Words: Marc Muntermann and Helmut Mannert, Siemens
Equity culture is an integral part of Siemens’ wider culture of ownership. Marc Muntermann, Head of Global Share Programs, and Helmut Mannert, Head of Top Executives and Equity Compensation, discuss the impact of employee share schemes on the success and performance of their company.
As part of a drive towards wider ownership culture at Siemens, our aim is to build an equity culture and turn employees into co-owners of the company. In general we believe that investing in share ownership has a positive impact and leads to, for example, a higher engagement and economic output. Yet, Siemens is relatively unique in the German market. Around half of the companies listed on the German stock exchange do not utilise broader employee stock purchase plans. They are far more popular in the US and UK. One could even say that German companies sometimes tend to focus on the costs, rather than on the benefits of these programmes.
Over the past year, we have implemented a broad equity portfolio at Siemens that targets every employee at every level – from top managers to shop floor workers. For example, our global Share Matching Plan reaches out to more than 340,000 employees in 60 countries. The principle of this programme is simple: employees invest part of their salary in Siemens shares. After three years of participation, they receive one additional share (gross) for every three shares bought. Until now more than 144,000 employees have taken the opportunity to participate in the plan and thereby become a shareholder of ‘their’ company.
Turning employees into business owners influences the way they think, behave and invest: they are more active, take more responsibility for our resources, and are better at collaborating with colleagues. Employees are entrusted with the company; if they see something is wrong, they then provide support and information. And so, these positive side effects lead to a positive financial outcome for our business.
Turning employees into business owners influences the way they think, behave and invest
You could say that employees do not control the general impact. Take a factory worker, whose failure rate is slightly higher than the average of his colleagues. He might say that this has no impact on the overall company performance. Would an owner also argue that way? A slightly higher failure rate in production on a global scale obviously has an impact on the business’s bottom line as the costs will be higher. As owners, we believe that all employees are essentially responsible for the success of Siemens and together, they can influence it. As they say, the whole is greater than the sum of the parts.
Over the last three years, we have been conducting research on our equity culture and its relation to employee engagement, employee participation and the wider business. Working in conjunction with Professor Doctor Michael Wolff (Chair of Management and Management Accounting) and Ulrike Zschoche (Research Assistant Management and Management Accounting) at the University of Göttingen in Germany, we specifically looked at participation rates in our employee share schemes across different organisational units. The fundamental aim of the study is to ask what the impact of increased participation rates is on employee engagement, on employee performance, and on the operational performance of the business. Is the money we are spending on equity plans beneficial to the company or are fellow organisations right in not implementing employee share ownership because of the high costs involved?
The research was extremely robust: there were five million data points from up to 300,000 employee applications across 60 countries and on average around 10,000 organisational units. What sets the study apart is that three scientific models were specifically designed to analyse this data. Most studies prior to this tended to provide a high-level overview, based on available public information.
Employee Share Ownership Improves Engagement
Providing shares to 144,000 employees on a global scale no doubt costs the organisation quite a lot of money. But for Siemens, the research so far confirms our beliefs and indicates that an increase in employee share ownership is linked to a higher engagement score, which is then linked to higher individual performance and higher revenue for the business.
As part of our ‘Vision 2020’ programme, we are now looking to build on the study. Expanding share-based employee participation will help to foster an ownership culture across the company. So, our goal is to increase the number of employee shareholders to around 200,000 worldwide.
Relative to this, we have recently implemented a new profit sharing scheme. The idea is that if Siemens is making good profits, those earnings are not only for the company and shareholders – a portion also belongs to employees. If we are doing well, a pool will be funded. Then the managing board can distribute the pool and provide shares from it to all employees globally. There are only a few employee share plans based on profit like this in the world, and it is a first for Germany.
With employee share ownership – both the Siemens profit sharing and Share Matching Plan – employees can influence our success. An employee is then not only an employee of the company. It belongs to them so they are more invested, enthusiastic and focused on growth. It’s different to other investments, for example, a mutual fund which cannot be influenced at the end of the day. Instead, employees think, “If I work hard and do my best for the company, then the company lets me participate in that success, not only via free shares but also in dividends for the shares kept.”
Our goal is to increase the number of employee shareholders to around 200,000 worldwide
Employee share ownership is always discussed on a cost basis, and companies think they do not have the liquidity to invest. Yet, the costs are very transparent and the benefits need to be argued for. We would love to see more organisations in Germany recognise how employee ownership can lead to corporate success. Likewise, it would be fantastic if the German government considered it as an advantage for German employees as well. On the one hand, employees are investing in Germany; on the other, organisations are investing, which should lead to higher revenues, and therefore, higher taxes for the state. The implications for the wider economy are huge and the country could become more competitive. In this case, why shouldn’t the German government support long-term employee shareholding from a tax perspective? Compared with Austria and the UK, for example, Germany still has a long way to go.
About the author
Marc Muntermann joined Siemens in October 2011. He leads the Global Share Program team, and is responsible for the design and administration of all company-wide equity programmes. Before joining Siemens, Marc was Practice Leader in Towers Watson’s Talent & Rewards line of business where he was responsible for Global Data Services and conducted consulting activities in regards to non-executives, executives, executive board and supervisory board remuneration.
This article was written for Reflect, the Equatex Magazine.
Equatex specifically prohibits its redistribution in whole or in part without prior agreement and accepts no liability for the actions of third parties in this respect.