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