Employee share schemes offer much hope, yet signify very little in real terms for workers, writes Asghar Adelzadeh of the NIEP in the seventh of a series on economic policy
EMPLOYEE Stock Ownership Plans (Esops) first rose to prominence in South Africa in 1987. After a blaze of publicity and debate, all was quiet until recently when such schemes became the rage again.
In the late 1980s, it was the coming demise of apartheid which provided the stimulus for Esops. Business began disassociating itself from apartheid and Anglo American led the charge in promoting Esops.
In August 1987, Anglo and De Beers announced a scheme offering shares to employees amounting to around a mere 4% of their total shares.
A year later, Anglo was advertising in newspapers around the world that 114 485 workers had joined the scheme.
Anglo’s interest in advertising its Esop scheme on an international stage reflected two factors. First, was a wish to present itself, and South African corporations more generally, in a favourable light in view of the universal condemnation of apartheid and the prominence of sanctions against South Africa in the eyes of the international community.
Second, Esops were themselves particularly popular at that time, especially in the United States and the United Kingdom.
Here, the rationale was obviously not one of brokering the transition from apartheid, but more one of downsizing corporations with workers’ acquiescence, as well as to ease the privatisation and deregulation of utilities against the potential opposition of the workforce.
How are Esops to be understood and what are some of the strategic issues involved?
At one extreme, there are those who argue that they are simply a different form in which wages are paid, obscuring the fundamental conflict between capital and labour by misleading the latter into believing it has a stake in the firm or economy, other than as a wage-labourer.
At the other extreme, Esops are considered to have turned workers into capitalists, to have given them a genuine stake in the system, and to have created a share-owning democracy or people’s capitalism.
The truth is undoubtedly closer to the first version. There are many different ways of remunerating workers, and the difference in these methods should not lead us to consider that something fundamental has changed.
Yet, these different ways of paying wages are not particularly associated with a favourable or novel development for working people.
At times, for reasons of incentives and control as much as for ideological reasons, capitalists find it convenient to vary the way in which wages are assessed and paid. As such there is no qualitative transformation in the relations between employer and employee.
And whether there is a quantitative change or not is not predetermined. Afterwards, it will appear as though wages are supplemented by the added element listed as profit share. But it may well be that the pre-profit wage will be driven down to compensate for the other elements making up wages.
More generally, Esops are aimed at leading employees to identify with their company and to have an added incentive to provide for its success.
The idea is to work harder for some, but not for all of the profits, to moderate conflict between “them” and “us” and to pose Esop and profit-sharing programmes as alternatives to trade unionism and conflict and, as a longer-term objective, as an alternative to the social ownership of the means of production.
As a form of paying wages and of commanding workforce loyalty and co-operation, it is hardly surprising that Esops are far from new.
In modern times, however, the philanthropic or calculating sponsors of such schemes are no longer confined to the ranks of the idiosyncratic entrepreneur. In addition, governments have been prepared to offer tax relief or other subsidies to convince employees of their commitment to, and stake in, some form of people’s capitalism.
Interest in Esops has inspired analysis at the macro-economic as well as at the micro- economic level.
Would an economy function more favourably if every worker was involved in an Esop?
One of the leading exponents in favour of Esops has been the US economics professor, Martin Weitzman, whose argument is that, at the macro-economic level, profit-sharing will lead to lower levels of unemployment.
This is because it will handle supposed downward rigidities in the level of real wages, since labour’s pay will fall in a recession along with profitability and make higher levels of employment than otherwise attractive to the firm paying profit- related pay. It should be emphasised that the Weitzman effect comes from the gaining of more jobs through the indirect acceptance of lower pay.
This was also the motivation of James Meade, the Nobel Prize winner for economics.
He favoured profit-sharing because “it removes the large element of direct conflict of interest between capital and labour”. Preferred is a scheme in which new employees do not share in profits, for otherwise “there would be a conflict between `insiders’ and `outsiders’ “. Those already in employment in any successful partnership would be required to face a reduction in pay as a necessary condition for allowing unemployed outsiders to join in the concern’s useful activities”.
This would impede the employment creation effects so that, for Meade, it is better to put forward a proposal that is essentially the same as taking on new workers at lower wages than those already employed and is an implicit attack on the basic principle of trade unionism – the same pay for the same job.
The schemes are, therefore, to be designed to nullify the effects of the presence of trade unions by making wages more flexible and, with Meade, allowing new workers to be hired at lower wages than incumbents. All of this is a far cry from the ideology of higher pay (in the form of higher profit) and participation through share ownership that is the image offered by people’s capitalism!
Other motives for adopting Esops have been mixed between the search for productivity, anti-merger strategy, and tax benefits. For example, it has been shown that:
* A primary motive for Esops is to create impediments to changes in corporate control, as a defensive measure against hostile takeover.
* Esops may even act as a way of consolidating and redistributing corporate control among and between the managerial elite.
* Esops have involved companies under threat of bankruptcy, where the quid pro quo in negotiating employee share has been wage cuts or restraint.
In terms of the impact upon performance, especially productivity, the evidence on Esops is conclusive in denying any significant effect. More specifically, in the case of British, German, US and Japanese firms studies have concluded that:
* The introduction of profit-sharing schemes will not necessarily have productivity enhancing effects.
* The effect of profit-sharing is intimately related to firms’ choices of technology, internal organisation and labour-force characteristics, and that profit-sharing is to this extent an integral element of an overall organisational design.
* Greater worker participation in decision- making is an indispensable ingredient in the design of successful Esops.
It is against this background that the re- emergence of Esops in South Africa should be judged. The context has changed from that of the struggle against and the demise of apartheid, in which South African capitalism seemed to be under threat, to the restructuring of that capitalism. Also Esops have become embroiled in four separate but related issues. These are:
* The government’s privatisation programme where shares are liable to be offered to workers and others during the restructuring of state assets.
* Trade unions have built up formal ownership of assets in the form of pension and other funds.
* Large-scale corporate capital is going through a process of restructuring, with some pressure towards conglomerate unbundling.
* The process of black economic empowerment.
Because of these factors, the strategic position cannot simply be a matter of accepting an Esop or not. However, guiding principles can be suggested:
* Black economic empowerment should be clearly understood at the plant, enterprise, sector or economy level as, first and foremost, the negotiation through centralised bargaining, for as broad a section of the workforce as possible, of secure employment, with decent wages and conditions.
* Where such schemes are negotiated, they should be pegged as far as possible to as broad a collective participation in the bonuses shared. More important than devising schemes of remuneration through Esops is the regular review of job evaluation and grading systems.
* Labour can set up a progressive mutual investment fund through which employees’ ownership of shares and pension funds can be held and managed through a variety of participatory schemes.
Whatever the immediate successes of the mutual investment fund in advancing workers interests, they are liable to be undermined and negated by the weight of influence and mode of operation of the continuing financial system.
Consequently, it is essential that the South African financial system is reformed in order to provide for more responsibility and accountability in the levels and composition of investment, the financing of the public debt, and the formulation, implementation and monitoring of investment.
This article is based on a paper commissioned by the National Institute for Economic Policy from Professor Ben Fine from the School of Oriental and African Studies at the University of London. E-mail comments to the author at [email protected] n From PAGEB1
All of this is music to the ears of the captains of industry who have for years, sometimes in the face of stiff resistance from organised labour, been trying to blunt union militancy and buy workers into the corporate sector with a range of share ownership schemes.
This time the tactic appears to be working as it is being led not by mainstream industrialists but by leading figures and intellectuals in the African National Congress and Cosatu who are self- consciously trying to turn history on its head.
They are behaving in much the same way that Afrikaner nationalists used the savings of white workers to buy into the finance and other sectors of the English-dominated economy in the 1930s and 1940s and then consolidated their political and economic power by spreading the proceeds from their investments back down to their supporters. Even the icons are the same: healthy food; Unity is Strength; the old segregated Rondalia resorts for white workers getting a new facelift.
But, there are signs of disarray within the union over the movement’s investment strategies. A survey conducted last month by the National Labour and Economic Development Institute (Naledi) found union policy on investments at best confused, at worst hypocritical. Trustees or general secretaries were asked to explain why their unions were going into investments.
“The range [of answers], from `making money’ to `promoting socialism’, reveals a dangerous lack of ideological clarity and coherence among the affiliates of Cosatu,” says the report.
It goes on to point out that “in such a murky environment” opportunistic behaviour can be expected. In recent weeks, Cosatu’s Food and Allied Workers’ Union has been thrown into disarray over allegations that senior officials signed unauthorised deals with a fishing company that would have allowed favourable access to sought-after fishing quotas for the firm.
The South African Railway and Harbour Workers’ Union has also been in the news because senior officials were involved in its investment company’s participation in a consortium to buy Sun Air, a move that would have placed the union in a difficult conflict of interests.
Naledi also points to a great deal of secrecy surrounding union investment strategy. “It has emerged that unions have not effectively informed membership of their investment motivations or strategies … Many officials, including senior ones, are often unaware of developments,” says the report.
A recent edition of the Labour Bulletin, an independent and increasingly lonely voice of the left, pointed out that New African Investments Limited (Nail), the emblem of black empowerment that pulled a range of union investment companies into the NEC buy-out of Johnnic, is in fact owned by Ramaphosa and four colleagues who are collectively worth a staggering R150- million.
And it argues that allowing officials to buy preferential shares from these deals is infusing a social movement with commercial ethic that militates against the collective values and action upon which unions rely for their strength.
What will happen when these officials have to fight for the rights of their members in companies they have a stake in? What will happen if they have to retrench workers or refuse to bargain in collective forums on the grounds that they have to maximise returns for their investors? Workers might be buying into their own lay-offs and wage cuts, says Naledi.
Patrick Bond, senior economist at the National Institute for Economic Policy, points out the union investment drive is taking place at a far more dangerous time than the 1930s and 1940s, when the tactic worked for the Afrikaner nationalists. White workers gained real material benefits because the Afrikaner strategy was implemented at a time when share prices on the Johannesburg Stock Exchange (JSE) were at an all-time low, interest rates were rock bottom and the economy was emerging from a period of depression into sustained growth.
Says Bond: “Now every one of these factors is reversed. They [union investors] are buying shares in companies whose stock market prices are over-inflated and to do so they are borrowing at the highest real interest rates in modern history. They are buying into the system when the economy is stagnant with few real prospects for sustained expansion.”
Kopano ke Matla is well aware of these problems, says Motsisi. In fact, one of the key reasons for its creation was to bring some coherence into union investment strategy.
Kopano insists the time has come for more debate and more concerted strategising by Cosatu’s affiliates – “and others from the same fold as our people” – and has set in place a number of workshops designed to achieve this.
Motsisi says the company will never use worker savings in high-risk ventures. He says that workers’ retirement funds must be invested with great prudence.
“We will also insist that deals are structured in a way that adds value for the disadvantaged and ensures that benefits and empowerment flow down to the level of the beneficiaries.”
This style, which contrasts strongly with the tactics of early union investors who argued explicitly they could not afford social responsibility in a world of secrecy and hard-nosed business tactics, clearly represents a new, soft and more accountable style of union investment.
Kopano’s emergence also comes at a time when those who grew rich rapidly on the back of organised labour’s entry into the corporate world are beginning, with Ikageng and generous bursary schemes, to spread things around a bit: perhaps a second phase of redistribution now that the period of primitive [black] accumulation has been achieved.
There is little doubt that investments based on the power of workers’ savings and their unions have been used to effect a post-1994 economic revolution. Today 8% of equities listed on the JSE are owned by black shareholders. Two years ago the figure was 0,3%.
The paradox is that, unless Kopano ke Matla manages to stop the organisational decay that has accompanied the spate of union investments, organised labour will go into a freefall at the very moment of this victory.