The following are excerpts of a presentation made by Opposition Senator, Dr. David Panton to last Friday's debate in the Upper House on amendments to the Employees Share Ownership Plan.
I would like to formally declare my strong support for the concept of employee share ownership which I believe has significant positive benefits for employees, employers, unions and the economy. I do have one reservation about employee share ownership, however, which I will outline in my remarks.
Why Opposition? You might wonder, Madam President, how I reconcile my opposition to this Act and its parent the ESOP Act of 1994 with my strong support for and endorsement of the concept of employee ownership. The answer is quite simple. In a nutshell, it is because I do not believe that the Acts in their present dispensation accomplish what they are intended to accomplish and, in fact, I would argue that in several instances they in fact serve as a disincentive to the creation of ESOPs.
HISTORICAL ANALYSIS
To understand why I say this is so requires a bit of historical analysis. The Original ESOP Act of 1994 was largely the result of the efforts of the late Most Honourable Prime Minister Michael Manley who had a strong commitment to widespread employee share ownership. The act had very ambitious objectives when it was first launched including:
- To strengthen Jamaica's economy by enabling workers to acquire an ownership
stake in their employer and
- To improve the economic performance of Jamaican companies by encouraging
employees to identify more closely with the goals of their employers.
Because Jamaica had no legislation on ESOPs, we relied heavily on international support, primarily from the Multilateral Investment Fund of the Inter-American Development Bank. The supporters, however, had an American bias that favours complicated, unwieldy, and complex legislation that is a problem in a developed country such as the US and is even more problematic in a developing country such as Jamaica. As a result, the regulations in the act serve as a disincentive to employers to establish ESOPs.
EMPIRICAL EVIDENCE
Unfortunately, the practical reality of this experimental legislation further
supports my assertion that this legislation has failed to serve its original
purpose. Between 1994 and 1998 14 companies applied for ESOP approval. Only
seven of these were approved: C&W, CIBC, BNS, dB&G, JMMB, Jamaica Printing
Services Co., and Green Island Estate. These companies have fewer than 5,000
employees.
One would have hoped that the amendments would have sought to signify as much as possible the original legislation. While I must concede that there are some important and impressive improvements in this legislation, there are also areas that not only fail to simplify the original legislation, but in fact further complicates the original legislation.
FAULTY PROCESS
When this original Act was passed in 1994, it clearly was a piece of experimental legislation that should have been revisited within the first or second year of operation to see how well it has been working. This was not done. In 1997, in response to concerns expressed by various parties including those who have helped draft the original legislation an attempt to prepare amendments to the legislation was made.
The vast majority of those 1997 amendments are what we have before us today. For whatever reason, those amendments were not brought to Parliament between 1997 and 2002.
The original legal advisor to the legislation, the ESOP unit in the Income Tax department, and the companies that had their plan rejected have not provided their detailed responses to these amendments since 1997. It would therefore be grossly irresponsible for this honourable chamber to approve this Act without the considered and deliberate input of those who will either enforce the Act or establish ESOP under the Act.
RECOMMENDATIONS
As I indicated earlier, I have a bias for action, implementation, results and solutions. As such, in the interest of being constructive, I will outline several recommendations that I believe will serve to improve the legislation and the process.
- Not Pass Act I humbly submit that this Chamber should not pass this
Act in its current form.
- Joint Select Committee I humbly submit that a Joint Select Committee
be established to review the Act and to make further amendments that will
facilitate the original intention of the Act and to further strengthen protections
for workers.
- Participation This Joint Select Committee should meet with the ESOP
Unit in the Income Tax Department, with the original lawyers who drafted the
Act, and with various companies that have an interest in forming ESOPs or
that have formed ESOPs but not under the Act to identify what can be done
to facilitate their participation under the act.
- Simplification The Joint Select Committee's overriding concern should
be the simplification of the legislation, particularly as it applies to the
top heavy requirements. One method of doing this is to convert the 'musts'
in the Act to 'should' so that the Act provides guidelines for action rather
than restrictions.
There is a major precedent, that of the Antidumping and Safeguard Act that
was manifestly too complicated and led to a very small number of actions. As
the first Chairman of the Antidumping and Subsidies Commission, I was well aware
of the limitations of the Act and lobbied vigorously to have it simplified.
It is to the credit of the Government that this has been done and the Act is
in the process of being simplified.
- Safeguards If the Joint Select Committee recommends a major simplification
of the Act, as I hope it does, then it must also ensure that the safeguard
mechanisms are strengthened such as the authority of Minister of Labour and
the Commissioner of Income Tax to decertify ESOP plans that it is felt are
not serving the original purpose and that are instead attempting to abuse
the tax incentives.
- Worker Protection The diversification mechanisms must be strengthened
to ensure that employee savings are protected, particularly when a company
goes into receivership or liquidation.
- Remedy Perverse Incentives The put option to the plan that creates
a perverse incentive for employees to leave the plan must also be remedied.
CONCLUSION
We have a unique historical opportunity today to take a step back and reflect
on a well-intended piece of experimental legislation that we must, if we are
honest, concede has failed to serve its original purpose. Rather than accept
a Band-Aid approach to the failure, we need, to quote the late Most Honourable
Michael Manley, a fundamental approach.
This approach would go back to first principles, would involve the participation
of those we are intending to incent, and would remove the socialistic impulse
that his hindered the effective implementation of this legislation. To quote
another noted Jamaican, Mr. Mark Myrie, also known by his stage name, Buju Banton,
we need to wheel and come again, and do the right thing for the sake of the
employees of Jamaica and, indeed, for the sake of our country itself.
