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In March 2005, France's new Minister of Economy and Finance invited companies that wish to do so to give employees a one-off payment related to company performance, as a trade-off for a reduction in company tax. Soon afterwards, the Prime Minister announced that there is to be a reform of the main statutory employee savings and financial participation schemes. These proposals, which aim to give fresh impetus to consumer activity, have not, by and large, found favour with the trade unions, which want to focus on pay bargaining, while employers have been more positive.
The issue of pay has returned to the top of the industrial relations agenda in 2005, in a context of stagnating wages, rising unemployment, growing threats of company relocation abroad and the announcement of record profits by 'CAC 40' companies listed on the French stock exchange. On 16 March, in order to address the growing social discontent of private and public sector workers (FR0504101N), the new Minister of Economy and Finance, Thierry Breton, invited those companies that wanted to do so to pay out a one-off payment related to company performance in 2005, to the value of 15% of the 2004 payment and up to a maximum of EUR 200 per employee, as a trade-off for a reduction in company tax for 2004. This plan, aimed at imparting fresh momentum to consumer activity, comes after steps taken to grant early access to employee savings schemes in 2004 (FR0405103F) by the then Minister of Economy and Finance, Nicolas Sarkozy, which involved giving workers access to EUR 7 billion, ie around 11% of the savings currently deposited in employee savings schemes.
In line with this, the Prime Minister, Jean-Pierre Raffarin in a speech to the Economic and Social Council (Conseil économique et social, CES) on 23 March 2005, announced a coming reform of the main statutory employee savings and financial participation schemes.
Current financial participation schemes
Collective financial participation schemes were instituted by President de Gaulle in 1959 (non-mandatory pay related to company performance) and 1967 (mandatory profit-sharing), aimed at enabling private sector employees (and later those in state-owned companies) to benefit from their companies’ financial profits. The main points of the current schemes are as follows.
- Mandatory profit-sharing schemes (participation) apply to companies with 50 or more employees, on condition that they produce sufficient profits. They are voluntary for other firms. An overall sum called a 'special profit-sharing reserve fund' (réserve spéciale de participation, RSP) is calculated according to a statutory formula which is dependent on the company’s taxable profit, its shareholders’ equity, gross pay and added value. As a quid pro quo for tax breaks and social advantages made available to the company and employees, this sum allocated per employee cannot be accessed for five years. It can be deposited in a no-access current account into which the company pays interest, or the money can be invested in the form of 'company mutual investment funds' (fonds communs de placement d’entreprise, FCPE) or as a company savings scheme (plan d’épargne d’entreprise, PEE).
- The 'pay related to company performance' scheme (intéressement) is optional and does not have a specific framework. The size of the payment depends on the achievement of performance objectives set as part of special three-year company collective agreements. Unlike profit-sharing payments, these schemes make pay-outs available immediately, and in this case taxable. However, the money can be placed in a PEE and thus becomes exempt from tax.
- The PEE can also be fed with voluntary payments from employees and employers’ voluntary contributions, which are promoted through significant tax breaks. The law provides for cases of early access to such accounts without relinquishing tax breaks (the end of an employment contract and purchase of a primary residence being the most frequent) and, in practice, one third of the savings deposited are withdrawn before the anticipated deadline.
As of 31 December 2002, 52% of employees in the non-agricultural competitive sector were covered by at least one of these financial participation scheme accounts, but only 39% had actually received a payment, which stood on average at EUR 1,758 (profit-sharing schemes, pay related to company performance and employers’ voluntary payments into PEEs). This type of savings scheme is seen as extremely inequitable in that the beneficiaries are highly concentrated in large companies (covering 92% of the workers in firms with more than 500 employees and only 9% of those in businesses with fewer than 50). The 'Fabius law' of February 2001 (FR0011103F) aimed to rectify this situation by encouraging small and medium-sized enterprises (SMEs) and very small businesses to set up this type of scheme, through opening access to the president, chief executive or manager of such companies. The number of PEE agreements indeed doubled between the first half of 2002 and the second half of 2003, and the relative share of very small businesses and SMEs with PEEs rose slightly in 2002. However, at that time, less than one-third of employees had access to a PEE and only 21% actually had savings actually deposited in their PEE accounts.
Reform proposals
The government's announced reform would assume the following forms:
- from 2005, new payments made as part of mandatory profit-sharing schemes would no longer be compulsorily inaccessible for five years but, were the employee to choose to do so, could either be used immediately or placed in a PEE;
- the calculation of the RSP could be amended and based on the company’s profit as it is calculated in financial statements, rather than the generally lower taxable profit, pending a more precise formula being set out on a sector by sector basis. The Prime Minister has commissioned a report on the issue from two members of parliament from the ruling Union for a People's Movement (Union pour un mouvement populaire, UMP), who are to consult with the social partners before tabling their proposals at the end of June; and
- those SMEs with a non-mandatory pay related to company performance scheme would be exempted from having to implement an obligatory profit-sharing scheme once they have more than 50 employees.
This reform will be the subject of a bill from the Minister of the Economy. Its reading in parliament has been postponed until June, after the referendum on the European Constitutional treaty. This delay suggests that the government is gambling on the effectiveness of this policy in terms of imparting fresh impetus to consumer activity.
Reactions
These proposals for reform have not, on the whole, been welcomed by the trade unions, which have prioritised the opening of pay bargaining at sector and company level. Indeed, they are blaming the government for not pressurising the members of the Movement of French Enterprises (Mouvement des entreprises de France, MEDEF) employers' confederation into genuine pay bargaining, and for skating around the issue by extending pay related to company performance schemes as a substitute for a pay policy. According to the main union confederations, these schemes fall far short of satisfying the pay demands recently expressed. The General Confederation of Labour (Confédération générale du travail, CGT), the French Democratic Confederation of Labour (Confédération française démocratique du travail, CFDT) and the General Confederation of Labour-Force ouvrière (Confédération générale du travail-Force ouvrière, CGT-FO) have reiterated that only pay increases can guarantee durable social protection, since the pay-outs under mandatory profit-sharing schemes are exempt from social security contributions. The French Christian Workers' Confederation (Confédération française des travailleurs chrétiens, CFTC) emphasises that, contrary to pay agreements, pay-outs under pay related to company performance schemes are not guaranteed. CFTC has expressed its disappointment that the government will not extend the principle of mandatory profit-sharing to firms with fewer than 50 employees.
Only the French Confederation of Professional and Managerial Staff-General Confederation of Professional and Managerial Staff (Confédération française de l'encadrement-Confédération générale des cadres, CFE-CGC) has found something positive in the coming reform of mandatory financial participation schemes, particularly the revision of its calculation method.
The proposals, however, seem to have the backing of the employers, especially MEDEF, which is currently maintaining its refusal to negotiate on pay, and sees in financial participation the advantage of not consolidating pay increases, as such schemes involve only contingent one-off pay-outs. However, the chair of the Union of Metallurgy and Mining Industries (Union des industries métallurgiques et minières, UIMM) employers’ association feels that the government's recent measure to allow a one-off payment related to company performance was not welcome in the metalworking sector, where 70% of firms have already reached agreements on pay for 2005. The General Confederation of Small and Medium-sized Enterprises (Confédération générale des petites et moyennes entreprises, CGPME) is pleased with the proposals on payments related to company performance but less keen on the reform of obligatory profit-sharing scheme, which may significantly raise its cost. This observation has been borne out overall in a recent National Institute of Statistics and Economic Studies (Institut national de la statistique et des études économiques, INSEE) survey, which has, however, indicated that the effects of the new policy may vary according to the size of company and from industry to industry.
Commentary
There is a certain misuse of language involved in considering payments related to company performance as forms of employee savings schemes. The former are actually much more akin to a form of pay, since the money is readily available, a fact borne out by the practices of the beneficiaries of such schemes. Yet the blurring of boundaries between the two types of scheme have been amplified by new policies that not only challenge the meaning and the very point of employee savings schemes, but also leave the issue of improving workers’ purchasing power entirely unresolved. Even if the government is denying this, such policies can only entail even more confusion.
Moreover, these measures are making a hole in the state’s budget and are undermining the funding of the social welfare system. In 2002, employee savings schemes accounted for a EUR 4 billion shortfall in welfare funds, because of the exemptions from social security contributions attached to them. Moreover, out of the annual flow of funds making up a little over EUR 10 billion, more than half (EUR 5.7 billion) was actually subsidised by the state in the form of tax and social security contribution breaks, while access to this form of savings is still extremely inequitable. (Catherine Sauviat, IRES)