Presenter: Nompucuko Nontombana and Andile Nkuhlu

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Presenter Nompucuko Nontombana and Andile
Nkuhlu Venue Marks Building Date 19 June
2002 Time 11h00
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EMPLOYEE SHARE OWNERSHIP PROGRAMMES

• PRESENTATION TO THE PORTFOLIO COMMITTEE ON PUBLIC
  ENTERPRISES

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EMPLOYEE SHARE OWNERSHIP PROGRAMMEs

• An ESOP is a mechanism used to facilitate
  employee ownership in a corporation.
• A way of assisting employees to buy shares in
  their company and in the long term, benefit from
  the growth of the company.
• An ESOP provides a set of rules governing the
  acquisition, allocation and management of shares
  held on behalf of employees.

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POLICY INFORMING ESOPs and WORKER EMPOWERMENT
INITIATIVES

• The DPEs Policy Framework An Accelerated
  Agenda Towards the Restructuring of State Owned
  Enterprises, recognises ESOPs as an option worth
  considering by stating that A major vehicle for
  alternative service delivery, which is worth
  considering as an option for future SOE
  restructuring, is ESOPs. This possibility should
  be considered alongside the broader social
  responsibility of SOEs to enhance social capital,
  as a critical component of overall empowerment.
• The RDP Policy Framework states that In
  restructuring the public sector to carry out
  national goals, the balance of evidence will
  guide the decision for or against various
  economic policy measures. The democratic
  government must therefore consider
• reducing the public sector in certain areas in
  ways that enhance efficiency, advance affirmative
  action and empower the historically
  disadvantaged, while ensuring the protection of
  both consumers and the rights and employment of
  workers.

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RATIONALE FOR ESTABLISHING ESOPs in SOEs

• Forms part of Governments empowerment and
  transformation agenda
• Broadening ownership of HDIs by giving them
  equal access to economic opportunities and
  ensuring wider participation in the economy
• Enhancing the efficiency and effectiveness of
  SOEs
• As such, the government, through DPE, has
  allocated shares for
• the establishment of ESOPs in various SOEs,
  notably ACSA, SAA
• and Telkom.

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BENEFITS OF ESOPs IN RESTRUCTURING

• Use ESOPs to promote equity and economic
  empowerment of HDIs to address social goals
• Use ESOPs to transform enterprise performance
  through employee buy-in and raised levels of
  commitment to enterprise success
• Foster employee participation and involvement at
  an operational level

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ADVANTAGES of ESTABLISHING ESOPs

• ESOP practices exist both locally and
  internationally
• In South Africa most ESOPs are in the private
  sector, gained prominence in the late 1980s
  mostly associated with disinvestments and
  promotion of Capitalism, motives which differ
  entirely from what the government is trying to
  achieve
• Legal framework well-established in South Africa
• Promote the use of empowerment strategies in SOE
  restructuring that includes strategic equity
  partners
• The design of an ESOP can be adapted to align the
  goals of
• Government (wider participation in the economy)
• Employees (a sense of ownership)
• the company (appreciation in value of the company)

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ESOPs IN VARIOUS SOEs

• ACSA
• Operating since 1999
• 9 (45 million) of government shares allocated
• Valued at R330,3 million
• Consultation with organised labour
• NEHAWU
• SATAWU
• Beneficiaries
• management (2.45 or R89.915 million)
• other employees (6.55 or R240.385 million)

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ESOPs IN VARIOUS SOEs

• SAA
• Operating since April 1999
• 58, 168 060 million shares allocated
• Housed within SAA Employee Share Incentive Trust
  with two other schemes for pilots and management
• Valued at over R116 million
• Consultation with labour
• Beneficiaries
• Pilots
• All employees excluding management
• Problems
• the Flight Deck Crew benefited more than other
  employees

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ESOPs IN VARIOUS SOEs

• TELKOM
• To be finalised
• 2 (11, 140 636 million) shares allocated
• Valued at approximately R289, 660 million
  excluding excess shares, a decision of which is
  still to be made
• Ongoing consultation with organised labour and
  management
• Alliance of Telkom Unions
• Communication Workers Union
• Beneficiaries
• all Telkom employees in employment from 1 October
  1999 to date, excluding voluntary resignations
  and fraud related dismissals
• Problems
• Cost of tracing retrenched workers

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ESOPs IN VARIOUS SOEs

• SAFCOL
• Structure agreed
• 9 of each package to be allocated to an ESOP

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KEY ESOPs PROBLEMS IDENTIFIED

• Difficulties resolving conflicting goals of
  economic empowerment, incentive compensation and
  SOE transformation
• Disputes over allocation of ESOP shares between
  workers and managers
• Lack of consistent policy in pricing ESOP shares
• Lack of liquidity for ESOP shares
• Limited convertibility of shares

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POLICY FRAMEWORK ON ESOPs

• DPE has drafted a policy document, which will
  provide an overarching framework to inform a more
  coherent implementation of ESOPs in the
  restructured SOEs to address the problems
  identified and the policy issues arising from the
  ESOPs implemented in various SOEs to-date
• The Minister will make an announcement in this
  regard after the document goes through the
  Cabinet cycle

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CONCLUSION

• SOE sector accounts for approximately 5 of SA
  GDP
• But only 3 of total employment
• Use leverage of government ownership of SOEs to
• promote best practice in ESOPs
• Promote ESOPs as a business-friendly means
• of economic empowerment