The idea of workers’ self-government is a legacy of the political theory of the 19th century. In former Yugoslavia it gained its full momentum through the workers’ self-government system. The essence of this concept was the democratization of company management and increasing the motivation of workers to make greater contribution to business success since they would perceive the company as their own property. Although workers’ self-government is often despised today, and certainly rejected as an economic model, it has continued to live through a similar concept based on granting employees their property rights in the company in which they work. This type of employee involvement is known as the employee stock ownership plan (ESOP) and is very common in companies operating as joint stock companies.
If we look at the ecosystem, joint stock companies are not particularly popular in Serbia for the following reasons: the minimum share capital is RSD 3,000,000, joint stock companies have a complex management structure and involve demanding reporting, and the economy of the country is not sufficiently developed. On the other hand, in limited liability companies (LLCs), which is the most common form of business entity, shares cannot be acquired, nor can they be disposed of by making a public offer, as it is possible in the case of joint stock companies. Hence the possibilities for stimulating employees in Serbia through ESOP were practically non-existent. However, with the amendments to the regulations from 2019, since April 2020 there is a mechanism which enables LLCs to use ESOP. Of course, this mechanism can be used by start-ups that need money to finance projects, as well as investors who provide funds, but our focus will be on incentives for employees.
Formally, the mechanism is based on the fact that the owner of the share, i.e., the member of the LLC allocates one part that the LLC acquires to employees (reserved own share – ROS), in order to subsequently assign employees the right to acquire shares (RAS). As this is an important change in the ownership structure of the LLC, the requirement is to register ROS with the Business Registers Agency, and RAS, as a financial instrument, with the Central Registry of Depots and Securities Clearing (Central Registry). Until the realization of RAS, ROS is practically frozen because the LLC does not have the right to vote on the basis of ROS, nor are these shares counted in the quorum of the assembly. In addition, ROS does not give the right to share profit.
After the registration of ROS, LLC registers with the Central Registry the conditions for acquiring RAS. Specifically, the RAS issue decision defines, inter alia, the number of RAS to be issued, the price that the RAS holder pays for the acquisition of the share, and the maturity date. Although the price is an important element of the decision, when it comes to employees, it will mostly be privileged or even symbolic (e.g., RSD 10). As for the maturity date, it is a business decision of the employer that depends on the internal personnel policy or agreement with the employee, and in Serbian practice it mostly varies from 1 to 4 years.
As part of our preparation, we obtained information from the business registry and the Central Registry on the number of LLCs registered by ROS, the structure of activities of these LLCs, the number of RAS issues, and the number of RAS holders. According to information from February 9, 2022, only 12 LLCs registered the total number of 79 RAS. The business registry’s database does not provide the possibility of extracting data on companies and members registered on the basis of the realized financial instrument, i.e., the right to acquire a share in the reserved own share.
As expected, business registry data show that the most common activity that most companies have registered ROS (9 in total) is computer programming (code 62.01) The remaining 3 perform the activities of advertising agencies (code 73.11), processing and canning of fruits and vegetables (code 10.39), and research and development in other natural and technical or technological sciences (code 72.19). However, our subsequent analysis of data available to the Central Registry shows that these nine IT companies actually belong to the same group.
According to the Central Registry report from March 8, 2022, there are 104 issues of ROS financial instruments (99 active and 5 terminated), and all ROS holders are individuals. There was a difference between the data we received from the business registry and the Central Registry due to the fact that new ROS, i.e., RAS, were registered from February 9 to March 8.
A basic search using the criteria of predominant activity (62.01 – computer programming), legal form LLC and active business, found that there are more than 3,200 registered companies. Hence the total number of those who registered ROS seems negligible, which leads to the conclusion that ESOP has still not gained sufficient popularity in the Serbian market. The reasons for that are often the lack of information of both employers and employees about the possibilities for the implementation of ESOP. Another reason could be that it is little known that there is tax exemption for the allocation of shares to employees, which may contribute to the popularization of ESOP.
Finally, in the long absence of concrete opportunities for the implementation of the ESOP, local companies have developed other options that are still quite common. For example, an employer can establish a joint venture where an employee becomes a partner (has a share in the capital) on a joint project, and often gets the so-called “C level” position (CEO, CFO, CTO, etc.). In addition, blockchain technology makes it possible to achieve an effect similar to ROS and RAS through issuance of tokens, which significantly speeds up projects and employee engagement.
Having in mind the persistent shortages on our labour market, we can conclude that the time of ESOP is yet to come, and that the extent to which employees will be the owners of IT factories will increase.