16 October 2023
In November 2023 elections will take place in the Netherlands. One of the key themes for the elections is securing livelihood for both low and middle incomes. An increased number of people face the consequences of life getting more expensive. Among many proposed measures to combat this, the election campaigns of four of the largest Dutch political parties include profit sharing among employees as a key point in business and societal reforms. Profit sharing and share participation ultimately increase employees’ compensation and come with a range of additional benefits. At Flow Traders, we strongly believe in this philosophy of sharing and suggest that the elected cabinet should enable companies to embrace and facilitate profit sharing, to decrease government dependencies and increase security of livelihood. To reach these goals, we ask the Dutch government for minor corporate tax reforms.
Flow Traders’ philosophy
Since our inception in 2004, Flow Traders has been a strong ambassador of the potential that profit sharing can bring to the success of a firm through creating a ‘one team’ culture. Flow Traders promotes an entrepreneurial and strong culture of collaboration which rewards individuals for their contributions to the firm, rather than just in their direct areas of responsibility.
Our experience also demonstrates that share participation leads to employees staying at the firm for longer as well as increasing employee ownership and better alignment with the strategic priorities. For example, employees are better equipped and more aware from a risk appetite perspective as the results of their direct actions influence the business performance. This approach goes beyond mere employment; it encourages a long-term focus, and mitigates excessive risk-taking both in individual and team decision-making. In our view, companies that participate in share programs will ultimately contribute to a stronger, more innovative economy which is focused on risk management and socially responsible behavior.
Flow Traders employs a structure of inclusive ownership, both through share participation and profit sharing. Our global remuneration policy stipulates that 32,5 percent of the profit benefits the employees. This promotes entrepreneurship and engagement within the company, while reducing fixed costs, enhancing risk management and adhering to European regulation. Every employee is rewarded a part of the profit in cash and a large part of the employees receives shares as part of their remuneration. As of last year’s data, almost a hundred percent of employees owned shares, which comprised over thirty percent of all share ownership.
In our view, share participation is also a key element in driving innovation. Companies that participate should encourage employees to come up with good ideas, challenging concepts, and new initiatives that contribute to companies’ growth. As employees are shareholders, they also share in the value that their ideas bring to the firm, enhancing intrinsic motivation to contribute to the company's growth. For the Netherlands, this gives impulse to the Dutch knowledge-based society and enhances our position as a European Talent Hub.
The Government’s role
Flow Traders sees an opportunity for the government to play an enabling role in encouraging firms to adopt employee participation. When companies and employees consider a location to establish themselves, it is clear that the business climate in the Netherlands is a key factor. This not only includes housing and infrastructure, but taxation and employee benefits also play a role.
One significant obstacle to share participation lies in corporate taxation. Unlike regular salary costs, the expenses related to share participation are not eligible for deduction. In fiscal terms, rewarding employees with shares comes with a disadvantage compared to paying regular salaries, increasing fixed costs for a company. It also results in double taxation of employee rewards. If any form of compensation is categorized as salary, it would be fiscally coherent to allow deductions for its costs. Currently, this places Dutch companies at a disadvantage compared to other FinTech hubs like the U.S. and the UK, where, under certain conditions, costs associated with share-based rewards are often deductible.
A significant upside for the government lies in that employees receiving a share of the profit earn a higher income, and therefore have no or a lower dependency on government allowances. This could free up government funds to cover other measures for a secure livelihood.
Securing livelihood is one of the overarching themes for the upcoming elections. We strongly believe that profit sharing and share participation among employees can be a strong instrument in reaching that goal. To be able to do that, any form of employee compensation should be categorized as salary and accounted for as a cost for the company. In the end, employees become invested in the company, directly share in the company’s profit and are ultimately rewarded with a higher total compensation. Companies’ innovation will reach new heights and they will retain employees longer that also feel more valued and perform better. The government will benefit as well, and therefore, ultimately, shared profit is better profit.