Thomas Steger
Professor of Leadership and Organization
University of Regensburg
Germany
thomas.steger@ur.de
Employee ownership, i.e. any arrangement in which employees own part of their company, has a long tradition in Germany, dating back to the mid-19th century. Some budding entrepreneurs and academics promoted the idea of allowing employees to share in the profits (and capital) and decision-making of companies. The idea behind this was to increase employees’ motivation, identification, and engagement within the firm, as well as their private wealth accumulation.
Since then, little has changed in this idea and its objectives and numerous academic studies have shown the advantages and added value for companies and employees alike. Today, more than 4,200 companies practice some form of employee ownership model, often depending on their legal form. Most widespread are employee shares (in large joint-stock companies), silent partnerships and profit sharing (in small and medium-sized companies), and virtual shares (in start-ups). However, this sums up to only about 2–3% of all companies, which puts Germany in the middle of the pack in the European context (far behind what has been achieved, e.g., in the UK or France) and leaves much room for improvement.
Since at least the 1970s, German governments have tried to promote employee ownership. So far, different tools have been used and, in particular, the tax exemption has increased only slowly over the years. Employers and unions alike have long been reluctant to embrace employee ownership, considering it to be too expensive and offering employees an increasing voice (employers) and fearing the double loss of jobs and savings in the event of insolvency (unions).
Recently, the German government passed a new law to improve different financial market aspects (“Zukunftsfinanzierungsgesetz”), which also brought with it some improvements for employee ownership. The tax exemption was increased to 2,000 EUR (from 1,440 EUR). In addition, a deferred taxation was introduced for small and young companies (especially for start-ups).
However, the new law is far from creating a bright future for employee ownership. The level of tax exemption is still too low to provide a real incentive. The tax rules continue to discriminate against internal succession compared with external succession. However, the whole package looks more like a politically designed programme to promote start-ups, which does not really satisfy start-up companies as they did not receive what they really wanted, namely less discriminating taxation regulations. Finally, because it was a mere compromise, the new law was not really communicated widely, especially not in the context of employee participation campaigns.
It is therefore not surprising, as recent studies have shown, that companies themselves show little initiative in adapting their programme to the new tax exemption or even in introducing new employee ownership schemes. The German unions themselves had several concerns about the new law and saw it as competing with the traditional German system of employee codetermination. Consequently, they are still not making employee ownership one of their core topics. In sum, it can be said that the situation for employee participation in Germany is still not very favourable.
However, there is some light at the end of the tunnel. More recently, several initiatives have emerged, bringing together employers’ associations, unionists, company managers, employee shareholder associations, as well as lobbyists, experts and researchers interested in the topic. They share common interests and appear to have the potential to move things forward. Some of their ideas and postulates include (but are not limited to):
- to
improve the communication and promotion of employee ownership in general and of
specific schemes and plans by all parties involved,
- to link employee ownership with several neighbouring financial topics (such as individual wealth formation, retirement plans etc.),
- to provide a clear political signal in favour of employee ownership by fixing the tax exemption at the level of 5,000 EUR,
- to reduce bureaucratic hurdles for the introduction of employee ownership schemes (particularly for small and medium-sized limited liability companies),
- to end discrimination against virtual employee shares among start-up companies,
- to reform and improve the opportunities to use employee ownership as a major tool for corporate succession (planning),
- to rethink the traditional tariff politics and to implement employee ownership plans more strongly as a major tool, both on the side of employers’ associations as well as of unions,
- to introduce and adopt successful international models (e.g., EOTs) and to support harmonisation of employee ownership plan regulations on the international level.
The time is ripe for employee ownership in Germany to take a major step forward!