1. Household sector Leonidas Akritidis
National Accounts in Practice – Advanced course
Luxembourg, 3-12 October 2016
THE CONTRACTOR IS ACTING UNDER A FRAMEWORK CONTRACT CONCLUDED WITH THE COMMISSION

2. Content Definition of household sector, its units, sub- sectors;
Household final consumption and source data
Compensations of Employees and source data
Special topic: Employees Stock Options
Households and sector accounts

3. Institutional Sectors
Domestic Economy
S.1
Rest
of the
World
S.2
Non-Financial
Corporations
S.11
Financial
Corporations
S.12
General
Government
S.13
Non-Profit
Institutions
Serving
Households
S.15
Households
S.14

4. Definition of Household sector
It consist consumers and entrepreneurs (other than quasi co.) producing market goods and services (market producers) and for exclusively own final use.
Consumers:
share the same living accommodation,
pool their income and wealth and who
consume certain types of goods and services collectively, mainly housing and food.

5. Definition of Household sector
Households are institutional units, although they may not keep a complete set of accounts; they deemed to enjoy autonomy of decision in respect of their principal function.
Households, in their capacity as owners of land and buildings, are resident units or notional resident units of the country in which that land or those buildings in question are located, e.g. holiday home owners.

6. Definition of Household sector
Households, other than owners of land/buildings, are resident units of the country, where they have a centre of predominant economic interest. They are resident irrespective of periods spent abroad of less than one year and including:
border workers, seasonal workers, locally recruited staff working in the extraterritorial enclaves
tourists, patients, visiting officials, businessmen, salesmen, artists and crew members who travel abroad
students are always treated as residents, irrespective of the length of their studies abroad.

7. S.14: Sub-sectors Households S.14 Employers and own workers S.141
Employees
S.143
Recipients
of property
income
S.1441
Recipients
of pensions
S.1442
Recipients
of other
Transfers
S.1443

8. Household final consumption expenditure

9. Household final consumption
In the UK, in £ billion
Source: Office for National Statistics

10. Household final consumption in the UK
In the UK, in £ billion
Source: Office for National Statistics

11. Household final consumption
COICOP Source data incl. UK specific
Food and Non-Alcoholic Drink, Household Budget Survey (HBS)
2. Alcohol and Tobacco Fiscal data
3. Clothing and Footwear Retail Sales Survey
4. Housing HBS, data from local government, and utility compan
5. Household Goods and Services HBS, Retail Sales Survey,
6. Health HBS

12. Household final consumption
COICOP Source data incl. UK specific
7. Transport International Passenger Survey, Rail Regulator and other admin on
transport and energy
8. Communication HBS, large communication companies, sector regulator
9. Recreation and Culture HBS, Retail Sales Survey,
10. Education HBS, admin on education
11. Restaurants and Hotels HBS, fiscal data, market research
12. Miscellaneous Financial statistics, HBS

13. Compensation of Employees

14. Households: Compensation of employees
Defined in ESA 2010 (para 4.02) as: “total remuneration, in cash, or in kind, payable by an employer to an employee in return for work done by the latter during the accounting period”

15. Households: Compensation of employees
Wages and salaries (fiscal data, e.g. on PAYE)
Coverage adjustments to align with National Accounts definitions
Income in kind
Actual and imputed social contributions
D.11
D.12

16. Compensation of Employees in the UK (£bn)

17. Compensation of employees Wages and Salaries (D.11) in cash:
basic wages and salaries
enhanced payments, such as payments for overtime,
cost of living allowances
bonuses, commissions, tips
allowances for travelling to work, business trips , housing
redundancy pay

18. Compensation of employees Wages and Salaries (D.11) in cash:
Source data:
Fiscal data, usually available on annual basis
Business statistics
Thus supplementary data from quarterly Earnings Statistics, Labour Force Survey (LFS)
Adjustments
Exhaustiveness (evasion, below tax threshold)

19. Compensation of employees Wages and Salaries (D.11) in kind:
Goods and services, or other non-cash benefits, provided free of charge or at reduced prices by employers, such as:
meals and drinks
uniforms or other forms of special clothing ;
free travel for employees, free coal for miners, or free food for employees in agriculture;
child care for the children of employees;
bonus shares distributed to employees , reduced interest loans , Employee Stock Options (see special topic)

20. Compensation of employees Wages and Salaries (D.11) in kind:
Source data:
Fiscal data, on cars and fuel, other benefits
Adjustments
Meal (e.g. seamen, staff in catering facilities)
Free accommodation
Free meals (vouchers)

21. Re-routing social contributions
D.11 salary
D. 12 social contrib
D. 61 social contrib
D.62 social benefits for other households

22. Types of social contributions
1. Actual contributions
2. Imputed contributions
Calculations:
Payments-based vs. actuarial calculations

23. Summary CoE Recording: Sources: Receivable by households
Payable by Employers incl. RoW
Sources:
Fiscal data, business stats, pensions statistics
Calculation imputed social contributions

24. Employee Stock Options (ESOs)

25. Employee Stock Options
ESOs are agreements, subject to certain conditions, e.g. that the employee is still in the enterprise’s employ, or conditional on the performance of the enterprise.
made on a given date (grant date)
under which employees may purchase a given number of employer’s shares (stocks) at a stated price (strike price)
either at a stated time (vesting date) or within a given period of time (exercise period)
The exercise period can start on a vesting date and no later than the end of the exercise period (lapse date)

26. Employee Stock Options
ESOs are valued:
at grant date;
as part of compensation of employees (D.1)
spread over the period between the grant date and vesting date, if possible. If this is not possible, the value of the option has to be recorded at vesting date.
In the financial account, the acquisition of ESOs by households matches the corresponding part of compensation of employees (D.1) with a matching liability (F.89) of the employer.

27. Employee Stock Options
When an ESO is exercised, the entry in the balance sheet (AF.72) disappears to be replaced by the value of the stocks (shares – AF.51) acquired. The corresponding changes are recorded as financial transactions.
Any change in value between grant date and vesting date is to be treated as part of compensation of employees (D.1)
While any change in value between vesting date and exercise date is but as a holding gain/loss.

28. ESOs: Simplified example
A company (S.11) gives 1 ESO to each of its 10 employees (S.14) at grant date (at T). All 10 employees fulfil ESO conditions and exercise their ESOs at the end of exercise date/lapse date (at T+5);
The fair value of ESO at T is 40, thus accrued value in service periods between T and T+2 is: 40€(ESO fair value) x 10(employees) / 2 = 200€ T
grant date
T + 2
Vesting date
T+5
Exercise/lapse data

29. ESOs: Simplified example
Hence, 200€ is recoded as D.1 with matching F.89/AF.89 at T+1 and T+2 (until vesting date);
From T+2 the ESOs can be exercised, thus at T+2 F.89/AF.89 are replaced with F.72/AF.72
ESOs are all exercised at T+5, in other words employees (S.14) buy company's stocks (F.51) in exchange for their ESOs. T
grant date
T + 2
Vesting date
T+5
Exercise/lapse data

30. ESOs: Simplified Example:
period
T+1
S.11
S.14
Uses/
Assets
Res/
Liab.
D.1t+1
200
F.89t+1
+200
AF.89t+1
T+1 is the first period when accrued value corresponding to ESO is recorded, as follows:
40€(ESO fair value)
x 10(employees) / 2
= 200€ T
grant date
T + 2
Vesting date
T+5
Exercise/lapse data

31. ESOs: Simplified Example:
period
T+2
S.11
S.14
Uses/
Assets
Res/
Liab.
D.1t+2
200
F.89t+2
+200
AF.89t+2
400
T+2 is the second and last period when accrued value corresponding to ESO is recorded, as follows:
40€(ESO fair value)
x 10(employees) / 2
= 200€ T
grant date
T + 2
Vesting date
T+5
Exercise/lapse data

32. ESOs: Simplified Example:
period
T+3
S.11
S.14
Uses/
Assets
Res/
Liab.
F.72t+3
+400
AF.72t+3
400
F.89t+3
-400
AF.89t+3
At T+3 (after vesting date) the ESOs can be exercised, thus F.89/AF.89 are replaced with F.72/AF.72 T
grant date
T + 2
Vesting date
T+5
Exercise/lapse data

33. ESOs: Simplified Example:
period
T+4
S.11
S.14
Uses/
Assets
Res/
Liab.
F.72t+4
AF.72t+4
400
F.89t+4
AF.89t+4
At T+4 the ESOs is not exercised yet T
grant date
T + 2
Vesting date
T+5
Exercise/lapse data

34. ESOs: Simplified Example:
period
T+5
S.11
S.14
Uses/
Assets
Res/
Liab.
F.21t+5
+600
-600
F.51t+5
+1000
AF.51t+5
1000
F.72t+5
-400
AF.72t+5
At T+5, the employees decide to exercise their ESOs and to buy the company's stocks (AF.51), as the exercise price of 100€ is above strike price of 60€ , thus we get:
100€ x 10 employees =1000€
60€ x 10 = 600€ T
grant date
T + 2
Vesting date
T+5
Exercise/lapse data

35. ESOs: The simplified example did not consider:
ESOs conditions, like: employee(s) leaving the company, company's performance, etc.;
Any change in value between grant date and vesting date that should be treated as part of compensation of employees;
While any change in value between vesting date and exercise date is but as a holding gain/loss. T
grant date
T + 2
Vesting date
T+5
Exercise/lapse data

36. Households and sector accounts

37. Sequence of Accounts Non-Financial Account (NFA)
Current Accounts
Non-Financial Account (NFA)
Accumu-
Accounts
lation
Financial Account (FA)

38. Household sector UK (2015) £ mln
Uses
PRODUCTION ACCOUNT
Resources
P.1
Output :
P.2
Intermediate consumption
377,926
B.1g
Gross value added
GENERATION OF INCOME ACCOUNT
91,059
D.1
Compensation of employees 51
D.29
Other taxes on production
D.39
Other subsidies on production
2,030
288,846
B.2g
/B.3g
Gross operating surplus/Mixed Income
Source: Office for National Statistics

39. Household sector UK (2015) £ mln
Uses
ALLOCATION OF PRIMARY INCOME ACCOUNT
Resources
B.2g(2)
Gross operating surplus
288,846
D.1
Compensation of employees
929,013
27,248
D.4
Property income
180,518
27,000
D.41
Interest
26,715
D.42
Distributed income of corporations
54,729
D.44
Other investment income
98,946
248
D.45
Rent
128
58,590
D.41G
Memo: Total interest before FISIM allocation
16,096
1,371,129
B.5g /
Balance of primary incomes, gross
Source: Office for National Statistics

40. Household sector UK (2015) £ mln
Uses
SECONDARY DISTRIBUTION OF INCOME ACCOUNT
Resources
B.5g / B.5*g
Balance of primary incomes, gross / gross national income
1,371,129
209,852
D.5
Current taxes on income, wealth, etc.
285,585
D.61
Social contributions
566
1,062
D.62
Social benefits other than social transfers in kind
348,387
27,551
D.71
Net non-life insurance premiums
D.72
Non-life insurance claims
16,535
D.75
Miscellaneous current transfers
36,922
1,243,970
B.6g
Gross disposable income
USE OF DISPOSABLE INCOME ACCOUNT
1,216,113
P.3
Final consumption expenditure :
D.8
Adjustment for the change in pension entitlements
51,786
79,643
B.8g
Gross saving

41. Household sector UK (2015) £ mln
Capital accounts
CHANGE IN NET WORTH DUE TO SAVING AND CAPITAL TRANSFERS ACCOUNT
B.8n / B.12
Net saving / current external balance
-2,202
5,571
D.9
Capital transfers
9,161
4,448
D.91
Capital taxes
1,123
D.9N
Investment grants and other cap.trans
D.92
Investment grants
8,929
D.99
Other capital transfers
232
1,388
B.10.1
Changes in net worth due to saving and capital transfers
ACQUISITION OF NON-FINANCIAL ASSETS ACCOUNT
94,318
P.5
Gross capital formation
90,843
P.51G
Gross fixed capital formation
3,475
P.52+P.53
Changes in inventories and valuables
P.51C
Consumption of fixed capital
81,845
-190 NP
Acquisitions less disposals of non-produced non-financial assets
-10,895
B.9
Net lending (+) / net borrowing (-)
Source: Office for National Statistics

42. Resources of Household sector in the UK growth in %
Source: Office for National Statistics

43. Household sector UK (2015) £ mln
Assets
FINANCIAL TRANSACTIONS ACCOUNT
Liabilities
B.9
Net lending (+) / net borrowing (-) from non-financial accounts
-10,895
B.9 - B.9F
Statistical discrepancy
-5,918
B.9F
Net lending (+) / net borrowing (-) from financial account
-4,977
48,243 F
Total transactions in financial assets | liabilities
53,220
65,699
F.2
Currency and deposits
1,593
F.3
Debt securities
418
-20,141
F.4
Loans
49,875
-38,777
F.5
Equity and investment fund shares/ units
46,795
F.6
Insurance, pensions and standardised guarantee schemes
591
1,707
F.7
Financial derivatives and employees stock options
-8,633
F.8
Other accounts (receivable/payable)
2,336
Source: Office for National Statistics

44. Financial transactions of Household sector in the UK (in £ billion)
Source: Office for National Statistics

45. Exercise: Household sector