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Plan for employees to become shareholders

Lyuba Bozova-Peshovska
Lyuba Bozova-Peshovska

Or how to stimulate them to achieve better results

The motivation of the employees is crucial for the success and results of each company. The inclusion of the employees in the process of taking decisions in the company employer is a tool for long-term stimulation, making the employees committed to the success of the company and increasing their commitment. One of the possibilities for the employees to share the company’s financial results is namely the so-called plan for employees to become shareholders. The plan for employees’ participation includes a proposal for acquisition of shares by employees in the capital of a public company (issuer), which in most cases controls international groups of companies or their local subsidiaries.

In the cases, when a public offering of transferable securities or admission to trading with them is carried out on a regulated market in the EU, for the public company (issuer) arises the obligation to publish a prospectus.

The content and manner of publication of the prospectuses are regulated by the Prospectus Directive and transposed into our domestic law, the Law on Public Offering of Securities and the acts for its implementation. The prospectus for public offering or admission to trading on a regulated market may be published only if the competent authority in the Member State, for Bulgaria this authority is the Commission for Financial Supervision, has issued a written confirmation of the prospectus. Therefore, a public company (issuer) may offer securities to individuals solely on the basis of an approved prospectus, unless the issuer is exempt from the obligation for its publication. In this connection, it is provided that the obligation to publish a prospectus does not apply to securities offered, allotted or to be allotted to existing and/or former members of the management or supervisory bodies and/or employees by their employer or from a related person, provided that the registered office or the seat of the employer company is located in the European Union. Furthermore, persons should be given a document, containing information about the ground for offering securities, about their number and type, about the rights to them and the manner of their exercising, about the terms and conditions for acquisition of securities, as well as other information about the offer. Such a document should be prepared in accordance with the guidelines, issued by the European Securities Authority and markets. In addition, the obligation to publish a prospectus does not apply to securities, which are offered to less than 150 natural or legal persons in each Member State that are not qualified investors. The qualified investors are specifically listed in the law (investment consultant, investment broker, etc.).

A number of local and foreign companies, operating at the territory of Bulgaria, introduce the practice their employees to receive shares of the company in Bulgaria and to become shareholders. In the interest of the employees is to familiarize themselves with the document for the offered securities before deciding to invest. Below, we will examine some of the practical issues, which may arise in the realization of such a plan for the employees.

The plan to acquire shares may include different ways and criteria for financial participation of employees. The practice shows that the companies make proposals for consideration transfer of shares, i.e.the employees acquire them against payment most often on preferential terms.

Another part of the management system of the companies is the provision of incentives to the employees in the form of the so-called bonus schemes. For example, the plans to stimulate higher managerial governance may include the possibility a percentage of the annual employee bonus to be paid in the form of shares or in the beginning of each year a certain number of shares to be provided, depending on the level of the achieved annual targets and others. Both cited examples do not fall within the scope of the obligation to publish a prospectus, as they are provided free of charge, while the public offering of securities occurs when there is one or more proposals for consideration transfer and/or one or more invitations for submitting a proposal for acquisition of securities. An opportunity for the employees is to acquire the shares as individual installments after a certain period of time (months or years), as thereby the companies aim to retain the qualified employees in long term. The acquisition of shares is not considered as part of the remuneration of the employees.

For this purpose, the companies must ensure that the acquisition of shares is not included in the documents, concerning the employment relationship (e.g. job offers, employment contract, etc.). The practice shows that often the value of the shares is deducted from their remuneration. Under the provisions of the Labour Code without the consent of the employee deductions from their remuneration cannot be made, except in expressly listed cases, as financial incentives (acquired shares) do not fall among these. In this connection it is recommended in deduction from remuneration for companies to require the prior written consent of the employee. In this connection it is recommended in deduction from remuneration, the companies to require the prior written consent of the employee. It should be considered that the amount of the monthly deductions cannot exceed the dimensions, established in the Civil Procedure Code. Many companies often impose eligibility criteria for the participation of employees in certain plans. There are requirements for the employees to have a minimum length of service in the company in order to take advantage of this right. For example, often in plans for acquiring shares, the companies give priority and preferential conditions for full-time employees, and fur such, appointed on a permanent contract. The current labor law expressly states that in the exercise of the labor rights and duties no direct or indirect discrimination based on differences in the duration of the contract and the duration of working time is allowed.

Most member states of the EU, as well as Bulgaria have introduced legislation, prohibiting the discrimination based on the criterion “age”. Companies should be careful to more favorable treatment to employees who reach a certain age. This more favorable treatment may violate the EU laws. The practice of the European courts indicates that there must be an objective and reasonable justification for the choice, made in favor of the older employees and to be based on a legitimate objective. The increasingly widespread used methods of acquisition of shares, as financial participation of the employees in the companies increases the competitiveness and aims to pull down the barriers between employers and employees.

The article has been published in Bulgarian, in Capital Daily.