Czech Republic
Other than in many eastern european countries, employee financial participation, even as a consequence of privatization, is poorly developed in The Czech Republic. Employee ownership, as a form of employee financial participation, enjoyed no special treatment in the privatization process and, as a consequence, does not play a significant part in the ownership structure of the Czech economy. Also both cash-based profit sharing and share-based profit sharing are rarely implemented in practice. Cooperatives are the only employee participation models in practice, but as their share in the total industrial production was in 2003 of only 0.6%, they do not play a major role either.
Very few concessions have been made to insiders in the privatization process in the Czech Republic. As a consequence, different from other eastern european countries, the share of employee ownership resulted from large-scale privatization programmes was quite low. The main reasons for this situation lie in the design of the Czech privatization process.
The privatization program started in the Czech Republic in the early ‘90s and comprised mainly three schemes: restitution, small-scale privatization and large-scale privatization[1]. The large-scale privatization program was the most important from these schemes and had the largest influence on the employee ownership structure. It had been conducted between 1991 and 1995 and comprised several privatization techniques, the most important of them being the voucher privatization. This applied for the most large and some of the medium firms, which were first transformed into joint stock companies. Their shares had been then distributed through voucher privatization, transferred to municipalities or sold in public auctions and to strategic partners.[2] The voucher privatization took place in two waves, between 1992-1993 and 1993-1994, and comprised almost half of the total number of all shares of all joint stock companies. The ownership structure for the next years, till the end of the ‘90s, emerged in 1995-1996, as major reallocations of shares took place.
For each firm to be privatized the management of the firm and/or any other interested parties had to submit a privatization plan, which could contain any or a combination of all available privatization schemes. At the end, the Ministry of Privatization together with the supervising ministry decided upon the winning scheme. No special incentives or facilities were provided for the privatization through employees ownership and only about 28% of all privatized companies offered employee shares, the average employee stake stake in these firms being of about 4.4%. In only 3 companies the employees had a stake of over 50%[3].
In the companies where employee ownership was one of the methods proposed in the privatization plan, the implementation of these approved projects proved to be difficult[4]. This was mainly due to the fact that the employees had to buy the shares for a guaranteed nominal price, which was in many cases too high, as a result of the erroneous evaluation of the enterprises assets. Thus, there was a significant difference between the real and the nominal value of the enterprises’ assets, so that the enterprises had no incentives to buy their overvalued employee shares from the Fund of National Property. Another way to create employee ownership was the voucher privatization. The privatization legislation did not provide any incentives for employees to acquire shares from their own company, but did not prevent them from doing so either. Some companies encouraged their employees to invest in their shares and in the design of the privatization process a small part of the shares (1.5%) had been reserved for employees. However, as a result of the above-mentioned problem of the assets overvaluation, almost no shares went to the employees.
Cooperatives, as another form of employee financial participation, do not play an important role in the Czech economy. They only account for a small share of the total production of the Czech economy.
Neither does profit-sharing play a major role. Although there are legal regulations concerning this issue, profit-sharing is being rather rarely implemented in the Czech companies.
In this process of voucher privatization no special incentives were provided for employees
[1] See also Kocenda & Svejnar: “Ownership and Firm Performance after Large-Scale Privatization” (2003)
[2] Ibid.
[3] See also “The PEPPER III Report: The Czech Republic”(2006)
[4] Ibid.
