The Employee Ownership Update
March 6, 2006
South Africa Moves Haphazardly into Employee OwnershipSouth Africa is taking initial steps to promote broader employee ownership, but in a largely unplanned and haphazard way. Under recent changes to the Black Economic Empowerment Program, companies are given points when black ownership amounts to at least 26% of all shares. The ownership can be by one or more individuals. Companies getting enough points get preferential status for government contracts. Companies also get points by doing business with companies meeting the standards, thus creating an incentive for employers who do not rely on government contracting themselves. Some companies, including some very large ones, are setting up broad-based employee ownership plans to help qualify.
Under the program, employee stock ownership trusts qualify as a black economic investor if they cover at least 90% of all employees in one or more classes of employees. The government can, however, rule that a trust otherwise meeting the standard, but with too few black participants, does not qualify. Most companies using these trusts make all employees eligible. Beyond that, companies can have any rules they like for allocation, vesting, distribution, etc. There are no tax deductions or other tax incentives for contributions to the plan.
NCEO director Corey Rosen recently led a two-day conference on employee ownership in Johannesburg. Plans represented there had an odd pastiche of rules. One large mining company provided a grant of shares to all employee employed the day the plan was initiated, to be paid out 10 years later. But in the interim, no new employees would get shares. Another had a plan that had a five-year term that could be extended, but shares would be paid out only if the company was sold or liquidated, or if the plan was terminated. At that point, living retirees and current employees would get shares, but not anyone who left before retirement and, oddly, not any families of people who otherwise met the rules but died. Both plans could provide significant financial rewards to employees, possibly as much as a year's pay or more.
Companies at the conference were very open to ownership culture concepts and looking at ways to get employees more involved. That's a particular challenge in South Africa, with dozens of languages and several major cultures. For instance, when ideas were circulated about how to communicate the plans, one company suggested industrial theater while another suggested traditional story songs.