Reasons for Introducing EFP – Improving Working and Living Conditions of Employees

intercentar — Wed, 14 Sep 2011 09:56:08 +0000

‘To stick to wages alone is to maintain a permanent class struggle,’ said Charles de Gaulle. Building ownership of productive assets into a nation’s own working families makes good freemarketsense. The financial crisis engulfing our world is, at bottom, a consumption crisis. It is brought on by too little money in the pockets of those who are eager to buy the goods and services merchants are eager to sell and producers to supply. Once investment capital had to be painfully hoarded from savings squeezed from current consumption. EFP schemes are often seen as one solution to the above mentioned problems of industrial societies and also to dissatisfaction of employees, poor quality of working life and declining productivity. In enlarging economic opportunity for the many through share ownership, ESOPs, together with profit sharing and other forms of employee financial participation (EFP), work to create a more just society.
At this point the question may arise, how can EFP-schemes contribute to a more just society after all? Numerous studies and the initiative report of SOC 371/2010 of the European Economic and Social Committee have shown that employees benefit from EFP-schemes because they influence the living and working conditions of employees. Some of the benefits would be:

access to asset formation through profit-sharing, share-ownership or employee-stock-ownership schemes

flexibility and therefore higher job security in times of recession or instability

increased local purchasing power

understanding what drives success in the company through participation in government and decision-making

In addition to this, one of the most important benefits for workers is in that EFP schemes can serve as a saving plan for future. It is well known that the European population is ageing and that governments are finding it increasingly more difficult to maintain the current levels of pension. EFP schemes can be a source of extra income which could be put aside in a saving scheme (or is put aside in a saving scheme by the firm).

Nevertheless, employees must also be aware of the possible risks associated with EFP schemes, especially ones involving share ownership. Since a part of their remuneration package is paid in company shares, the scheme will heavily depend on the movement of share prices, offering very little diversification. If employees count on the return from these shares as their extra income in retirement, they should be aware of the possible risk associated with such a scheme.
However, this risk can be alleviated by improvements in the quality of employee relations, introducing other investments as a portion of the contributions, or moving to investments plans offering some diversification. In addition, a huge amount of effort is put to facilitate the transfer of EFP schemes across borders with the aim of encouraging employees to accept the benefits arising from participation in such plans.

The above listed arguments for EFP-schemes increase in the end the motivation of the worker and are likely to lead to greater employee commitment, lower absenteeism and labour turnover, greater investments in company-specific human capital and reduced conflicts within the company. These are factors, which tend to improve the overall performance of the company and of the employee. The final result of these features will be an increase in productivity which has been recognised as the fundamental pre-requisite for economic growth and employment growth. The implementation of EFP-schemes tend therefore to create a „win-win“-situation for both, employers and for employees and – as a very important positive „side-effect“ – it strengthens the regional and European economy.

Reasons for Introducing EFP – Higher Productivity and Better Competitiveness for Companies

intercentar — Mon, 05 Sep 2011 09:47:10 +0000

The issue of employees participating in the financial results of their company has become an important political issue across the European Union. It is seen as a mean of promoting greater co-operation between management, owners and employees, eventually leading to a reduction in workplace conflict and, consequently, increasing efficiency, productivity and flexibility. Several reports conducted at the EU level have highlighted the potential benefits of financial participation, which have also been corroborated by a large number of empirical studies.
The resultant growth of productivity and profits creates the potential for a “win- win” situation, with workers and the firm sharing the benefits of the increased production. A decade ago, the European Commission’s Communication (COM 2002 364 Final) identified several specific benefits of financial participation for SMEs, over and above the general benefits available to all firms. More recently, the EESC’s ‘Own Initiative Opinion’ SOC 371 in 2010 stressed the importance of EFP for improvement in competitiveness in particular pointing out that it:

helps increase purchasing power;

helps deal with demographic change by offering employees an attractive place to live and work which makes it easier for companies to recruit specialist employees;

increases productivity;

improves financial indicators, thus making external capital cheaper; and

is a vehicle to facilitate transitions in ownership and management of family enterprises and SMEs in order to secure their continuity.

Furthermore, financial participation can help to recruit employees with high qualifications and skills and retain them by providing benefits for employees in addition to wages. It offers highly skilled employees an attractive place to work. Capital participation of employees as shareholders ensures that the long-term interests of the company would tend to dominate and excessive risk-taking by managers is largely constrained. In addition, employee ownership offers the opportunity to involve employees and solicit their suggestions concerning enterprise strategy, thus enriching the company’s decision-making process.
Finally, EFP offers a solution to the succession problem, the transitions in ownership and management, of family enterprises and SMEs securing their continuity and the stability of jobs and production.

On the other hand, EFP can provide employees with benefits which are supplementary to their wage income and contributes to the accumulation of productive capital, which makes them less vulnerable in recessions. More about this in the next post.

Intercentar » Iraj Hashi

Reasons for Introducing EFP – Improving Working and Living Conditions of Employees

Reasons for Introducing EFP – Higher Productivity and Better Competitiveness for Companies