The challenge for Financial Participation in businesses
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.
There are several reasons for introducing EFP:
- It facilitates the provision of start-up finance for new enterprises by attracting risk capital for firms operating in innovative sectors with highly skilled employees
- It promotes an “entrepreneurial spirit” in the workforce of SMEs
- It helps securing external funding by signalling high-growth potential
- It enables firms to attract and retain key personnel
- It creates a viable option for solving succession problems.
The main conclusion is that EFP provides important benefits to businesses through inducing employees to work harder, to have greater commitment to and identification with the firm, thus leading to higher productivity and, therefore, competitiveness.
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.
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. The schemes are often seen as a solution to some of the problems of industrial societies, dissatisfaction of employees, poor quality of working life and declining productivity. It is argued that EFP schemes 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. 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.
Finally EFP can provide employees with benefits which are supplementary to their wage income agreed through the collective bargaining process. Therefore the concept should be of major interest to employees and trade unions in the future.
See also the Zeit-article on Employee Financial Participation: http://www.zeit.de/2011/09/GS-Mitarbeiterbeteiligungen