Working Life > Company > Employee Participation

Employee Participation: Employees Become Entrepreneurs

Definition, Explanation

The objective of employee participation is to make entrepreneurs out of employees. Studies have shown that in companies with employee participation, the motivation, productivity and innovative energy is higher in comparison to those without. The employees can identify with their company better. Employee shares, stock options or limited company shares, employee loans, e.g. for house buying or the investment-related salary serve as models. Next to the material side of employee participation, the "immaterial" plays an increasing role: the company culture, the integration in work and decision-making processes, the kind of collaboration and communication.

Any form of material participation is basically a voluntary regulation that is stipulated in company agreements and negotiated with the employee organisation. The direct participation in the company, however, leads to a loss in employee status. The employee then becomes a co-entrepreneur and is treated by the labour and employment laws in a different way.

The advantages of employee participation are:

• An increase in the company's capital ratio resulting in improved credit-worthiness with investors. The capital ratio is a management ratio and defines the share of capital in the balance
• The bridging of financial straits within the company
• Higher identification of the employees with the company
• Lower fluctuations, less sick leave and integration of employees into the company
• Higher job security through participation of the employees in the company
• Alleviation of the subsequent regulation through participation of potential successors in the company that recruit themselves from the management or employees. Thanks to this, the continuation of the company can be ensured at an early stage
• The employees have a share in the company's profits. From a tax point of view, the return from employee participation counts as income from capital and is within certain limits tax- and social contribution-free. On the other hand, a participation in losses can be excluded
• Employee loans can be provided with fixed interest rates or profit-based and covered by a bank guarantee or insurance

Disadvantages:

• Limited freedom of decision for the entrepreneur
• Financial dependency of the company on the employees
• Financial risk for the investors
• Weakening of the employees in wage talks as they are company owners at the same time

Tips, Checklist

• Clarify to what extent there is material employee participation within your company
• Check the chances and the risks of employee participation in relation to your individual situation. Employees shares is to be assessed in a different way than direct company participation in the form of limited company shares

Last update: 07/03/2010