Working Life > Income > Invested Payment

Invested Payment: Employees Hold Interests in the Company's Capital

Definition, Explanation

One way of allowing employees to hold "interests" in the company is the so-called invested payment: Employees can voluntarily purchase shares of the company's productive capital by agreement in collective agreements or employment contracts. Portions of the salary are not directly paid but turned into interests in the company. These can be shares, profit participation rights, credits, credits on working hours accounts and silent partnership. Thus employees do not have that capital at their free disposal but in the form of securities held. The incentive, to the employee, is to benefit from possible profits of the company and gain influence through the corresponding voting rights which are normally included. These interests are taxfree if below 135 Euros per calendar year.

Reasons for employers to introduce invested payment are to make their employees co-entrepreneurs. Employees' bonds and identifying with the company would improve, motivation would increase, employees would build up assets which might serve e.g. pension purposes. On the other side, the company saves personnel expenses and gain capital resources.

In many companies, employees are interest-holders with different invested payment schemes or through purchased employees' shares. Compared to other European countries and the USA, though, invested payment is still rare in Germany. The forms of realization are made-up individually by companies. Up to now, there is no legislation for invested payment,but are discussed in politics. Politicians also name the voluntary partnerships "social capital-partnership".

Tips, Checklist

• Check your company's individual regulations
• Check, as for every investment of money, in how far it really 'serves your interests' to hold interests in the company you work in. Criteria are the interest yield, risk and liquidity, also the risk of insolvency
• Mind that the partnership also includes voting rights
• Be aware that portions of your payment invested means that you are a bearer of the capital risk. You absolutely want to save your financial security in case of insolvency or when you change your job
• Check how you can possibly turn your interests into "cash". Employees' shares of DAX-companies, after a retention period, sell easier than do shares of small- and medium-sized companies

Last update: 06/14/2010