European Commission Report Endorses Employee Ownership in New Member and Candidate States

In 1989, the Commission of the European Communities created a panel to report on the "Promotion of Employee Participation in Profits and Enterprise Results." The so-called PEPPER Report, issued in 1992, urged member states to adopt legislation and regulations to encourage profit sharing and employee ownership plans. A second report in 1997 updated these recommendations. Now PEPPER III has extended this investigation to the new EU member states as well as those seeking admission. The report strongly encourages these countries to adopt these results-sharing programs. It specifically endorses the U.S. ESOP model as a promising approach.

The paper provides considerable detail on each of the countries (the Eastern European countries, the Baltic states, Cyprus, and Turkey). While it finds that almost all the states have laws that make employee ownership possible and that almost all the Eastern European and Baltic states gave some priority to employee ownership during their privatization phase, only Slovenia, Croatia, Poland, and Hungary have any significant remnant of broad employee ownership. None of the countries except Slovenia continue to actively encourage broad employee ownership. Typically, employees were allowed to buy shares at a discount or get some number of free shares, but in most cases, they were also able to sell them soon after. The report recommends that countries look at mechanisms such as ESOPs that can encourage stable employee ownership.