SHARES FOR LABOUR

Evening Post, Volume CXXVII, Issue 93, 21 April 1939, Page 18

SHARES FOR LABOUR

PROVISION IN COMPANIES ACT

A section of the Companies Act which has not come much under public notice is the one which makes provision for the issue of shares by companies to employees, A special contributor to the New Zealand "Accountants' Journal" remarks that the section is in the experimental stage. "This is indicated by the fact that a sub-section states that worker-shares shall carry such rights to attend and vote at general meetings, to share in profits and in assets as the memorandum and articles shall provide," he continues. "Obviously the articles could be so worded that these provisions could be complied with and the. workers would share these rights, but to such a small extent as to be immaterial. The first thing from the worker's point of view is profits, and, unless this point were made worth while to the worker, no advantage would be gained in the issue of worker-shares. The other conditions might be given in so small a. measure as to be immaterial, and this might well be to the advantage of the company as a whole, although it would seem that the draughtsmen did not have this in *nind. It must be remembered here that the Courts, in very decided cases of recent years, have not permitted unfair advantage to be taken of the rights of minority shareholders.

"Labour shares differ from profitsharing schemes in that the rights conferred by the former are available to the worker by law while in the latter case they 'are granted as good will from the proprietors. Again, no indication is given as to how labour shares should be apportioned among workers, but salaries and wages immediately suggest themselves as the natural base.

"The proportion of profits which labour shares, of no nominal value and not forming part of the capital of the company, shall be entitled to must always remain a difficult question. A basis has been suggested which provides for the payment of a cumulative preference dividend of 9 per cent, on the capital shares, the right to disposal of the remainder being in the hands of the workers —after making provision that a minimum capital-share-dividend-equalisation-reserve shall be provided for before the worker-shares receive any dividend. If this latter is provided for, the distribution of the remainder between general reserve, provision for further capital expenditure, and worker-share dividend might possibly be safely left in the hands of the workers when it is remembered that the executive-employees would have the greater number of votes.

"Another sub-section provides that the company shall buy back its own shares if an employee ceases to be employed (whether by reason of death or otherwise) either in cash or capital shares at their value as set out in the articles, and so apparently at the option of the company. It seems a natural sequence, should this option not be given by the articles, that provision should be made and be shown in the accounts for such redemption— for in slump times when a company might be forced to dismiss many of its employees the resultant liability might be very substantial. In the case of senior officials holding large parcels of worker-shares, it would possibly be advisable for the company to insure the lives of such officials."