Giving employees a financial or equity share in a firm's success is not just for giant corporations, writes Gabrielle Monaghan

Fewer than 15 per cent of companies in Ireland give employees a financial or equity share in the organisation, despite evidence linking such schemes with increased profitability, a new report has revealed.

A company that makes "substantial profits" is four times as likely to have employee financial involvement (EFI) than an organisation that's suffering losses, according to a survey of 1,500 companies by the Economic and Social Research Institute (ESRI). While this does not necessarily mean that EFI is the sole driver of greater profits, the research indicated a strong correlation between the two.

The results of the survey were published by the National Centre for Partnership and Performance (NCPP) in a report described as a "wake-up call" for Irish employers by Taoiseach Bertie Ahern.

"There are significant benefits for employers who provide EFI," said Lucy Fallon-Byrne, director of the NCPP, which was set up by the Government in 2001 to promote partnership-led innovation and change in Irish workplaces.

"It gives employees the opportunity to increase their earnings and it improves job satisfaction, motivation, and self-fulfilment in the workplace. Part of the reason EFI take-up has been poor is that managers are very busy and there wasn't a place where the steps toward EFI were all laid out for them."

The report, entitled Improving Performance - Sharing the Gains, contains practical guidelines for Irish employers on how to introduce profit-sharing or other schemes. It was the first time that such guidelines, mandated under the new social partnership agreement Towards 2016, received full backing from employers and trade unions. The framework also applies to non-unionised firms.

EFI is one of the core elements of the NCPP's new three-year workplace strategy, which was launched by Mr Ahern last week. The strategy will be supported by a new €9 million fund that will finance small- and medium-sized companies seeking to introduce new ideas and best-practice models of innovation to their workplaces.

The fund will also be used for a public-awareness campaign, including TV airtime, to highlight the importance of innovation, EFI and other key workplace development issues to both employers and employees, according to Ms Fallon-Byrne.

"We want to nip in the bud the notion that employee financial involvement is only for large companies or multinationals and create demand from Ireland's two million employees for these schemes," she said.

One US study of gain-sharing, where the monetary value of gains made by a company are shared between the organisation and its employees, found that productivity among the 100 companies surveyed rose an average 17 per cent by the third year of the scheme's operation, the NCPP report pointed out.

However, Ms Fallon-Byrne believes that any introduction of an EFI scheme should be part of a broader drive by Irish employers to involve and engage staff in the business process if it is to be truly effective. Indeed, international and domestic evidence suggests that financial rewards for staff work best when such schemes are implemented in tandem with other employee-involvement practices.

"Employees now want a greater share in the decision-making process and in how the company is run and EFI can give them the opportunity to do so," the NCPP director said.

The success of an EFI is contingent on choosing the scheme that is most appropriate to the specific circumstances of a particular organisation, the NCPP report found. The final choice of any scheme will be heavily influenced by factors including performance objectives, ownership and governance structure, employee needs, the relationship between employers and unions, tax incentives, national regulations and current trends.

The five main categories of EFI schemes currently operating in Ireland are approved profit-sharing schemes (APSSs), approved save-as-you-earn schemes (SAYEs), approved share-option schemes (ASOSs), employee share ownership plans (ESOPs) and gain-sharing.

At Baileys, the cream-liqueur company owned by Diageo, employees can allocate a sum of money from their gross salary every month for 11 months under its approved profit-sharing scheme. In the 12th month, that money, as well as bonus money paid to staff, is used to purchase shares in the company.

Analog Devices, meanwhile, runs an approved share-option scheme. The amount any one employee can receive in stock options is determined by dividing 10 per cent of their annual base pay, plus shift differential, by the stock price on the grant date, subject to plan limits. Once the options vest after two years, the employee has the right to exercise their option anytime over an eight-year period.

"We encourage employers to have a look at the guidelines and each of the schemes, the mechanics of each scheme, and see how each scheme applies to them," Ms Fallon-Byrne said.

Many privately-owned companies whose shares are not listed on a stock exchange have perceived it as difficult to introduce such schemes amid concern about disclosing information and determining their share price and market value. However, even private companies can work out a nominal share price and market value, though they must reach an agreement with the Revenue Commissioners on share values if they introduce an approved scheme.