Financial Participation in SA in Comparative Perspective. A Cross-National Study [e-mail]

1
Financial Participation in SA in Comparative
Perspective. A Cross-National Studye.poutsma_at_fm.r
u.nl

• Erik Poutsma, Paul Ligthart, Institute for
  Management Research, Radboud University Nijmegen
• Ulke Veersma, University of Greenwich Business
  School

2
Why FP (despite crisis?)

• Focus on Broad Based FP employee share ownership
  
• Corporate objectives (principle agency)
• employees as stakeholders with an interest as
  capital owners
• HPWS paradigm
• Changing employment relationship how much?
• Alignment between interests of owner, manager and
  worker Rousseau Shperling,
  2004
• Attraction Motivation Retention -
  Productivity Pay off HR investments

3
Why FP?

• Critical potential to deconstruct the underlying
  unitarist, best practice approach with managers
  interests put first Marchington
  Gurgulus, 2000
• Gain tax benefits Flexibility of pay reduce
  labour costs
• Self enrichment artificially boosting earnings
  with short term results
• Circumvent unions and collective bargaining
  win-win or zero-sum?
• Insider coalition takeover defence as a
  corporate interest

4
Why FP?

• Macro objectives
• Wage flexibility
• Income and Wealth redistribution (Germany)
• Sustained community investments
• In practice mixed objectives
• -gt Different historically determined
  institutional arrangements lead to different
  configurations of interests, motives and outcomes

5
Institutional change

• Neo-institutionalist and varieties of capitalism
• Path dependence and persistence of diverse
  employment relation practices Hall and Soskice
  2000
• Pressures to convergence to liberal market model
  light regulation Streeck and Yamamura 2003
• Economic adjustments and experimental change
• Change driven at institutional and organizational
  level
• Powerful IR-actors changing and shaping
  institutions
• Djelic et al., 2005 Mahoney Russchemeyer 2003
• Actors involved expect certain outcomes from
  institutional changes and, therefore, they may
  stimulate or impede the implementation of various
  forms of FP

6
Comparative Research FP

• Australia, France, Germany, NL, UK and South
  Africa, with focus here on last three countries
• Qualitative Interviews with main actors
  governments, trade unions, employer federations
  (Pendleton Poutsma, 2004) additional
  information for SA
• Quantitative CRANET data Across the six
  countries -1999 and 2008/2009
• Business units with gt 200 employees

6
7
The institutional embeddedness of financial
participation(see Pendleton Poutsma 2004)
Figure 1.1
GOVERNMENT Philosophies and policies on
financial participation
EMPLOYERS ASSOCIATIONS Confederations Sectoral/
regional associations
LEGISLATION Financial participation
Taxation Securities law Company law Employment
law
TRADE UNIONS Confederations Sectoral/ occupationa
l/ general unions
National agreements
Sect. agreements
Powerful employers
Powerful unions
Company financial participation practice
Business systems Labour management Corporate
governance Accounting standards Ownership
structures
8
Deregulation - Flexibility

• Flexicurity strategies IR actors
• Looking for reform of welfare state and
  adjustment of labour terms and conditions Self
  regulation in the shadow of the state
  Negotiate or we will legislate
• Demand for flexible workforce and terms Demand
  for Performance Related Pay
• Decentralisation Company level bargaining
  Transformation of sectoral agreements from hard
  to soft law

9
FP and Institutional Setting

• Policy and Statutory differences between
  countries may promote or prevent existence
• Varieties of capitalism weaker role of union
  voice in LME room to implement FP ?
• CME stronger role employee voice chance to
  regulate FP (especially PS)
• FP as outcome of mixed elements from both LME and
  CME?

10
Different histories - objectives different
institutional designs of national FP system
Individual
UK
NL
Corporate objectives
G
SA?
F
Income and wealth redistribution
Collective basis
10
11
IR and trade unions in SA

• Trade unions part of resistance against Apartheid
  regime community based unions
• 25.3 union density in formal sector
• COSATU largest of three major TU centres (1.8
  mill. Members)
• politically linked with ANC as the ruling party
  in government
• Community based and craft based unions

12
IR and trade unions in SA (contnd.)

• Voluntary system with tripartite elements
• Regulation of rights of trade unions and
  employers not specifically regarding the content
  and level of collective bargaining
• Establishment of bargaining councils in sectors
• Scepcis towards impact and objectives of FP

13
Regulation of (fair) employment

• New Labour Relations Act (LRA) regulating
  collective bargaining and dispute resolution.
  Also addresses employee participation in
  decision-making
• Employment Equity Act (1998) equity in the
  workplace by (a) promoting equal opportunity and
  fair treatment in employment through the
  elimination of unfair discrimination, and (b)
  implementing affirmative action to ensure their
  equitable representation of designated groups,
  and equal pay, in all occupational categories and
  levels in the workforce.

14
FP in SA

• ESOP legislation
• Trust acquires shares from the company
  (contribution by employer company)
• Shares allocated to employees
• Rights to dividends and net capital
• Participants locked in for 5 years tax
  exemption. After 5 years, capital gains tax will
  be applied

15
FP system in SA

• Embedded in the Broad-based Black Economic
  Empowerment framework (BBBEE)
• Wider distribution of ownership to the lower
  ranked in terms of race and gender
• ESOP Offer should be broad-based gt 90 of
  personnel eligible
• Total value of distributed shares max R3000 per
  employee per year
• Sweetener for employer tax deductions

16
Implementation of agreements and role for unions

• NL FP agreed between the social partners, but no
  specification how this should take place.
  Consultation by Works Councils with
  implementation
• UK implementation should be left to the company
  level
• SA Left to company level - no specific
  requirement to agreement with unions or employee
  reps. However, according to BBBEE and EEA,
  employees need to be informed
• Specific cases of involvement of unions in ESOP
  agreements (mining, bustransport and fisheries)

17
Attitude of individual employers

• Favourable - loyalty and commitment of staff
  supporting recruitment and retention
• Wage flexibility and decentralisation of
  bargaining (but not in cases where there is
  already decentralised forms (UK)
• Freedom for companies to implement
• Demand for absence of restrictions by governments
  and IR regulatory frameworks SA employers more
  reluctant
• Problematic for SMEs

18
Attitude of Unions

• Negative (left) Scepticism Selective
  acceptance (Liberal professional unions)
• Too risky acceptable if equity and limited risk
• Unions in conflicting position as representation
  of both capital and labour
• Use of FP for union avoidance
• FP used to decentralise, and therefore, fear for
  undermining collective bargaining. SA focus on
  immediate cash benefits for union members
• Consequence Unions largely ignore FP or are not
  able to be involved

18
19
Results Qualitative

• Governments differ in positions and attitudes
  major tax incentives in F and UK
• Employers go for flexibility alignment argument
  for FP
• Unions go for security, but are less involved in
  ESO development more with PS
• FP develops separate from collective agreements
  more likely with PS
• Often selective plans less in case of PS
• Seldom (effective) take-over defence

19
20
Incidence of FP broad based ( of organisations
gt200)
21
Determinants for existence of broad basef fp
Determinants ESObb se
Country
United Kingdom 1.378 0.264
France 0.482 0.116
Germany 0.305 0.068
The Netherlands 0.477 0.153
Australia 1.267 0.306
SouthAfrica (ref.cat.)
Size 1.355 0.060
Industry
Construction 1.182 0.303
Transportation 1.238 0.341
Banking and finance 1.885 0.357
Chemicals (energy non-energy) 1.533 0.313
Other industries (eg services) 1.14 0.171
Manufacturing (refcat)
Multinationals 1.476 0.196
Trend
Year 1999 (refcat)
Year 2008 0.787 0.116
Stocklisting
No stocklisting (refcat)
stocklisting 5.951 0.745
stocklisting (missing) 1.423 0.312
Collective Bargaining
National or regional broad-based Bargaining 1.025 0.058
Company or site broad-based Bargaining 0.984 0.047
Individual broad-based Bargaining 0.983 0.052
Unionisation
No unionisation (refcat)
1-25 1.267 0.227
26-50 0.852 0.196
51-75 1.022 0.245
76-100 0.775 0.207
missings 1.036 0.227
Joint Work Council
No JWC (refcat)
JWC present 1.123 0.156
Alternative Financial Participation
Availability PS 2.059 0.258
Availability ESO
21
22
Results quantitative

• ESO Large Listed companies and MNCs
• In addition in SA significant negative effective
  of high unionized companies
• Level of collective bargaining does not influence
  the adoption
• Almost no sectoral differences

23
What do we learn from this?

• Different configurations of financial
  participation in different economies
• BB-FP in SA mainly determined by historical
  institutional regulations AND less by corporate
  objectives relationship with performance?
• Unions usually do not want (or are not able) to
  be involved.
• When implemented Managerialist approach may
  dominate with possible transfer of risks to
  employees

23
24
FP in SA conclusion and dilemmas

• IR system resembles elements of both LME (UK) and
  CME (NL)
• Regulation emphasises corporatist elements
• Unions community based with political orientation
• FP embedded in regulation aimed at equity and
  fairness
• Schemes however focused primarily on short term
  gains how much impact on underpriviliged
  workers?

25
Results Research 2 Relationship between different
voice channels

• Controlled for country, market economy and other
  corporate features
• Broad Based Financial participation is (not
  strongly) linked to Direct Participation
• No link between (Institutional) representative
  voice (WC, JCC or TU reps) and bb financial
  participation
• Financial participation is a phenomenon on its
  own
• However, partnership arrangements do not exclude
  financial participation (no negative
  relationship)

25
26
Results Research 3 Participation and Performance

• Again Country and type of economy makes no
  differences
• Direct Participation related to operational
  performance
• Broad Based Profit sharing related to all (6)
  performance measures ESO no relationships
• Representative Participation slight negatively
  related to performance Level of bargaining
  coverage no effect
• Unionization degree slightly negative related to
  one perf. measure gross revenue
• Interaction effect DP PS positive while generic
  effects of DP and PS remain.

26
27
Database Methodology

• Dataset CRANET, wave 2004 Private organizations
  (Large gt200), 32 countries from 5 continents
  (types of market economies (liberal
  coordinated), and 6 industries selected 6
  countries
• Multi-level analysis STATA, Gllamm
  (Rabe-Hesketh Skrondal, 2004) model controlled
  for country (level 2)
• Dependent Perceived performance relative to
  average in the sector 6 indicators General
  performance (reliable scales a Mokken Scale)
  Operational performance service, productivity,
  innovativeness Financial performance
  profitability, stock market, gross revenue

27
27