Inštitut za ekonomsko demokracijo

Marc Mathieu: Employee share ownership in Europe

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The European Federation of Employee Share Ownership

The European Federation of Employee Share Ownership was established 20 years ago, and EFES could be compared to the National Center for Employee Ownership in the US. Its main activities are two.

The first one is information, or more specifically gathering information about employee share ownership practices and disseminating it. You can find a great collection of resources on their website and subscribe to very informative EFES monthly newsletter here.

The second main activity is lobbying. The Federation urges European institutions and all EU nation-state governments to promote the development of different forms of employee ownership. Most recently, they have been promoting the model for employee buyouts of SMEs developed by experts in our institute, a proposal for a European ESOP.

Marc Mathieu, the secretary-general and former chief executive of the European Federation of Employee Share Ownership, covers five main points regarding employee share ownership in Europe.

The main challenge in Europe related to employee share ownership

When it comes to employee ownership in Europe, business owners unfortunately still have to largely rely on ad hoc models for their companies. Even more so, there is no general consensus reached among the institutes supporting employee share ownership either. Although their objectives are ultimately the same – having more companies owned by employees in Europe – unfortunately, each institute is focused solely on the practices they believe are best.

The result of the described mindset is refusing to adapt to other ideas and sticking to the employee share ownership schemes traditional in one’s country, instead of following the general movement. Thus, we can call the main challenge related to employee share ownership in many ways: isolationism, sectarianism, and localism to name a few. Namely, Europe could benefit from increasing cooperation among the supporters of employee ownership as opposed to competing which scheme should be dominant.

Not surprisingly, there is a wide array of motivational schemes that are directly or indirectly related to employee ownership. There are three main branches:

  1. Employee share purchase plans – most effective and typical in large companies,
  2. Stock option plans – most effective and typical in start-ups,
  3. Employee share ownership plans (ESOP) – most effective and typical in SMEs.

ESOP seems to be more effective than other schemes, such as worker co-operatives or employee ownership trusts (popular in Great Britain). ESOPs are the most wide-spread form and have reached more workers than other bottom-up worker-ownership schemes. Due to its flexible and well-designed organizational structure, many institutions are supporting the ESOP model and the American authorities have passed legislation which allows ESOP organizations to gain from tax advantages.


Worker co-operatives in Europe

Although only a small piece in the co-operative movement, worker co-operatives were the first globally successful scheme of its kind. Many of the best practices of employee ownership today, in terms of business success, education, and governance, stem exactly from co-operativist movement.

When we compare workers co-operatives to other forms of employee share ownership, especially within the SME sector, we can notice a declining trend. While the total number of ESO firms in Europe grew by 26% from 2013 to 2020, the number of co-ops decreased by 14%, while non-co-op forms of ownership saw an outstanding growth of 103%! For the first time, in 2020, the number of non-co-op employee-owned firms exceed the number of co-ops in Europe.


Development of employee share ownership in Europe compared to the US

Employee share ownership in Europe is very slowly but surely progressing, and the same holds for its political support and legislation. On the contrary, the USA has a long tradition of supporting the employee share ownership plan. The support will likely be even greater in the future, as Bernstein (one of the three economic advisors appointed by Biden) is a life-long proponent of employee ownership, who proposed the EO office in the US government. If interested to learn more about EO support in the USA, the newest NCEO newsletter contains useful information on recent developments in Joe Biden administration.

Today in Europe, there are 9 million employee-owners, compared to 34 million in the United States. Given that the US population is half the size of the European, one would expect more than 60 million employee-owners in Europe.  The lack of employee-owned companies is particularly visible in the case of small and medium-sized enterprises.

Moreover, when comparing only the large companies owned by employees in Europe and the US, we get a similar picture. Namely, there are no more than 360 large European companies owned by employees, while 6500 companies have transferred to ESOP in the US.

The weakness of Europe does not only refer to the number of employee-owners but the financing as well. ESOPs are significant for the American economy as employee-owners hold assets valued at 1300 billion USD. The same cannot be said for Europe because employee-owners hold only 17 billion EUR worth of assets.


British employee ownership trust in comparison with the ESOP

One of the reasons for the decreasing trend of worker co-operatives as the main form of employee share ownership is the introduction of employee ownership trust in the UK in 2014. Great Britain was the first and (for now) the only country in Europe that launched such policy.

EOTs are a stylized version of ESOPs, because they rely on a simplified trust structure without individualized capital accounts (ICAs) for each employee. What that means is that in EOT, an employee does not have a claim over a net value of the company but only participates in the profits. In ESOP, on the other hand, this is not the case. ICAs, which are also a mechanism that Mondragon co-operatives use, have been speculated to prevent under-investment in employee-owned companies.

So far, we saw that employee share ownership in Europe is practically unknown in comparison with the American situation. The reason behind this is the introduction of ESOP in the US, and perhaps this significant gap will start to decrease once appropriate legislation regarding employee ownership is constructed in Europe.

There is nothing as successful and effective as the ESOP in Europe when it comes to SMEs. This shows an urgent need for adjusting the American ESOP practices to the specific European countries’ needs. The Institute for Economic Democracy is working on creating the legal framework to supports ESOPs in Slovenia while also tackling the issue of promoting the various benefits to the general public.


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