Financial Participation of Employees in the EU-27

349 Pages·2009·1.675 MB·English

by  Jens Lowitzsch (auth.)

Studies in Economic Transition
General Editors: Jens Hölscher, Reader in Economics, University of Brighton; and Horst
Tomann, Professor of Economics, Free University Berlin
This series has been established in response to a growing demand for a greater understanding of
the transformation of economic systems. It brings together theoretical and empirical studies on
economic transition and economic development. The post-communist transition from planned
to market economies is one of the main areas of applied theory because in this field the most
dramatic examples of change and economic dynamics can be found. The series aims to contrib-
ute to the understanding of specific major economic changes as well as to advance the theory of
economic development. The implications of economic policy will be a major point of focus.
Titles include:
Lucian Cernat
EUROPEANIZATION, VARIETIES OF CAPITALISM AND ECONOMIC PERFORMANCE IN
CENTRAL AND EASTERN EUROPE
Irwin Collier, Herwig Roggemann, Oliver Scholz and Horst Tomann (editors)
WELFARE STATES IN TRANSITION
East and West
Bruno Dallago and Ichiro Iwasaki (editors)
CORPORATE RESTRUCTURING AND GOVERNANCE IN TRANSITION ECONOMIES
Bruno Dallago (editor)
TRANSFORMATION AND EUROPEAN INTEGRATION
The Local Dimension
Hella Engerer
PRIVATIZATION AND ITS LIMITS IN CENTRAL AND EASTERN EUROPE
Property Rights in Transition
Saul Estrin, Grzegorz W. Kolodko and Milica Uvalic (editors)
TRANSITION AND BEYOND
Hubert Gabrisch and Rüdiger Pohl (editors)
EU ENLARGEMENT AND ITS MACROECONOMIC EFFECTS
IN EASTERN EUROPE
Currencies, Prices, Investment and Competitiveness
Oleh Havrylyshyn
DIVERGENT PATHS IN POST-COMMUNIST TRANSFORMATION
Capitalism for All or Capitalism for the Few?
Jens Hölscher (editor)
FINANCIAL TURBULENCE AND CAPITAL MARKETS IN TRANSITION COUNTRIES
Jens Hölscher and Anja Hochberg (editors)
EAST GERMANY’S ECONOMIC DEVELOPMENT SINCE UNIFICATION
Domestic and Global Aspects
Iraj Hoshi, Paul J.J. Welfens and Anna Wziatek-Kubiak (editors)
INDUSTRIAL COMPETITIVENESS AND RESTRUCTURING IN ENLARGED EUROPE
How Accession Countries Catch Up and Integrate in the European Union
Mihaela Keleman and Monika Kostera (editors)
CRITICAL MANAGEMENT RESEARCH IN EASTERN EUROPE
Managing the Transition
Emil J. Kirchner (editor)
DECENTRALIZATION AND TRANSITION IN THE VISEGRAD
Poland, Hungary, the Czech Republic and Slovakia
David Lane (editor)
THE TRANSFORMATION OF STATE SOCIALISM
System Change, Capitalism, or Something Else?
David Lane and Martin Myant (editors)
VARIETIES OF CAPITALISM IN POST-COMMUNIST COUNTRIES
Jens Lowitzsch
FINANCIAL PARTICIPATION OF EMPLOYEES IN THE EU-27
Tomasz Mickiewicz
ECONOMIC TRANSITION IN CENTRAL EUROPE AND THE COMMONWEALTH OF
INDEPENDENT STATES
Milan Nikolic´
MONETARY POLICY IN TRANSITION
Inflation Nexus Money Supply in Postcommunist Russia
Julie Pellegrin
THE POLITICAL ECONOMY OF COMPETITIVENESS IN AN ENLARGED EUROPE
Stanislav Poloucek (editor)
REFORMING THE FINANCIAL SECTOR IN CENTRAL EUROPEAN COUNTRIES
Gregg S. Robins
BANKING IN TRANSITION
East Germany after Unification
Johannes Stephan
ECONOMIC TRANSITION IN HUNGARY AND EAST GERMANY
Gradualism and Shock Therapy in Catch-up Development
Johannes Stephan (editor)
TECHNOLOGY TRANSFER VIA FOREIGN DIRECT INVESTMENT IN CENTRAL AND
EASTERN EUROPE
Horst Tomann
MONETARY INTEGRATION IN EUROPE
Hans van Zon
THE POLITICAL ECONOMY OF INDEPENDENT UKRAINE
Hans van Zon
RUSSIA’S DEVELOPMENT PROBLEM
The Cult of Power
Adalbert Winkler (editor)
BANKING AND MONETARY POLICY IN EASTERN EUROPE
The First Ten Years
Studies in Economic Transition
Series Standing Order ISBN 978 0–333–73353–0
(outside North America only)
You can receive future titles in this series as they are published by placing a standing order.
Please contact your bookseller or, in case of difficulty, write to us at the address below with
your name and address, the title of the series and the ISBN quoted above.
Customer Services Department, Macmillan Distribution Ltd, Houndmills, Basingstoke,
Hampshire RG21 6XS, England
Financial Participation
of Employees in the EU-27
Jens Lowitzsch
Selection and editorial matter © Jens Lowitzsch 2009
Individual chapters © Jens Lowitzsch and co-authors 2009
Foreword © Patricia Hetter Kelso 2009
Softcover reprint of the hardcover 1st edition 2009 978-0-230-22412-4
All rights reserved. No reproduction, copy or transmission of this
publication may be made without written permission.
No portion of this publication may be reproduced, copied or transmitted
save with written permission or in accordance with the provisions of the
Copyright, Designs and Patents Act 1988, or under the terms of any licence
permitting limited copying issued by the Copyright Licensing Agency,
Saffron House, 6-10 Kirby Street, London EC1N 8TS.
Any person who does any unauthorized act in relation to this publication
may be liable to criminal prosecution and civil claims for damages.
The authors have asserted their rights to be identifi ed
as the authors of this work in accordance with the Copyright, Designs
and Patents Act 1988.
First published 2009 by
PALGRAVE MACMILLAN
Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited,
registered in England, company number 785998, of Houndmills, Basingstoke,
Hampshire RG21 6XS.
Palgrave Macmillan in the US is a division of St Martin’s Press LLC,
175 Fifth Avenue, New York, NY 10010.
Palgrave Macmillan is the global academic imprint of the above companies
and has companies and representatives throughout the world.
Palgrave® and Macmillan® are registered trademarks in the United States,
the United Kingdom, Europe and other countries
ISBN 978-1-349-30904-7 ISBN 978-0-230-27416-7 (eBook)
DOI 10.1057/9780230274167
This book is printed on paper suitable for recycling and made from fully
managed and sustained forest sources. Logging, pulping and manufacturing
processes are expected to conform to the environmental regulations of the
country of origin.
A catalogue record for this book is available from the British Library.
A catalog record for this book is available from the Library of Congress.
10 9 8 7 6 5 4 3 2 1
18 17 16 15 14 13 12 11 10 09
Contents
List of Figures xii
List of Tables xiv
Foreword xv
Preface xix
Acknowledgements xxii
List of Contributors xxiii
Network of Affiliated Country Experts xxv
Part I A European Platform for Financial Participation
1 The Building Block Approach to a Common
European Model 3
Jens Lowitzsch
1.1 Introduction 3
1.2 Objective and context 5
1.2.1 Socio-economic background 5
1.2.1.1 The function of ownership 5
1.2.1.2 Capital concentration is dysfunctional 6
1.2.1.3 Insufficient legal foundations 7
1.2.2 European initiatives 7
1.2.2.1 The PEPPER Reports 7
1.2.2.2 Finding solutions for a
‘New Social Europe’ 9
1.2.2.3 Summary of the postulate of
the European policymakers 9
1.2.3 The current reform process 11
1.2.3.1 Actual tendencies of property
development – A challenge
for social policy 11
1.2.3.2 Status quo 12
1.2.3.3 Recent studies 13
1.2.4 The path to a European regulation 14
1.2.4.1 Focus: Legislating financial
participation schemes 14
v
vi Contents
1.2.4.2 Unanimous decision versus
majority vote 15
1.2.4.3 Different contexts, different approaches:
The building block approach 15
1.3 The current situation in Europe 16
1.3.1 Policy issues 16
1.3.2 Problems related to the legal framework
and transnational obstacles 17
1.3.3 The national level 19
1.3.3.1 The situation in the old Member
States of the EU 19
1.3.3.2 The situation in the new Member
States and candidate countries 19
1.4 Towards a European concept of financial
participation 19
1.4.1 Choosing a building block approach 19
1.4.1.1 Module One: Profit-sharing
(cash-based and deferred) 36
1.4.1.2 Module Two: Employee
shareholding (employee shares
and broad-based stock options) 37
1.4.1.3 Module Three: ESOPs and share-based
profit-sharing 39
1.4.1.4 Specific features of ESOPs 40
1.4.2 Options for creating the legal foundations of a
European concept 43
1.4.2.1 Recommendation according to
Article 249 paragraph 1 (1) ECT 43
1.4.2.2 Directive level: Amending existing
European company law 43
1.4.2.3 National level: Building on existing
national company law 44
1.5 Conclusions and summary 52
1.5.1 Compliance with the postulates of the European
policymakers 52
1.5.1.1 Achieving competitiveness while
maintaining diversity 52
1.5.1.2 The building block approach:
Meeting essential principles … 53
1.5.1.3 … and overcoming transnational
obstacles 54
Contents vii
1.5.2 ESOPs: A thrust for innovation 54
1.5.2.1 ESOP as a vehicle for business
succession 55
1.5.2.2 ESOP enhancing cash flow 56
1.5.2.3 The private equity buyout versus
the ESOP 57
Part II The Legal Background
2 The Challenge: Functional Changes in Property
Rights in Europe 73
Herwig Roggemann and Jens Lowitzsch
2.1 Ownership in the welfare state and in post-socialist
transformation 73
2.2 Legal foundations of property 74
2.2.1 Functions of ownership 74
2.2.2 The changing content of property 75
2.2.3 Ownership and control of productive property 76
2.3 Ownership in European law 77
2.3.1 European Community law in a narrower sense 78
2.3.2 Ownership and European fundamental rights 79
2.4 The problem: Unequal distribution and concentration
of capital 80
2.5 The German example 81
3 The Legal Framework for Implementing Financial
Participation at the Supranational Level 85
Jens Lowitzsch and Natalia Spitsa
3.1 The legislative process 85
3.2 Legal sources for employee participation at a
European level 87
3.3 Dealing with tax incentives 89
3.3.1 The problem 89
3.3.2 General taxation of PEPPER schemes in the EU 90
3.3.2.1 Employee share ownership 93
3.3.2.2 Profit-sharing 101
3.3.2.3 Intermediary entities 101
3.3.3 Specific tax incentives for PEPPER schemes
in the EU 101
3.3.3.1 Share-based plans 103
3.3.3.2 Stock options 112
3.3.3.3 Cash-based profit-sharing 113
3.3.4 Conclusions 113
viii Contents
4 Systematic Overview of Financial Participation 121
Jens Lowitzsch and Axel Bormann
4.1 Participation in property rights: Control
and returns 121
4.1.1 Participation in decision making 121
4.1.2 Financial participation 122
4.2 Employee Participation in Profits and Enterprise Results
(PEPPER schemes) 123
4.2.1 Profit-sharing 123
4.2.2 Employee share ownership 124
4.2.2.1 Direct purchase of shares/
share savings plans 124
4.2.2.2 Broad-based stock options 125
4.2.2.3 Employee Stock Ownership Plans 125
4.2.2.4 Privatisation-related voucher/
coupon schemes 125
4.2.3 Employee share ownership versus profit-sharing 126
4.3 Asset accumulation and employee savings plans 127
4.4 Discussion: Pros and cons 128
4.4.1 Motivation, productivity and economic
performance 128
4.4.2 Economic growth and distributive effects:
Binary economics 129
4.4.3 Position of trade unions 129
4.4.4 Financial participation and participation
in decision making 130
4.4.5 Failure rate of conventional and
employee-owned companies 130
5 The US ESOP as an Example of an Advanced Model 136
John D. Menke, Stefan Hanisch and Jens Lowitzsch
5.1 Historical background 136
5.2 Foundations of the US Employee Stock
Ownership Plan 137
5.3 Structural changes needed to implement ESOPs
and profit-sharing schemes 138
5.4 Key tax incentives for ESOPs 139
5.5 The interim balance in 2007 141
5.6 Future prospects for ESOPs in the US 142
5.7 Models of financial participation –
The US and French systems 143
Contents ix
5.8 Four case studies 143
5.8.1 Market Contractors, Ltd.
(Business Succession ESOP) 143
5.8.1.1 The company 143
5.8.1.2 The plan 144
5.8.1.3 Buying out the owner 145
5.8.1.4 Average plan participant 146
5.8.2 Stone Construction Equipment, Inc.
(Business Succession ESOP) 147
5.8.2.1 The company 147
5.8.2.2 The plan 148
5.8.2.3 Buying out the owner(s) 149
5.8.2.4 Average plan participant 149
5.8.3 Bad case: Golden Bear Packaging, Inc.
(Business Succession ESOP) 150
5.8.3.1 The company 150
5.8.3.2 The plan 150
5.8.3.3 Buying out the owner 151
5.8.3.4 Average plan participant 152
5.8.4 Bad case: Howland Electric & Electronic
Wholesale Company, Inc. 152
5.8.4.1 The company 152
5.8.4.2 The plan 153
5.8.4.3 Financing the ESOP transactions
(as opposed to a succession
ESOP) 154
5.8.4.4 Average plan participant 154
Part III Empirical Evidence and Country
Information
6 Benchmarking Financial Participation in the EU 159
Iraj Hashi, Richard Woodward and Jens Lowitzsch
6.1 Introduction: Assessing and benchmarking financial
participation – The PEPPER IV Report 159
6.1.1 Aims of the project and specific difficulties
to be dealt with 159
6.1.2 The benchmarking indicators 161
6.1.2.1 Sources 161
6.1.2.2 The indicators and their link to the
Commission principles 164