European Union Discusses Incentives for Employee Ownership

As the European Union discusses its future approach to employee ownership, the European Federation of Employee Share Ownership (EFES) released a report to defend its position that incentives are good public policy. EFES's report is in response to another analysis published by the European Parliament, Employee Financial Participation in Companies' Proceeds, which argues that fiscal incentives may not be a prerequisite for these plans. In June EFES won a court judgment demanding the withdrawal of the competing report.

It is inarguable that incentives are not a prerequisite to employee ownership; companies may set up plans even without any incentives out of a philosophical commitment to the idea. This is perhaps best exemplified by the Mondragon Group in Spain. However, evidence from work by the NCEO and others over the past 33 years studying employee ownership in the U.S. and in other countries strongly suggests that employee ownership plays a substantial role in economies only where tax incentives are present. Fiscal incentive policies need to be crafted with a view toward what role a country hopes employee ownership will play. If the goal is to provide employees, mostly in public firms, with a tax-favored way to accumulate assets, then tax incentives for employees to offset their risk aversion and time preference may be enough. But if the goal is to make employee ownership another model for corporate organization, then fiscal policy is unlikely to succeed unless it provides substantial incentives to employers and deferred taxation for employees.