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Profit Sharing, Employee Share Ownership and Gainsharing: What can they Achieve? 

by: Cahill, Noel
Source: The National Economic and Social Council 

In the new national agreement, the Programme for Prosperity and Fairness (PPF), the social partners express their interest in encouraging the more widespread adoption of profit sharing, employee share ownership and gainsharing. This paper provides a review of the potential of these forms of employee participation. It was prepared as a background paper to the recently published NESC Report, Opportunities, Challenges and Capacities for Choice, Report No. 105.

The extent of financial participation in Ireland is described in Section 2. Although the incidence of such financial participation is fairly low, many companies have recently introduced or are considering the introduction of financial participation. Previous efforts to promote profit sharing and related schemes in Ireland during the 1980s were not very successful but the current buoyancy of profits provides a favourable environment for the more widespread adoption of financial participation.

An overview of what can be learned from the international experience of financial participation is provided in subsequent sections. There is some evidence that financial participation may contribute to an increase in productivity, particularly in conjunction with other forms of employee involvement. The theory of profit sharing suggests that it can contribute to stabilising employment. While the evidence is inconclusive, some studies have found support for the idea that profit sharing is associated with more stable employment.

Public policy towards financial participation is discussed in Section 7. Tax incentives may help to support the adoption of financial participation but such incentives should be subject to regular review to ensure that social benefits are realised in proportion to the costs involved. There is a more cost effective role for public policy in supporting research and the provision of information in this area. In particular, there is a need for more research on the Irish experience of financial participation, including its contribution to change at enterprise level. The promotion of financial participation should be integrated with wider efforts to develop enterprise partnership.