Working Life > Company > Employee Participation > Employee Shares

Employee Shares

Definition, Explanation

Large corporations which are listed in the stock market index have the chance to let their employees buy shares of the company, so-called employee shares. This is possible by increased capital or buying own shares on the stock market index. Company shareholders are seen as equal to “ordinary” shareholders. They also profit from the distribution if dividends, rights of information or determination and gains in liquidity. On the other hand, they are also involved in failures. Such failures can result in decreasing share values or even bankruptcy. In a way, the employee becomes the CEO by buying shares of his own employer. The possible conflicts of interests that might result in such a situation are often heavily criticized by unions.

Employee shares are defined by:

• A limit of usually 5 years in which the share can not be sold (exceptions are disability to work or death of the employee)
• A special price for purchasing the share which mostly is far below the current share price. Additionally, extra costs such as broker’s fee or sock exchange tax are often paid by the company
• Individual offers for employee shares by the corporation: Offers for certain employees, e.g. managers or employees paid above the general pay scale, or for all employees in general
• Payment for the shares by keeping a part of the income, compensation of capital-forming payments or by monthly payments
• Exemption of taxation and social contributions of the non-cash benefit which has been created by buying the employee share. This is valid as long as the price is below 50 percent of the stock price and is not over EUR 150 and a limit of 6 years is included

Nowadays there are more than 1 million company shareholders in Germany. The programmes for managers are usally called “Executive Share Ownership Programmes”; for all other employees the programmes are called "Employee Share Ownership Programme”. The employee share is increasingly becoming an element of flexible forms of salary, displacing gratifications or annual premiums.

Corporations hope for the following effects of employee shares:

• Increased Motivation of the employees
• Creating of stronger bonds between company and employee and consequently increasing loyalty
• Accumulation and participation of employees in success and risk of the company

Tips, Checklist

• The worker’s council has no influence on regulations concerning employee shares. However the council should have an eye on the abidance of the equality principle within the regulations for the purchase of employee shares. Furthermore the council can explain the advantages and disadvantages of this form to the employees
• If possible, sign up to a club of employee shareholders to gain more influence on the company management

Last update: 06/18/2010