A unique requirement of investment firm’s intermediation

Paweł Kawarski        01 April 2016        Comments (1)

Under the 2005 Act on Trading in Financial Instruments, each public offer effected on the territory of Poland must be intermediated by an investment firm (a local one or a foreign one properly passported into Poland under the MiFID). However, the ATFI exempts from this requirement employee programs qualifying under the local equivalent of Art. 4.1(e) of the Prospectus Directive.

In particular, the relevant exemptions include the following “public offers” (i.e., here, directed to 150 or more employee-investors or to “unspecified employee-addressees”):

(i)    a local public offer of securities of an issuer with its head office or registered office in the territory of an EU/EEA member state directed by such issuer or its affiliated entity to current or one-time managers or employees of the issuer or the affiliate; and

(ii)   a local public offer of securities of an issuer registered in a state not being an EU/EEA member state whose securities are admitted to trading on a regulated market or in another system of trading in the territory of such state, in relation to which the EU Commission has adopted an equivalence decision, directed by such issuer or its affiliated entity to current or one-time managers or employees of the issuer or the affiliate.

The problem is triggered by the fact that the European Commission has not adopted pertinent equivalence decisions in relation to the systems of trading operated in non-EU member states. Therefore, an issuer from such countries like the U.S. and Switzerland will have to contract an investment firm to launch the local employee share offer (if its securities are not admitted to trading on any of the EU regulated markets).

Will employee share ownership in Poland get started finally?

Paweł Kawarski        29 February 2016        Comments (3)

On 16 February 2016 the Polish government adopted “Responsible Development Plan”. The Deputy Prime Minister Mr. Mateusz Morawiecki said in a statement:

The plan is a set of tools to make the development of Poland more dynamic. These are actions that will result in a positive and high-quality expansion of the Polish economy.”

The reason why I mention the Plan here is that the “pillar of the new development model” entitled “Capital for development” targets to encourage Poles to build capital for the future and increase their savings, and one of the means to achieve that is promoting employee stock ownership.

In particular Slide 39 of the “Responsible Development Plan” lists certain benefits of employee stock ownership:

  • Employees share the profits from raised capital
  • Increased ratio of savings in the economy
  • Increased work motivation
  • Tighter bond between companies and employees, the latter identify with their company more

One could only agree with these assumptions and I welcome them with real satisfaction, even though the Plan does not disclose what instruments will be used to meet these target.

Answering the query by an internet service money.pl “Employee shareholding. We have checked what the Deputy Prime Minister Morawiecki encourages to” on the opportunity of the publication of the Plan, I identified tax issues as major obstacles preventing the development of employee ownership.

Let’s check early next year whether the Plan in this area will be implemented indeed or if it remains only a page of paper without a real meaning, just like many other proposals of the present and former governments.

The amended Transparency Directive 2013/50/EC from the Polish perspective

Paweł Kawarski        30 January 2016        Comments (4)

Earlier this month I had little time to focus on aspects of employee shareholding as I undertook to participate in workshops titled “Transparency II Directive & MAR Regulation” taking place on 12-13 January 2016 in Warsaw.

My lecture was discussing the issue of “Electronic System of Information Transmission in the light of new manner of publication of ongoing and periodical reports” and other aspects of Transparency II. The System is used by companies listed on the Warsaw Stock Exchange which represents the regulated market in Poland.

The answer is that coming into force of the new EU regulations will not change the Polish reporting infrastructure. However, the creation of the European Electronic Access Point (for details please see Final Report. Draft Regulatory Technical Standards on European Electronic Access Point (EEAP)) by 1 January 2018 may be useful instrument of collecting information on foreign issuers of concern also for local employee shareholders.

Incentive schemes in “Best Practices of Companies Listed on the WSE”

Paweł Kawarski        29 December 2015        Comment (0)

1 January 2016 will be the first day on which the new code of corporate governance of the Warsaw Stock Exchange entitled “Best Practice of GPW Listed Companies 2016” are in force.

The document as being the basic regulation of corporate governance of companies listed in Warsaw deserves a separate analysis (a brief introduction has been published on the WSE’s website “WSE Launches ‘Best Practice of GPW Listed Companies 2016’”), but not surprisingly I would focus on employee shareholding issues.

In fact, any mention in “Best Practice” of anything what could be linked, if only remotely, to some kind of employee shareholding is included in Section VI “Remuneration”. According to this Section, a listed company is expected to have “a remuneration policy applicable at least to members of the company’s governing bodies and key managers (…).”

Two of the “detailed principles” provide that:

VI.Z.1.            Incentive schemes should be constructed in a way necessary among others to tie the level of remuneration of members of the company’s management board and key managers to the actual long-term financial standing of the company and long-term shareholder value creation as well as the company’s stability.

VI.Z.2.            To tie the remuneration of members of the management board and key managers to the company’s long-term business and financial goals, the period between the allocation of options or other instruments linked to the company’s shares under the incentive scheme and their exercisability should be no less than two years.

These principles allow to draw the following conclusions under the “Best Practice” from the perspective of the subject-matter of this blog:

– to be honest, the idea of employee shareholding or employee ownership of shares of the company has not been even mentioned, as “incentive schemes” do not necessarily involve participation in the share capital,

– even if employee shareholding were present, it would not involve common employees, contrary to worldwide tendencies, but exactly in line with Polish practice, observed by the most recent 2014 survey of the European Federation of Employee Share Ownership,

– it seems that “long-term financial standing of the company and long-term shareholder value creation as well as the company’s stability” has nothing to do with incentives common employees receive, as if they did not contribute to these factors at all.

It is striking indeed that participants of Polish capital market do not see advantages of connecting companies’ competitiveness with motivation their ordinary employees’ enjoy. I am afraid “Best Practices” cannot be awarded the highest rank in the area of employee shareownership.

EU’s focus on employee shareholding

Paweł Kawarski        30 November 2015        Comment (0)

Employee shareholding has become part also of the European Union’s interest. In particular, on 14 January 2014 the European Parliament adopted a resolution on financial participation of employees in companies’ proceeds.

The resolution identified obstacles in offering employee financial participation (EFP) schemes in the Member States, called the States to provide tax incentives to promote employee ownership, and included a number of recommendations.

The European Parliament

– calls on the Commission and on Member States to consider appropriate measures to encourage companies to develop and offer EFP schemes, open to all employees on a non-discriminatory basis;

– encourages social partners to continue working together to develop new opportunities and innovations for EFP at the relevant levels;

– believes that, in order to promote financial participation for the purpose of creating a new form of company financing and enabling employees to be more connected to the company that employs them, employers should be given the opportunity to offer employees share capital subscriptions or specific debt securities (bonds);

– notes that there is a lack of information and education about possible employee ownership schemes, especially among SMEs;

– encourages Member States, in cooperation with social partners, employee ownership organisations and the Commission, to use existing single information portals, or to develop new ones, in order to explain the benefits and advantages as well as risks of EFP, the national incentives available and the different models which exist.

In response to the resolution, on 26 May 2014 the European Commission issued a statement in the matter in which it “welcomed the resolution of the European Parliament and its support for action to promote employee financial participation and employee share ownership across the EU”.

The Commission informed about a pilot project on “Promotion of employee ownership and participation” being carried out. Its purpose is, first, to identify obstacles to transnational employee share ownership schemes, second, it will identify the most appropriate means of enhancing knowledge of and access to the relevant information about employee share ownership.

The fact that European Union recognises advantages of employee shareholding should be regarded as positive although it remains to be seen what exactly the above works will mean for the idea in question.