2000, the Voestalpine management in co-operation with the group’s employee representatives immediately started intensive discussions about the group’s future ownership structure. In the course of these talks it became generally accepted by both parties that a substantial equity stake owned by the group’s workforce could contribute to a more stable ownership structure (strategic ownership). From the very beginning, an ambitious plan was conceived to acquire in the short and medium term an employees’ stake of not less than 10 per cent of the total number of voting rights (Voestalpine Mitarbeiterbeteiligung Privatstiftung, 2010, p. 20).

Schemes

Through the first of the six employee participation schemes implemented so far, the Voestalpine workforce in Austria acquired an immediate 4.9 per cent equity stake (around 1.6 million shares). Once again, based on opening clauses in relevant wage agreements, an additional wage agreement (Zusatzkollektivvertrag) was fixed between social partners (Labour Union and Economic Chamber) on 1 November 2000, which allowed the group’s management to retain parts of concluded pay increases for the purpose of attaining the employee share ownership target.

Thus, one per cent of monthly employees’ gross wages in combination with company’s savings in non-wage labour costs arising from stock transfers134 and a yearly value adjustment of employees’ own contributions135 were the basis to calculate within the complex Barwert- modell (Cash Value Model) the total advance of money used for the acquisition of the above mentioned 1.6 million shares at the stock exchange (Voestalpine Arbeitnehmer-Privatstiftung, 2006, p. 12).

An irreplaceable element of the first and all later schemes—the still extant private foundation—has been utilised and developed. The Voestalpine Mitarbeiterbeteiligung Privatstiftung is not only responsible for the administration of the acquired stock, but also concentrates all individual employees’ voting rights due to a transfer of the ownership’s civil claim, fixed within integrated trust agreements (Treuhandverträge). Thus, it is ensured that the work- force has an important vote within the General Meeting of Shareholders. On the other side, the individual right to receive a dividend remains in employees’ hands. To fully utilise tax incentives according to § 3 I Z. 15 lit. b of the Austrian Income Tax Act and savings in social security contributions according to § 49 III Z. 18 lit. c of the Social Security Act, acquired shares were just allocated to employees to a maximum limit of EUR 1,460 per year. Employees’ shares remain within the foundation for the entire period of employment. All relevant regulations—e.g., relating to the retention of employees’ pay increases or the allocation of shares to individual employees—were concluded within the internal company agreement mentioned under 2.1 (Voestalpine Mitarbeiterbeteiligung Privatstiftung, 2010, p. 33).

• For all employees hired after 1 November 2000, a Schichtmodell (Shift Model) was developed, which calculated the employee’s own monthly contribution in accordance with the Barwertmodell (one per cent of the employee’s monthly gross wage, the company’s savings in non-wage labour costs and a yearly value adjustment (3.5 per cent) of this contribution) (Voestalpine Arbeitnehmer-Privatstiftung, 2006, p. 12).

Strategic employees’ share ownership has been further promoted through five additional schemes (II-VI). All of these have been based on additional wage agreements to retain a percentage of employees’ pay increases . Furthermore, the financing of the monthly employees’ own contribution in all schemes is accordant with the Schichtmodell (model I). Unlike the initial scheme, the pre-financing of shares in the following schemes II, III and V was leveraged (credit-financed).

• In 2002, scheme II increased the existing employees’ stock136 by 2.5 per cent (around one million shares), and in 2003 the so called “squeeze-out-boundary” of ten per cent was overstepped for the first time by the purchase of around 1.5 million shares (3.7 per cent). Since then, the Voestalpine Mitarbeiterbeteiligung Privatstiftung on behalf of the workforce has been empowered to nominate a representative to the Supervisory Board. This achievement was only once put at risk when in 2005 the Voestalpine AG issued convertible bonds and increased the group’s share capital.
• Thus, at the end of 2005, a fourth scheme was concluded, through which the Voestalpine AG between 2007 and 2009 credit financed the purchase of about 3.2 million shares137 (two per cent) on the stock exchange and transferred them to the Voestalpine Mitarbeiterbeteiligung Stiftung (Voestalpine Mitarbeiterbeteiligung Privatstiftung, 2010, pp. 38-44).
• Based on an additional wage agreement—reached in the course of collective bar- gaining in the metal industry—, a fifth scheme was started in November 2007, mainly in order to integrate a large number of new Voestalpine staff—particularly from the BÖHLER-UDDEHOLM-Group—into the employee participation scheme. It was agreed to allot 0.5 per cent of their monthly gross wages for this purpose. On the other side, the monthly contribution of already participating employees was raised by 0.3 per cent of their monthly gross wages. Deviating from the procedure in previous models, shares still available within the foundation were utilised for this new allocation.
• Scheme VI—implemented as a result of a conditional capital increase—enlarged the employees’ stock within the foundation by two per cent, i.e., 3.3 million shares (Ibid., pp. 46-48). 
Today, Austrian employees spend up to 3.25 per cent138 of their monthly gross wages for the allocation of shares (Ibid., p. 48).

The Voestalpine Mitarbeiterbeteiligung Stiftung and its role 
As earlier mentioned, the Voestalpine Mitarbeiterbeteiligung Stiftung is the centrepiece of the Voestalpine employee participation scheme. In Austria, the utilisation of a private foundation for the purpose of employees’ (financial) participation legally underlies § 4 XI Z. 1 lit. c of the country’s Income Tax Act (Otto, 2011, p. 136). The work of the Voestalpine Mitarbeiterbeteiligung Stiftung mainly consists of the following three tasks (Stelzer, 2010, p. 6):

• administration of the different schemes (assisted by the Actuaria Benefits Consulting GmbH, see Voestalpine Mitarbeiterbeteiligung Privatstiftung, 2010, pp. 96 f.);
• further development of the employee participation scheme;
• execution of voting rights at the General Meeting of Stakeholders.

The two main bodies of the foundation are the Management Board and the Advisory Board. The group’s Board of Management and Works Councils nominate its members equally.139 Both bodies are chaired by an employees’ representative, who—in case of a tie—casts the deciding vote (Dirimierungsrecht). The Advisory Board makes all decisions concerning employee participation schemes—e.g., their further development—and is responsible for appointing the Management Board. The chairman of the Management Board represents the voting rights of all participating employees at the General Meeting of Stakeholders. His vote at the meeting is restricted by the decisions of the Advisory Board, which are always taken on the basis of a suggestion by the Management Board and a wide opinion-building process among the group’s Works Councils. 
The Management Board is further responsible for administering the participation scheme and also foundation assets140.

Implications

As presented within the introductory remarks of this chapter, the strategic dimension has been the driving power in 2000 to apply such an ambitious employee participation scheme. The Voestalpine Mitarbeiterbeteiligung Privatstiftung on behalf of the workforce has been the most stable core shareholder for years. Today, it is the second largest shareholder (13.3 per cent141) after the Raiffeisenlandesbank Oberösterreich Invest GmbH & Co. (more than 15 per cent). The chairman of the foundation’s governing body represents 12.4 per cent of the voting rights within the General Meeting of Shareholders (Voestalpine Mitarbeiterbeteiligung Privatstiftung, 2010, pp. 62 f.). In addition, since 2003 the foundation has had the power to nominate a representative for the Supervisory Board.

From a financial perspective, the workforce’s capital investment has absolutely proved its value. As Figure 23 shows, each year since 2000 the Voestalpine AG has declared a dividend. In total, between 2000 and 2010 it has distributed EUR 47.3 million in dividends to participating employees.

Figure 23: Dividend payout, 2000-2010

Source: Voestalpine Mitarbeiterbeteiligung Privatstiftung (2010), p. 32.

As proof of the employees’ confidence in their capital investment, 17 per cent of them (3,576 individuals) have decided to re-invest their dividend. Furthermore, at present, 3,277 individuals—either still active within the Voestalpine AG or already separated from it— exercise their option to keep their “private shares” (around 1.6 million shares) within the Voestalpine Mitarbeiterbeteiligung Stiftung. Among them are almost two thirds of all employees, who left the group within the last three years (Voestalpine Mitarbeiterbeteiligung Privatstiftung, 2010, pp. 62 f.).

Best practice and transferability

The results of the previous chapters should help to answer whether the employee participation scheme of the Voestalpine AG, whose general structure resembles an ESOP, deserves to be designated as “best practice” and if it is transferable or has already been transferred to other companies.

Success of the concept

Comparing potential implications or benefits collected in chapter 2 with those from the Voestalpine example, it is evident that both the Voestalpine employees and the Voestalpine AG itself have demonstrably benefited from such an ambitious employee participation scheme. Even though not solely intended as an employee financial participation scheme, it has created an additional source of income for all participating employees. Furthermore, the objective to establish strategic ownership has been fully achieved and the workforce has been put in a position to contribute as a key stakeholder to the group’s future. Thus, to a certain extent, it seems possible for them to support their own concerns, in particular job security. From the employer perspective as well, the Voestalpine AG has strategically benefited from its courageous decision to implement strategic employee share ownership. It not only reacted flexible to the privatisation process, but also established a stable anchor shareholder under its ownership structure, present and future, i.e., its employees.

As for negative results or implications, none could be identified. It must be mentioned, however, that for several of these criteria no data is available in the Voestalpine case (e.g., if production has increased after the introduction of the employee participation scheme). Nevertheless, positive implications reported for Voestalpine employees as well as for the Voestalpine AG itself are important indicators that the Voestalpine case can undoubtedly be labelled as an example of best practice.

Transferability

Acknowledging that the Voestalpine employee participation scheme deserves the appellation of best practice, it is interesting to speculate whether it could easily be transferred to companies in or even outside of Austria. With respect to its export potential, the efforts of the Voestalpine AG to adapt certain features of the Austrian models to Voestalpine companies in other EU Member States have clearly shown the difficulties. In particular, widely differing national labour and tax regulations have made this implementation impossible. Therefore, both of the international models142 so far implemented are based on conditions different from those of the Austrian models, although oriented around general characteristics (such as concentration of the voting rights within a private foundation143) (Voestalpine Mitarbeiterbeteiligung Privatstiftung, 2010, pp. 50-53).

At first glance, it seems possible to duplicate the Voestalpine employee participation scheme within Austria. Nevertheless, certain aspects still narrow its transferability. First, the scheme is not appropriate for small and medium-sized companies inasmuch as the integration of a private foundation as well as a large administrative workload is too expensive for them.

Furthermore, the employee participation scheme has been designed to fit certain circumstances, conditions and objectives. Thus, the question of whether it would work under (partly) different conditions is an open one.

Though according to the PEPPER IV Report, since 2001 employee financial plans have in- creased in Austria (Lowitzsch et al., 2008, p. 155), the best practice example of the Voestalpine AG has yet to be imitated. Although Voestalpine representatives have held several meetings with interested companies about its employee participation scheme, none of them has yet adopted the Voestalpine model for itself. Moreover, no other companies within Austria are using the opportunity of an additional wage agreement.144

Conclusions

In conclusion, this case has shown how the Voestalpine model—with its strong positive effects on the workforce as well as on the entire corporate group—deserves to be designated as best practice. Nevertheless, its transferability abroad is limited, above all because of the particular legal structure. Within Austria, though it is possible to duplicate the model. In practice, transfer to small and medium-sized companies will hardly be an option because of implementation and administrative costs arising from the private foundation.

Footnotes

133 The ÖIAG Act was publicly announced in the Federal Law Gazette 1 no. 24/2000.

134  According to the Social Security Act, employers in Austria are not required to pay non-wage labour costs in case of stock transfers. In the example of the Voestalpine AG it was decided to pass these savings on to employees, thereby increasing their own contribution about 25 per cent.

135  The calculation included a yearly 3.5 per cent increase in employees‘ contributions.

136  At this time, the stake already had been decreased to around four per cent in consequence of an increase in 
capital.

137  As a result of a share split in July 2006, each share had been split into four.

138  All implemented schemes increased the amount taken from the monthly gross wage: scheme I (one per cent), scheme II (0.5 per cent), scheme III (0.5 per cent), scheme IV (0.5 per cent), scheme V (0.5 per cent in case of new integrated employees and 0.3 per cent in case of already participating employees) and scheme VI (0.45 per cent). Thus, an employee involved in the employee participation scheme since the beginning spends at the moment 3.25 per cent of its monthly gross wage for the allocation of shares.

139  The Management Board consist of three members (the third member is collaboratively nominated) and the Advisory Board of 12 members.

140  Voestalpine Mitarbeiterbeteiligung Privatstiftung, 2010, pp.92-94

141 The 13.3 per cent stake mainly includes the share ownership of Austrian employees, but also in a small part of German and British employees as well as of ex-employees.

142  In 2004, the first international-oriented model was implemented for Voestalpine staff from the Netherlands. Based on these experiences early in 2007, it was started to develop a common international model. So far, this was implemented in Great Britain and Germany. In Belgium and Sweden, legal boundaries and the impacts of the economic crisis have prevented an implementation.

143  While the Dutch model concentrates all voting rights in an own private foundation, voting rights from the international model are held in the Austrian Voestalpine Mitarbeiterbeteiligung Privatstiftung.

144 Information provided by Max Stelzer, Management Board Executive Voestalpine Mitarbeiterbeteiligung Privatstiftung, to the author.

Literature:

Born in a suburb of Denver in 1913, Kelso’s childhood was characterized by the rural lifestyle, receiving his education from the catholic fraternity “Christian Brothers”. Having spent his teenage years during the Great Depression, the experience of the collapse and the search for its causes accompanied him through his entire life.

But before that, there was Pearl Harbor. Kelso was commissioned in the U.S. Naval Service and assigned to intelligence duty in the Canal Zone. Working tropical hours, Kelso used his free afternoons to work on his seminal manuscript “The Fallacy of Full Employment”.  In 1946, the completed manuscript in his footlocker, the Navy sent him back to civilian life. But 1946 was also the year Congress passed the Full Employment Act which defined economic policy in the United States 170 years after the birth of the Industrial Revolution as the right to a job. Kelso concluded that the time for his ideas had not yet come.

Only in the mid 1950s when he met the philosopher Mortimer J. Adler, he took a new step to publish his ideas. Together they wrote “The Capitalist Manifesto”, published in 1958 by Random House.

Two years before, Kelso had already done a first concrete step in practice. In 1956 he enabled the employees of the closely-held newspaper chain Peninsula Newspapers Inc. of Palo Alto, California, to buy out its retiring owners through a new financing concept: Kelso created the “Employee Stock Ownership Plan” (ESOP). Thanks to this financing technique working people without or with only little savings are enabled to buy stock in their employer company and pay for it out of its future dividend yield. ESOP was thus the prototype of the leveraged buy-out which was embraced enthusiastically by the later emerging private equity funds (KKR, Blackstone, etc. who Kelso knew all personally) – although aiming at different objectives.

Soon after, in 1958, Kelso innovated a related financing concept, the Consumer Stock Ownership Plan (CSOP), to enable 5.000 farmers in California’s central valley to become successful owners of Valley Nitrogen Producers, the fertilizer processing plant of which they were the principal customers. With the CSOP he created a low-threshold participation concept for citizens and consumers which today could change i.e. the market for renewable energies fundamentally.

What Kelso was aiming for, was to democratise access to capital credit, as Patricia Hetter Kelso summarised the idea behind the ESOPs in 1989 in The New York Times. She had met Kelso in 1963 and later became his joint publisher and second wife (1968: “How to Turn 80 Million Workers Into Capitalists on Borrowed Money”, Random House).

Kelso considered the ESOP and CSOP as pragmatic proof that his revolutionary revision of classical economic theory, and the financial techniques he derived from this new perspective, were sound and workable in the economic and business world. As a corporate and financial lawyer, and later as senior partner in the law firm Kelso&Company which he founded in 1971, Kelso well understood this world.

He was motivated by his conviction that lawyers had a special responsibility to maintain and improve society’s institutions in the light of its democratic values. He further believed that the business corporation was society’s greatest social invention and that its executives had a fiduciary responsibility to exercise its vast power.

Louis O. Kelso died in 1991 with 77 years of heart ailment in San Francisco.

Click here to see pictures of the celebration of Louis O. Kelso’s  100th Anniversary at the Europa-Universität Viadrina (Frankfurt/Oder).

Michel Barnier, EU Commissioner for Internal Market and Services, opens the conference which is jointly organised by DG Internal Market and Services, Europa-Universität Viadrina and Freie Universität Berlin (Inter-University Centre).

Conference

Taking Action: Promotion of Employee Share Ownership – Debating concrete policy options in the context of the EC Action Plan on Corporate Governance

When?

30.01.2014 from 8:30 to 16:30.

Where?

Albert Borschette Congress Centre, Rue Froissart 36, Brussels, Belgium

The best way to make this capital ownership available to all employees is by means of a leveraged ESOP model. The leveraged ESOP model allows the company to take on a bank loan in order to provide employees with shares of the company, by using the trust as the vehicle of holding shares. The leveraged effect originates from the loan repayment by future earnings.

[youtube=http://www.youtube.com/watch?v=BLqN8mj17hU&w=560&h=315]

Also see our previous blog posts:

The Economist: A shirnking slice – Labours’ share of national income has fallen

197 Words intro on leveraged ESOPs

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So what can be done? The Economist states that the goal should be to strengthen workers without hamstringing firms. In fact, “a good antidote to labour’s falling share of national income would be to boost ordinary workers’ share of capital.”

The Economist is right when underlining “ugly consequences” of this development. Since the rich own most of the capital – i.e. in 2008 the richest 20% of the population in Germany owned 80% of all capital assets – the increase of the share going to capital worsens inequality even more.

This effect is reinforced by the technological progress due to which the labour input in production decreases in comparison to the capital input and, as a result, the owners of productive assets receive a growing share of the income whereas the owners of human labour receive a proportionally ever-smaller share.

So the question is how productive property can be financed for the many. This is what the Employee Stock Ownership Plan, the ESOP, invented more than 50 years ago by American lawyer and investment banker Louis O. Kelso does. It uses the borrowing power of a company to acquire shares of that very company for its employees.

Click here to read more about leveraged ESOPs.

Read the full article from The Economist (Nov 2nd 2013) here:

A shrinking slice – Labour’s share of national income has fallen

Find a second article on the topic (from the same edition) here:

Labour pains – All around the world, labour is losing out to capital