Taking counsel: Has the time come for employee incentives in the Baltics?

  • 2007-06-13
  • By Valters Kronbergs [Kronbergs & Cukste]
We all know that employee shortages abound in today's Latvian labor market. The degree of the problem depends on the employment sector, but the impact tends to be felt in one way or another by everyone living here. What is to be done? If you are an employer, especially if you are a large employer, and you are concerned about minimizing the risk of employee evaporation to Ireland or elsewhere, depending of course on the nature and other specifics of your business it might be time to consider some kind of employee retention scheme.

It would, of course, help if the Republic of Latvia would create legal incentives for the adoption of employment incentives schemes, but they may be worth considering in any case.
Certainly a number of "old Europe" jurisdictions seem to have such incentives widely in place, even in the absence of employee exodus problems.
Take, for example, the United Kingdom. Employers there tend to have a wide menu of equity plans to choose from, whether they are share options, performance share plans (one of the more popular options), co-investment plans or joint ownership plans.

Or consider France. In France, almost 20 percent of large companies have share option plans. Profit-sharing schemes are mandatory for profitable companies with 50 employees or more, and are optional for others. Of course, incentive plans are not without their complexities. There are often issues about share valuation and dilution of existing shareholders.
What about the Baltics? In Latvia, as in Estonia and Lithuania, at the moment there is not much by way of employee incentive plans. Some western-owned companies may use such plans, and where they do they tend to try to apply their home-base employee participation plans to the local environment. So if, for example, the company is Norwegian owned, it may tend to favor what is popular in Norway as employee incentivization.

At the moment, locally owned companies tend not to use employee participation plans but tend to favor bonus incentive plans, if any incentive plans are used at all. Stock option plans continue to be a rarity. There are no government incentives to encourage employers to use such plans. If used at all, stock option plans tend to be used to award upper management of companies.
In such sectors where employee shortages are most acutely felt, it may be that performance incentive schemes can, together with other measures, tend to make the local employer more attractive and have a positive impact on employee retention.
The employee outflow problem is not one that can be fairly blamed on a lack of employee incentive schemes. The problem is far more complex and certainly has quite a bit to do with wage levels themselves. Yet employment incentive schemes may clearly be a useful tool in the employers' tool box, which tends, at this stage at least, to be underutilized.
Before implementing an incentive plan, it is clearly wise to consult with a legal and human capital planning expert in fashioning a plan that is appropriate to the business and stands a greater likelihood of being met with success by the employees.


Valters Kronbergs is managing partner at Kronbergs & Cukste, a member of Baltic Legal Solutions, a pan-Baltic integrated legal network of law firms which includes Teder, Glikman & Partnerid in Estonia and Jurevicius, Balciunas & Bartkus in Lithuania, dedicated to providing a quality 'one-stop shop' approach to clients' needs in the Baltics.