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EFES NEWSLETTER - JANUARY 2021

 Employee share ownership in SMEs Great Britain's success

It is well known that the transfer of a company represents the most favourable moment in time and the most efficient operation for multiplying employee share ownership in SMEs.

This is what convinced the USA to implement the ESOP technique in 1974. In Europe, the first country to act in the same direction was Great Britain, with the launch of the Employee Ownership Trust (EOT) formula in April 2014.

Question: Is it a success?

  • From 19 transfers in 2014, it rose to 27 in 2015, then 33, 43, 56, 66 and finally 86 in the first eleven months of 2020 (Table 1). A total of 333 companies were thus transferred to more than 30,000 employee shareholders. To reach a comparable number of employee shareholders, it had taken France more than a hundred years, thanks to the formula of the workers' cooperative - the SCOPs (and even more in Italy with the cooperative di lavoro).
  • In a very large number of cases, as with the ESOP plan, these are 100% business transfers to employees. In other cases, it is a question of partial transfer.
  • The average size of the transferred companies is 91 employees, which is very representative of the size of the average SME. In a small number of cases, these are micro-enterprise transfers, with an average size of 7 employees. The average size of the "small" companies transferred is 25 employees, and the average size of the "medium" companies is 100 employees. Finally, there are 806 employees on average for "large" unlisted companies. All these figures are very much in line with the average size of the populations of companies of all sizes. The formula therefore shows a very high degree of adaptability, without bias in terms of the size of the companies.
  • The sectors of activity concerned are mainly high value-added and high-tech sectors (Table 2). Here again, the wide range of business sectors is a sign of the formula's great adaptability.

In short: A remarkable success !

Thus Great Britain is the only European country so far to have been able to set up an effective policy of employee share owneership in SMEs.

Yet it could be even better.

Thus in 1980, a few years after its launch in 1974, the ESOP plan already had some 5,000 business transfers to its credit in the USA. At the time, the population of Great Britain was one third of that of the USA. On the scale of Great Britain, the ESOP plan had therefore enabled a little over 1,500 companies to be transferred, compared to the 333 company transfers observed today with the EOT formula.

Why the difference in efficiency between the two formulas?

The EOT formula is a simplified derivative of the ESOP plan. It seems that in this case, as often, the original is better than the copy.

Indeed, there are two main differences between ESOP and EOT:

1. EOT is based on a tax exemption on dividends (distributed as bonuses to tax-exempt employees up to 3,600 per year), under special legislation. In comparison, the ESOP plan allows for the exemption not only of dividends but also of the company's profits. The ESOP formula therefore avoids both profit tax and dividend tax. And this, not by virtue of any particular legislation, but by virtue of the simple fiscal engineering of employee share ownership.

2. In the ESOP formula, employees can cash in their shares and sell them when they leave the company (usually upon retirement). In the EOT formula, they cannot, the trust holds the shares for an indefinite period of time, in perpetuity.

These two differences probably explain the much greater success of the ESOP plan.

Today, however, there is a worldwide debate on the respective advantages of the two formulas. ESOP or EOT? The question is being asked in Great Britain as well as in the USA, Canada and Australia.

Two formulas are better than one! It might be appropriate in the USA to add the EOT formula next to the existing ESOP model. And it would no doubt be wise in Great Britain to introduce the ESOP formula in addition to EOTs.

In both cases, it should be easy to leave the choice of formula to the new shareholders. Once the trust has been set up, the choice of formula would be left to the new shareholders, allowing it to materialise either in the form of an ESOP or an EOT. There is no doubt that employee shareholding would find even more legitimacy and support.

Read more  

Press review
We have a selection of 24 remarkable articles in 7 countries in December 2020: Belgium, China, Germany, France, Italy, UK, USA.
Belgium: The most effective employee share plans for startups are stock options, even in Belgium.
China: Essilor and John Lewis are the two benchmarks for employee share ownership at Huawei.
Germany: Special issue on employee share ownership in Germany.
France: New employee share plan for EssilorLuxottica. Most business transfers to employees in France take the form of a workers' co-operative.
Italy: New employee share plan for Inwit.
UK: Many new business transfers to Employee Ownership Trusts. Turn covid emergency debt into employee share ownership urges SMEs.
USA: New York City launches new employee-owned business transition hotline. There are a number of different ways by which firms may adopt employee share ownership, such as an employee stock ownership plan (ESOP), worker cooperatives and even stock-options. Do you want to never pay taxes ever again? - Consider an employee stock ownership plan.

The full press review is available on:
              http://www.efesonline.org/PRESS REVIEW/2020/December.htm 

 


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   With best regards

 

 
 

Marc Mathieu
Secretary General
EFES - EUROPEAN FEDERATION OF EMPLOYEE SHARE OWNERSHIP
FEAS - FEDERATION EUROPEENNE DE L'ACTIONNARIAT SALARIE
Avenue Voltaire 135, B-1030 Brussels
Tel: +32 (0)2 242 64 30 - Fax: +32 (0)2 791 96 00
E-mail: efes@efesonline.org
Web site: www.efesonline.org
EFES' objective is to act as the umbrella organization of employee owners, companies and all persons, trade unions, experts, researchers, institutions looking to promote employee share ownership and participation in Europe.