Employee participation is an effective method of binding employees to an organization and motivating them by allowing them to share in the value development and possible dividends of the company.
It offers several benefits to both the employer and employee, such as increased engagement and a sense of shared entrepreneurship.
Benefits of employee participation
Among the benefits we see from employee participation are the following:
- Engagement and shared interest: Employees are more committed to the business because their compensation depends in part on the performance of the business. This creates a shared interest between employer and employee.
- Saving cash: By having employees participate in the business through shares or certificates, businesses can save cash that would otherwise be spent on labor costs.
- Business succession: Employee participation can help with business succession by allowing the future successor to gradually take over some of the shares.
- Start-ups with limited cash can still attract talented employees with it.
Methods of employee participation
There are several ways to implement employee participation, each with its own advantages and disadvantages. The choice of method depends on the specific needs and circumstances of the company. Three common methods are:
1. Shares
The employee receives shares in the company.
Benefits: High level of involvement, as employees have a direct stake in the success of the company. Suitable for business succession.
Disadvantages: employees gain control and rights such as meeting and voting rights. There can be high expectations and share transfer must go through a notary.
2. Certificates
The company establishes an STAK (Stichting Administratiekantoor). This STAK holds shares in the company. The STAK in turn issues certificates to the targeted staff.
Advantages: Limiting the rights of certificate holders is easier than with shares. Issuance of certificates is relatively simple and does not have to go through a notary. Certificate holders enjoy anonymity.
Disadvantages: Establishment of a STAK (Stichting Administratiekantoor) is necessary, which entails costs. There is less transparency and less influence of STAK members on the company in case of disappointing performance.
3. Profit entitlement
The employee is entitled to a portion of the profits from the company. This portion of the profit is distributed annually to the staff.
Benefits: Simple arrangement with no additional rights for the employee. No complex valuation required.
Disadvantages: Less engagement because employees have no ownership. Bonus payments can affect the company's liquidity and fall under a different tax regime.
In addition to these three options, Share Appreciation Right (SAR) or options are also among the possibilities. Aeternus goes into detail about all the possibilities in the Whitepaper Help! How do I retain good staff? download.
Strategic choice
Employee participation is a strategic choice that increases employee engagement and helps retain talent within the organization. However, it can be complex to choose the right method that fits the company's specific situation.
