A survey by multinational law firm Linklaters has found that some of the biggest foreign companies operating in the EU are looking at scrapping their share plans because new European legislation is making them too expensive and fiddly to operate.

Several Irish-based private subsidiaries of listed nonEuropean multinationals have already decided to abolish or curtail their employee share plans, employee benefits advisers say. "I have had two or three companies pull their schemes here and I know other advisers who have had companies pull schemes, " said Sean Quill of Mercer Human Resources Consulting.

The culprit is the 2005 EU prospectus directive, which was designed to protect European investors by bringing in common higher standards for securities issues.

The directive is having an unwelcome and unanticipated side-effect by requiring multinationals to issue prospectuses for any employee share plans that don't qualify for a few very limited exemptions.

Companies are exempt if they get a listing on a European stock exchange. But, while this might sound sweet to the Irish Stock Exchange, it is not expected to take off as a popular solution.

Exemptions also apply if the offer is going to fewer than 100 people, or is worth less than 2.5m in total, but this is too restrictive for bigger employers. Matters are complicated further by differences of opinion in different states as to whether that 2.5m limit applies to each country or to the EU as a whole.

Exasperated, some multinationals are throwing in the towel. Nearly half the 43 companies surveyed by Linklaters said the directive damaged their abilities to offer employee share plans. One-fifth said they were considering changing or dropping their plans.

Advisers say they are kept busy tweaking Irish share plans to try to get them to fall within the exemptions.

"It is becoming more challenging to find exemptions that companies can avail of, " said Sheena Doggett, a partner in A&L Goodbody and board member of the Irish ProShare Association, which promotes employee share ownership.

There are a few loopholes.

Free shares are not caught, for example, where companies don't offer cash alternatives.

"In some cases, companies are looking at whether they should do a listing, and they are looking at debt listings where the level of regulation is less rigorous, " Doggett said.

On the plus side for Irish employees, Ireland and the UK have taken the view that options are not offers to the public, so non-transferable options don't have to comply with the directive. "Germany and some eastern European countries have taken a different view, " said Quill.

Mercer advises 180 profitsharing schemes in Ireland, with close to 700,000 participants. Tax-incentivised profit sharing schemes are one of the most attractive employee benefit breaks available to Irish employees, and Ireland now has more than 450 Revenue-approved schemes.

The beauty is that if you buy shares in your company's approved scheme, there is no liability for income tax or PRSI.

So if you throw in your bonus and allow the trustees to keep it for three years, there is no tax claw-back at the end.

Your company may also provide another way for you to share in its profit growth.

About 100 Irish-based companies have implemented 'Save As You Earn' schemes, which are not affected by the prospectus directive. With these schemes, employees agree to save a fixed amount every month for a set period and, at the end, get options to buy shares at a discount of up to 25%. They can either exercise that option or take the money and run.

Unions have been calling for incentives for 'gain sharing' schemes, and there is a view that these will come in sooner or later. And employers like profit sharing schemes too. "International research has shown that companies that have introduced employee profit-sharing schemes have outperformed others in their sector, " said George Tuttle, senior development manager at Computershare and executive council member of Irish ProShare.

A big challenge is improving communication about the benefits of profit-sharing schemes, Tuttle said. "A lot of communication to employees isn't good enough, so they are not well educated enough to know the benefits."

Tesco Ireland won the award for best communication of its employee share plan in a competition run last year by ProShare. The scheme now has 2,000 participants, representing 30% growth in membership in the past year, a Tesco spokeswoman said.

The retailer, which just had the sixth maturity of its SAYE scheme, has promoted the scheme in innovative ways including putting promotional stickers on sweets and fruit, and sending staff reminder postcards. "We have tried to make shares part of the Tesco language, to develop a share culture among our staff, " the spokeswoman said. "It encourages loyalty among staff and makes them feel they are getting something back. It encourages them to feel involved."

Irish ProShare is trying to have Irish legislation changed to make revenue-approved employee profit-sharing plans more attractive. Tuttle said its budget submission will call for changes, including raising the 12,700 limit on the annual amount an individual can put into shares.

Meanwhile, European regulators are being bombarded by lobby groups seeking clarification on what Maura Roe, partner in law firm William Fry, said is "clearly an unintended side-effect" of the prospectus directive. Roe said she knows of one Irish-based multinational pulling its employee share plan.

"They simply offered cash bonuses instead, " Roe said.

"Maybe that is the way other companies will go, but employees won't get a good deal in relation to cash. They won't get the tax benefit, they won't get shares and it will be more expensive for companies."

Whatever pressure is exerted in Brussels, though, few believe change at EU level will be quick in coming. So for currently contented shareowning Irish employees of multinationals, the happy days may soon be over.