What is employee financial participation?

Employee financial participation (EFP) is a form of financial participation. Financial participation or an EFP scheme is an arrangement that allows companies to reward employees above and beyond agreed remuneration structures through the granting of shares, stock certificates, stock options or compensations based on the value of the underlying shares.

EFP schemes provide an opportunity for a company to show appreciation for its employees. In turn, employees have a direct interest in and benefit from the financial performance of their company. This drives performance and helps motivate and retain employees. Financial participation thus increases employee involvement and entrepreneurship in the organisation.

Companies can choose to introduce narrow-based schemes targeted at management, such as management participation or management incentive plans, or broad-based schemes where all employees are eligible to participate.

IFRS and Dutch GAAP share-based payments

For the administrative processing of share-based payments, participation schemes can be divided into two broad categories:

  • Shares, stock certificates or stock options: equity settled
  • Financial bonuses based on the value of the underlying shares: cash settled

Both the International Financial Reporting Standards (IFRS 2) and Dutch GAAP (RJ 275) have set requirements for each form of participation in terms of the valuation method used and the valuation date.

Get expert advice

Wingman carries out valuations of shares, stock certificates and stock options that are granted or sold to employees or key employees. Valuations are typically needed for tax purposes but can also be used for setting the share price for an annual trading round or for the administrative processing of the underlying instrument. 

Wingman Business Valuation has extensive experience in valuing shares, stock options and certificates for EFP schemes and helps companies arrive at well-founded valuations that serve as the basis for coordination with stakeholders and external parties.