Bord Gáis workers’ share payout is money for old rope . . . our money

In the coming weeks another of those State-sponsored employee share ownership plans (Esops) will be wound up for the benefit of the workers. This time around, the company in question is Bord Gáis, which is being broken up to allow for the sale of the energy business to Centrica for €1.12 billion.

A consequence of this sale is that the Esop’s 3.27 per cent stake will have to be dealt with before Centrica takes ownership. This will involve the State-owned company buying the stake from the workers and the funds being distributed to members.

KPMG has already valued the business and the Esop is now awaiting clearance from the Revenue Commissioners on how the distributions can be effected in a tax-efficient way.

My colleague Mark Paul reported yesterday that the Esop's shares could be worth more than €70 million, and net members staggered payments of up to €75,000 each. These payments could be stretched out over five years to make them as tax-efficient as possible for the members.

The Esop was set up in 2008 after three years of negotiations between the Government, the company and the unions. In a nutshell, this involved the transfer of a valuable asset from taxpayers to a privileged group of workers. It was one of the final acts of Bertie Ahern’s 11-year tenure as Taoiseach.

Bord Gáis and the unions will argue that this shareholding was given in return for €32 million in productivity savings from workers between 2005 and 2009. We were told the same thing by Eircom but that was just a load of guff. It was free money for simply doing their jobs.

The details of the productivity savings are vague at best. We're told that they were externally audited. So were the banks in the property bubble years. It's hardly a comfort.

Bertie years

An analysis of Bord Gáis’s annual reports shows that its employee numbers rose from 714 in 2005 to 1,006 in 2009. The payroll over the same period increased from €40.1 million to €64.2 million.

The average cost to the company of each employee rose from €56,162 in 2005 to €63,817 in 2009.

Bord Gáis’s turnover between 2005 and 2009 rose by 57.5 per cent to €1.35 billion. Over the same time period, its cost of sales rose by 65 per cent while its operating costs, excluding depreciation, increased by 69.5 per cent.

The company’s headcount increased by 41 per cent and each employee was paid, on average, 13.6 per cent more over a period when costs increased at a faster rate than revenues. It’s hard to detect the productivity savings from those statistics.

And as we all know, gas and electricity prices have soared in recent years.

Esops were all the rage in the Bertie years. Eircom got one about the time of its privatisation in 1999, ESB got one in 2001, Aer Lingus got one in the years running up to its IPO in 2006, and Bord Gáis got one in 2008, just months before the economic crash.

In theory, they were designed as a means of rewarding staff for productivity gains, and for agreeing to radical changes to legacy work practices. The reality was completely different.

Stuff of legend

More than a decade after its privatisation, Eircom is still trying to deal with legacy work practices and is busily cutting staff numbers to keep its head above water. This has usually involved millions of euro of shareholders’ cash being paid out in generous redundancy terms.

The Eircom Esop was the stuff of legend. About €940 million was distributed tax-free to about 14,000 members of the scheme up to last year. That’s an average of €67,142, although many members got more than this amount. It all depended on how long you were with the business and how many allocations of shares you received.

The Eircom Esop owned 14.9 per cent of the business. Of this, 4.9 per cent was gratis. The balance was acquired for the equivalent of €241.3 million, of which €127 million was contributed by the company, which was then State-owned.

Taxpayers' money

The balance, in theory at least, was paid by the staff but the reality is that the Esop members never had to put their hands in their pockets. The Esop was a willing participant over the years in the changes of ownership that saddled the company with €4 billion in debts and ultimately tipped it into examinership a couple of years ago. It is now owned by its bondholders.

Setting up the Eircom Esop helped oil the wheels of privatisation but it also cost the exchequer a lot of money.

Back at Bord Gáis, workers will vote on the proposals for the winding-up of the Esop and the distribution of cash in the coming weeks. Whatever the outcome of the discussions with the Revenue, the staff will make a lot of money. It’s money for old rope. Taxpayers’ money at that.