Presenter: Nompucuko Nontombana and Andile Nkuhlu Venue : Marks Building Date : 19 June 2002

1. Presenter: Nompucuko Nontombana and Andile Nkuhlu Venue: Marks Building Date: 19 June 2002 Time: 11h00

2. EMPLOYEE SHARE OWNERSHIP PROGRAMMES PRESENTATION TO THE PORTFOLIO COMMITTEE ON PUBLIC ENTERPRISES

3. 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.

4. POLICY INFORMING ESOPs and WORKER EMPOWERMENT INITIATIVES • The DPE’s 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”.

5. RATIONALE FOR ESTABLISHING ESOPs in SOEs • Forms part of Government’s empowerment and transformation agenda • Broadening ownership of HDI’s 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.

6. 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

7. 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)

8. 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)

9. 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

10. 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

11. ESOPs IN VARIOUS SOEs SAFCOL • Structure agreed • 9% of each package to be allocated to an ESOP

12. 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

13. 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

14. 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