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In November 2001, with the new collective bargaining round in the metalworking industry looming, German employers were debating new ways to make pay contingent on companies' performance. At the centre of employers' ideas is a new three-tier wage system, which would combine basic pay with elements of performance-based pay and a profit-sharing scheme. While such profit-sharing schemes are generally welcomed by employers' representatives, some trade unions are divided over this issue.
On 19 November 2001, at the biannual congress of the Confederation of German Employers' Associations (Bundesvereinigung der deutschen Arbeitgeberverbände, BDA), representatives of affiliated employers' associations debated new strategies to make pay contingent on companies' performance. The discussions came only a few weeks before the new collective bargaining round opens in the key metalworking industry.
In his acceptance speech, after being re-elected for another two-year term (results of the elections for BDA vice-presidents are provided in the annex at the end of this record), the BDA president, Dieter Hundt, suggested a new three-tier pay system. At the first tier, trade unions and employers at the industry level would negotiate a basic wage (tarifliches Grundentgelt) which would be supplemented by a second tier, based on employees' individual or group performance. Finally, to this would be added a third tier consisting of a profit-sharing scheme which takes into account each company's business performance .
While pay which is contingent on companies' performance is far from novel, this proposal - if implemented - would substantially change the relationship between collectively agreed wages and wage components above this collective standard. As shown in the table below, according to the 1999/2000 Institute for Economic and Social Research (Wirtschafts- und Sozialwissenschaftliches Institut, WSI) works council survey, works councillors report a widespread use of such schemes. These are based on written agreements in 65% of cases, with most based on a works agreement and only 13% based on a collective agreement.
| . | Germany | West Germany | East Germany |
| No income components based on company's performance | 57% | 52% | 63% |
| Performance-based components present | 44% | 46% | 35% |
| Components affected: | . | . | . |
| - annual bonus | 81% | 82% | 67% |
| - monthly wages | 33% | 33% | 35% |
| - other | 12% | 12% | 13% |
| Schemes not based on written agreement | 32% | 33% | 23% |
| Schemes based on written agreement | 65% | 65% | 66% |
| Type of written agreement: | . | . | . |
| - collective agreement | 13% | 11% | 27% |
| - works agreement | 71% | 73% | 57% |
| - other | 26% | 27% | 26% |
Source: WSI Works Council Survey 1999/2000.
BDA now suggests changing this situation and introducing pay contingent on company performance through collective agreements. Recent developments in collective bargaining seem to provide the momentum to realise such a plan. According to Mr Hundt, BDA's model is strongly inspired by the recent so-called '5000 x 5000' agreement at Volkswagen (DE0109201F), but he also refers to an earlier agreement between the IG Metall metalworkers' union and debis, DaimlerChrysler's service subsidiary (DE9803257F). In particular, the Volkswagen agreement was groundbreaking in that it provides workers with a combination of basic pay, performance-based pay and an additional profit-sharing scheme. While the performance-based bonus is due when the company reaches the break-even point, profit-sharing is made contingent on reaching targets in terms of return on company revenue. Exact terms and conditions for this target are left to be negotiated at the company level.
While Mr Hundt's proposal relates to the general structure of profit-sharing schemes, representatives of employers' associations in the metalworking industry have further elaborated on this concept. Ulrich Brocker, the general secretary of Südwestmetall- the affiliate of the Gesamtmetall metalworking employers' association in the south-west of Germany - argues that more flexible and differentiated pay structures should not be used only to react to company crises. While measures such as delays in the payment of wages, extension of weekly working time without compensation and renunciation of pay premia (for overtime, night work and weekend work) might provide some relief for companies in difficulties, they do not create what Mr Brocker refers to as a 'breathing plant' (atmender Betrieb) - a concept which is supposed to enable companies to react more flexibly to changes in the demand for their products and disturbances in the production process. As an alternative, Mr Brocker suggests making a limited range of wage components contingent on company performance. This should apply to:
Mr Brocker estimates that about 10% of workers' annual income could thereby be subjected to this kind of flexibilisation. Accounting for four percentage points of this amount, the Christmas bonus is considered to be the major target for the introduction of profit-sharing schemes. According to the findings of a survey commissioned by employers, workers are more inclined to accept flexibilisation of the Christmas bonus but are significantly less supportive when it comes to making the holiday bonus contingent on the company's performance.
As industry-wide collective agreements focus on companies with median business performance rather than on weak companies, according to employers, this new scheme would not only contribute to saving jobs but also let employees participate in companies' success. As the criteria for award of the flexible component of pay, Mr Brocker proposes measures relating to the development of company returns, return on company revenue, product quality, waste or absence. According to Martin Kannegiesser, Gesamtmetall's national president, employers' associations and trade unions should support and assist companies in developing such schemes, but should not impose predefined profit-sharing schemes on them. In particular, Mr Kannegiesser is concerned that unions could establish the terms and conditions of such schemes through strikes.
Traditionally, German trade unions have been rather sceptical when it comes to making pay contingent on companies' performance. Because workers already bear the risk of losing their jobs, unions consider it unfair to add the risk of losing portions of their annual income. During recent months, however, a change seems to have been occurring which might lead to partial revision of the unions' opinion on this issue. In a newspaper interview, Klaus Zwickel, the national president of IG Metall, mentioned the idea of splitting collectively agreed wages into two parts - one part involving a uniform wage increase and a second rather more oriented towards the company's performance.
In the following weeks, this proposal drew much criticism from the ranks of IG Metall. While some opponents argued that collective agreements already provided substantial leeway to adjust wages in the event of boom or crisis, others claimed that the time was simply not yet ripe for such far-reaching changes.
Up until now, schemes which tie employees' earnings to companies' performance have in most cases been a 'one-way street' because they provide a solution for bad times only. When unions have in numerous cases agreed to so-called 'hardship' and 'opening' clauses (DE0103212F), they have also provided a safety valve for a growing number of crisis-ridden companies. Although it would be cynical to call these 'profit-sharing' schemes, because there are no profits to be shared, these clauses have made lasting inroads into the system of industry-wide collective bargaining and thus somewhat prepared the ground for more far-reaching changes.
The employers' new proposals for profit-sharing schemes seek to give workers a guarantee of participating in the wealth they create, and thus add a new dimension to the entire pay system. Although even unions would not dispute that such a scheme would bring benefits, at second glance they have much to lose. Under the existing system of hardship and opening clauses, unions and works councils often maintain some control over regulating wage issues: in the end, it is up to the union whether to grant concessions or not. The proposed new schemes would put an end to this balancing and controlling power, in that they would give the key role to a pre-defined accounting standard . In essence, making wages contingent on pre-defined performance standards has the potential to increase wage inequality. It remains to be seen if unions are willing to accommodate this. (Martin Behrens, Institute for Economic and Social Research, WSI)
The following were elected as BDA's vice-presidents at its November 2001 congress: