Revival Of The Employee Stock Ownership Plan In Hungary

 
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As a result of a 2015 amendment, financial institutions, insurance companies, and investment firms may launch an ESOP with the aim of managing rights on financial instruments for the benefit of the employees within the framework of the remuneration policy. This opportunity may well lead to the widespread use of ESOPs.

Background - The History of the Principle of Self-Regulation in Hungary

Hungary's Act XLIV of 1992 on the Employee Stock Ownership Plan (the "ESOP Act") allows employees to acquire an ownership stake in their employing company by means of an organization established on the basis of the principle of self-regulation. The purpose of this legal instrument was to boost a company's economic performance by bringing together the ownership and co-workers' collective interests. However, the ESOPs established in the '90s ceased to exist after a dynamic initial period, which might be explained by the fact that several benefits related to the ESOP were abolished

Seismic Shift in Hungary - the New ESOPs

The amendment of the ESOP Act by Act CLXXXVII of 2015 established a new form of ESOP operating with centralized management. As a result of the amendment, financial institutions, insurance companies, and investment firms may also launch an ESOP with the aim of managing rights on financial instruments for the benefit of the employees within the framework of the remuneration policy. This opportunity may well lead to the widespread use of ESOPs. Depending on which employees are covered by the ESOP, the personal scope might be extended from the managers to all employees of the company and its subsidiaries within the company group.

If the ESOP is based on securities representing shareholders' rights, the employees do not necessarily become owners of the founding company that established the ESOP, but acquire membership shares in the ESOP organization, which itself becomes owner of the founding company. Upon meeting the conditions set in the remuneration policy, the employees may exchange their membership in the ESOP organization for cash or securities or for a combination of these.

According to the mandatory rules of the act, ESOPs may only be established for the purpose of facilitating employees in acquiring an ownership stake in their employing company. This implies that ESOPs can only be based on instruments representing shareholders' rights; simply holding bonds or other instruments that do not represent rights similar to shareholders'...

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