Granting employee financial participation can lead to higher motivation, greater bonding with the company and employee retention. Employees feel more engaged because they share in profits (and losses) of the company. Startups and scale-ups can offer competitive rewards by paying out part of the salary in shares or stock options. There are also drawbacks and bottlenecks. How does the government view these?
Risk in employees
When using employee participation, risk sharing between entrepreneur and employees changes. In good times, employees benefit; in bad times, part of the risk will also lie with the employee. This risk-sharing requires (financial) flexibility from employees. The question is to what extent this is desirable, especially at the lower end of the income spectrum.
Payment structure or ownership?
Employee financial participation in the form of payment constructions or forms of ownership can also offer specific advantages or disadvantages. Payment constructions are easy to implement and thus widely applicable.
Employee financial participation through ownership looks more forward, can increase employee participation, leads to wealth accumulation in the longer term and, also because of this wealth accumulation, can serve as a supplement for old age. However, there are also some caveats to this: investing assets also involves risks, and these are greater if there is undistributed investment. From a risk-spreading perspective, it is highly questionable whether it is optimal for employees to build up assets mainly with the company where they work (with the risk that in case of bankruptcy, they will lose both their job and assets). In addition, participation is not always achieved either (think of non-voting shares) and it is questionable whether ownership is the right instrument for this. After all, participation opportunities for employees in their employer's company are in principle guaranteed through the Works Councils Act.
Obstacles, bottlenecks and next steps
Limited information among employers: research shows that employers are often unfamiliar with the possibility of employee financial participation. Increasing awareness of this tool could lead to its increased use. Here lies a role for organisations wishing to encourage employee participation such as employee and employer representatives and intermediaries. They are best placed to raise this awareness in an appropriate way.
Valuation discussions with tax authorities: the valuation of unlisted companies depends on various factors, this requires customisation and is therefore difficult to capture in a generally applicable formula. In consultation with the Tax Authorities, the extent to which it is still possible to give direction to the discussions surrounding the valuation of unlisted companies, for example in the form of a preferential valuation method, will be considered. In these consultations, the government will also include the possibility of drafting guidelines for the write-down of the tax value of employee shares with a disposal ban for non-listed companies.
Too long perceived duration of pre-consultation with tax authorities: greater clarity on the valuation of unlisted companies may also have a positive effect on the length of pre-consultations on this matter, although each valuation method requires the interpretation of certain variables that may themselves be fodder for discussion.
Negative impact capital gains tax Box III: A bill for the new box III system to tax based on actual returns is currently before the Council of State for advice. At this point, the government refers to this ongoing process.
Non-deductibility of employee shareholdings in corporate income tax: non-deductibility in corporate income tax has been a deliberate choice of the legislature. The government does not intend to make any adjustments to this.
Cabinet position
The government maintains its previous position that whether or not workers participate financially in the employer's business is an issue that is part of the employment negotiations between employers and employees. It is not for the government to encourage one form of pay more than others. However, the government does see it as its task to address bottlenecks in implementation.
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