I've noticed that this is not a common concept at all – Both from the legal/taxation side which seems to be very against it, but also I don't see a lot of demand/interest from the employee side?
TL;DR: It seems to be mostly a cultural thing; people would prefer a small cash bonus. Nothing against it, I was thinking about offering equity as a "benefit" in my company, but I don't think it's attractive in Europe based on me asking around.
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I’m not sure about other places, but in Norway at least it’s taxed 10% more than wages. It would be better to get the cash if you don’t expect strong growth.
Also I have heard stories of people getting shares and paying wealth tax on them, which end up being worthless. And if it’s a private company there’s no way to sell them.
Because the concept originated as a US tax dodger which had no real use case out side US tax regs? Much like “trucks” being a workaround for CAFE tax regs
In comparison to? I’m assuming the US?
I’d say mainly because the employer/employee relationship tends to be different in Europe. Employee rights and worker protection tend to make the relationship more transactional than countries where employers have more power.
Equity can be given with some companies. I’ve had equity gifted in a multi-national and gifted/bought in a scale-up. It tends to be offered when employee retention is seen as important.
It’s quite common in white collar jobs but it’s a relatively newer trend.
I’ve yet to hear of anyone being very against it like you said so I’m not sure where you got it from.
I’ve heard some say they’d rather have higher wages or better dental. There is some -not unfounded- suspicion that compagnies would rather dangle equity and profit sharing than a fair compensation.
I don’t know how it compares to the US so maybe all of this is quite timid compared to there.
Also, Europe. Stuff varies widely from country to country and inside said country.
As a ex-HP/HPE staffer, share options were taxed at 45% if you sold them ASAP. Given that the share value dropped every year, who’d want them over a bonus to salary where the tax rate was lower?
Source: UK.
I do not have a coherent answer
I remember it being floated as a novel progressive concept in the wake of the 2008 crash, but haven’t heard much about it since outside of explicitly syndicalist circles. Occasionally a company will mention they’re “worker owned” when trying to earn brownie points for whatever reason.
Also I heard there’s a number of large coops in Spain, but that supposedly backfired, getting up to much of the same evil of regular companies do outwardly whilst inwardly acting a lot like a micro-state or mafia, so they needed to get broken up by anti-trust laws anyway.
A cursory search points to the mondragon group, their own copy reads pretty utopian but figuring out what the controversy was about exactly would require a deeper dive than I feel like doing right now.
needless to say, I’d still much rather work for a worker-owned company than a regular one: Worker owned > Privately held > Publicly traded; imo.
Because it hasn’t been culturally common here in Sweden, the law wasn’t really adapted to it. So in the early 2000s after the dotcom bubble, there were employees that had gotten stock option that crashed immediately. But the tax law said the value of it upon being granted was to be counted as income. So people could get stock options worth 500000 over and then crashed to 0. They had to pay taxes on the initial value, not what they sold for. These people owed millions and had no job after the crash. There was a political move to modernize the system, and new laws were passed. Just earlier this year, the appeal courts decided that so called ”carried interest” is legal in Sweden, so we’re almost getting to where the US has been for a long time regarding equity to employees and other ways of getting high returns in exchange for high risk.
Short answer: culture but changing.
Europeans still believe that markets are for allocating capital efficiently.
Americans know that the point of modern markets is for insiders to cash out at the expense of shareholders asap.
It’s far less likely for a European company to actually be publicly listed, whilst it seems to be positioned as the ultimate goal for most American companies.
The real reason is as simple as “legally it’s not a thing”.
Many European countries don’t have the legal framework for this. Health and social insurance play a huge role here. You can technically use equity as payment by using custom contracts, but it won’t be counted as ~~income~~ wage, which is problematic.
If you want to pay 10% as equity, you’d need to lower the wage by 10% and give the equity as bonus. Only that the bonus wouldn’t count towards health and social insurance, which means a) state might see it as dodging taxes and b) you are effectively lowering employees pension by 10%.
Employers can just give the equity on top of regular salary, but then it lacks the appeal for the employer. They wouldn’t be paying them the same amount, partially in equity, they’d be paying more.
Another problem is that any form of equity would be typically taxed twice, when gained and when sold. Which works against the whole idea of using equity as fair payment.
But there is demand for this in some fields. Start-ups typically. And some European countries are preparing for this to be implemented. Or at least they say they’ll do it.
Because here we actually pay to people for the time they spend working. We don’t try to exploit them by paying a shit salary with the promise that one day their stocks will skyrocket
Also only few companies are in the stock market
People in Europe are risk adverse. They don’t want stocks in the company they’re working in, generally they don’t care at all how the company is doing and they’re not under the illusion they have a part in it or are able to shape it. They want to be paid at the end of the month and they don’t want the risk of the company’s stock price affecting that.
Actually the granting of RSUs is a pretty stupid idea. I mean, if you believe in your company you can always buy their stocks with your wage. The only reason it became a big thing in the US is because of American tech startups where a minority of people got rich off it, and because Americans are obsessed with money and being rich, they all jumped at the idea of getting them.
In reality, receiving RSUs as a large part of your compensation does not work out well when the market isn’t on fire as it has been for the last 15 years. Straight up cash is almost always better.
I can’t speak for all employees but I think there are 2 things:
1) We are generally a lot less invested in stocks than Americans. For example, our pensions are paid by people currently working and not like in the US by a 401K or whatever stock accumulation options there are.
2) We are more risk avers than Americans. We prefer a safe and secure 1,000 Euros cash in hand than stock which may gain but may also lose in value.
It’s slowly becoming more common, but yes, the culture just isn’t there yet. Changing gradually for certain high-skill jobs.
Financial literacy might be an issue too. People are not as familiar with stocks and any other schemes of compensation. Sweden is relatively okay with this but in Germany and in Switzerland I noticed the average person is way too skeptical about investments and basically any form of savings other than fixed rate deposits. Which is especially funny in Switzerland, the average person is skeptical while the country as a whole is famous as a tax haven for the rich.
About ten years ago, the startup I was working for sold and I got a payout since I’d negotiated some stock in the years prior. It wasn’t a super common move, but not outrageous for a key employee in tech. I also didn’t get anything close to the “immediately retire to a life of luxury” level of payoff seen in the US, but the extra money was great given how Swedish society is set up.
One other factor – a big one – is risk tolerance. In the US, most employees don’t get equity either. It’s usually part of a high risk, high reward scheme. You’re at a smaller company that may or may not take off, but you accept a lower salary for the chance of making damn good money if the company succeeds. In Europe, the culture is of much less risk tolerance financially, and most people would prefer their guaranteed decent salary instead of a poor salary with equity. Some may even liken such offers to gambling, but the culture definitely isn’t in favor of them.
Tax side generally isn’t a problem. E.g. in Poland you pay income tax only upon realization of LTIP gains (aka after cashing out the shares).
It’s more corporate law/market practice and structure thing.
First, in some jurisdictions having minority shareholders in a private company…is just annoying from practical point of view. It’s less annoying after company goes public, but even the large LTIPs or MIPs are rare.
First European companies rarely have very high authorized capital available which needs to be renewed periodically (regulatory reasons, probably copied from Germany). Institutional investors generally do not like large amount of such capital, same as they very often don’t like possible dilution from LTIPs. Most of US-like employee LTIPs or executive packages would be killed by institutional investors even before vote in certain jurisdictions.
Second, looking at most of European IPOs cash out perspective…is limited. I don’t remember any recent scalable IPO, with larger part of them being partial fund exits at already mature businesses. Scalability in Europe is harder due market fragmentation, financing market is less risk friendly, so…. employees also aren’t that interested.
To be honest unless I can instantly sell the stocks I have been given I would prefer cash instead. Stocks don’t pay bills and american companies offering them really enforce stereotype that all americans are rich and don’t ever worry about money.
When I worked for a big supermarkt chain everyone did get “profit share” at the end of the year. It was around €500 iirc but it also depended on how many hours you worked and what that years profit was of course.
I work in IT. Companies that offer stock options are a big red flag. It usually means you’ll be cheated on your salary, hired without a contract, or working in a “gray” industry. Generally, people don’t work in such places unless absolutely necessary. Although, in the midst of a crisis, even a company that pays with stock options would be welcome.
Honestly, I just work here. I have 0 interest in worrying/caring how well the company is doing frankly. Been working at the harbor for a nice logistics company that’s all over Europe but I have 0 clue if they’re doing well.
They’re buying ships and they’re hiring more people in my department so I’m assuming it goes well.
Just seems like a headache and I would rather have more money to invest myself.
Well, then I’m not a typical European, because I always sign up for the equity option. Not really a hassle, the US branch is drafting the vesting contract for me. The only pain in the ass is to pay the Personal Income Tax in case I decide to cash it. This taxable event is “invisible” for my taxman, because it’s coming from overseas, and I always need to go through an audit as it’s flagged as unusual.
Depends on the kind of company it is, whether it’s a company with limited liabilities or not it has to be owned by someone. In smaller and more medium sized businesses the employees are more likely to share the responsibility, buying themselves into the company if not co-founding it. Sometimes they’re known as partners. This is very common particularly among businesses providing services either it’s advisory as financial (like accounting), legal (law firms), clinics (GPs, specialists, therapists, dentists…) or handcrafts like plumbers and electricians. Having shares “gifted” as either a form of kindness or payment isn’t that usual, but definitely happens.