Employee participations are financial participations of employees in a company, also referred to as management participations. Companies can motivate and retain their employees by sharing the value increase resulting of your company’s growth.
Alignment of interests, or aligning the interests of the shareholders, the management of the company and the employees is of great importance to creating and maintaining a successful company. If employees and/or management hold shares in the company, both the shareholders and the employees and/or managers will benefit from a higher company value, as a higher value generally results in more benefits/cash-ins.
Employee participations are very important to retaining key employees and the company’s management. A certain growth strategy or long-term plan requires the commitment and loyalty of the right persons. Employee participations enable the creation of real commitment and a genuine bond with a company: employees feel as if they are joint owners of the company. In the end, loyalty must be rewarded and a well-considered employee participation plan makes that possible.
Another important reason to set up employee participations is to bind employees to the company. The war on talent has made it so that only offering a salary is no longer sufficient to attract talented persons. This is especially true for millennials: they want to feel as if they can grow with a company, including by participating in it. Retaining talent in-house is very important to many companies.
Employee or management participations come in many different forms. The simplest form of an employee participation is an annual discretionary bonus and the most elaborate form is acquiring shares with a voting right. In this latter scenario, employees also become parties to the shareholders’ agreement concluded between the other shareholders of the company. In some cases, this means that a shareholders’ agreement will also have to be drafted. The most familiar forms of participation by employees are through shares, options to acquire shares, depositary receipts for shares, stock appreciation rights (SARs) or bonus schemes in the form of cash (Short Term Incentive or Long Term Incentive Plans).
Examples are also granting company shares for no consideration or on favourable conditions – such as restricted stock units (RSUs) and employee share purchase plans (ESPPs) – or offering of option plans or granting profit-sharing certificates instead of shares. These types of participation not only motivate employees and managers, but also mitigate direct wage costs.
In summary, employee participations do not directly lead to higher wage costs for the company but they offer employees a financial incentive and they balance the interests of the company, even in times of the current COVID-19 crisis.
VanLoman is the one-stop-shop for advice regarding employee participations and their implementation within your company. VanLoman implements employee participations from A to Z. We are your point of contact from the draft to the implementation of employee participations.
VanLoman works with a permanent group of specialist, such as labour-law lawyers, civil-law notaries, corporate finance advisers and brokers so you do not need to consult them separately. Together with our trusted advisers, VanLoman ensures that the participation of your employees, managers and/or directors will be implemented correctly from an administrative, labour-law, notarial and tax-law perspective. VanLoman works with a clearly defined roadmap and a fixed price so you encounter no unpleasant surprises later.
We can provide an online presentation that clearly lays out all the choices about employee participation. We will help you and your company to make the right choices and ensure a sound implementation.
Would you like to know more about employee participations? Please call me on 06 8320 9914.
Marc Oostenbroek is partner at VanLoman and has extensive experience with setting up employee participations for both national and international companies.
In addition, Marc is an external phd student at Vrije Universiteit Amsterdam in the area of management participations in general and lucrative interest regimes in particular. The working title of his doctoral thesis is: “The national and international tax aspects of the lucrative interest regime”.
Marc specialises in the tax aspects of mergers and acquisitions, the structuring of funds and the setting up of management participations. Marc has extensive experience in these fields and advises clients about employee participations, share plans, Long Term Incentive Plans and lucrative interest participations (carried interest structures).