Ireland: wage flexibility and collective bargaining
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VPS have increased in Ireland over the past decade or so, with some forms more common than others. Individual PRP is the most common form of VPS in Irish banking by some distance, followed by company-related performance pay, commission, and profit-sharing. In contrast, the most common form of VPS in the Irish manufacturing sector is output/production-related bonuses. Unions would like to see an increase in gainsharing, but employers are concerned about its implications, tending to prefer individual PRP and profit share schemes. In relation to this, individualised forms of VPS have gained some ground as union density and collective bargaining have declined.
Section 1. Variable pay: forms, basic data and trends
1) What are the main types of variable payments systems (VPS) used in:
a) manufacturing companiesb) retail banks
The most comprehensive data on variable pay in Ireland - which includes the manufacturing and banking sectors - is contained in an Irish Business and Employers Confederation (IBEC) survey in 1998. The survey of variable pay systems (VPS) conducted by IBEC highlighted a number of variable pay systems which are used in Ireland. These are output/production-related bonus; commission; profit sharing; performance-/merit-related (both individual and company); teamwork pay; skill-based pay; competency pay; gainsharing; and broad banding.
| Type of System | % of Companies |
|---|---|
| Output-/production-related bonus | 30% |
| Commission | 25% |
| Profit-sharing | 19% |
| Performance-/merit-related (Individual) | 57% |
| Performance-/merit-related (Company) | 37% |
| Teamwork pay | 6% |
| Skill-based pay | 6% |
| Competency pay | 3% |
| Gainsharing | 3% |
| Broad banding | 2% |
IBEC Survey of Reward Systems (1998)
| Type of System | Manual | Skilled/ Technical /Prof. | Clerical | Sale Staff | Managerial/ Supervisory |
|---|---|---|---|---|---|
| Output-/production-related bonus | 29% | 12% | 5% | 5% | 8% |
| Commission | - | 1% | - | 41% | 3% |
| Profit-sharing | 13% | 14% | 14% | 17% | 18% |
| Performance-/merit-related (Individual) | 10% | 35% | 33% | 30% | 53% |
| Performance-/merit-related (Company) | 10% | 16% | 16% | 19% | 34% |
| Teamwork pay | 4% | 3% | 1% | 2% | 1% |
| Skill-based pay | 2% | 4% | 3% | 1% | 1% |
| Competency pay | 1% | 2% | 2% | 2% | 2% |
| Gainsharing | 3% | 2% | 2% | 2% | 2% |
| Broad banding | 1% | 1% | 1% | 1% | 2% |
| Total number of companies with systems | 62% | 64% | 58% | 77% | 79% |
| Total number of companies* | 269 | 269 | 299 | 176 | 301 |
*The percentages shown in the columns are calculated out of the total number of companies who employed people in these categories – for example, not all companies in the survey employed sales staff.
Significantly, the IBEC (1998) survey produced evidence of the type of reward system according to the sector - including banking and manufacturing - of the companies surveyed as follows:
1: Food/Drink/Tobacco 4: Banking/Insurance/Finance
2: Chemical/Pharm./Healthcare 5: Other Manufacturing
3: Electronics 6: Other Services
| 1 | 2 | 3 | 4 | 5 | 6 | Total | |
|---|---|---|---|---|---|---|---|
| Output-/production-related bonus | 26% | 20% | 12% | 19% | 49% | 16% | 89 |
| Commission | 28% | 21% | 18% | 40% | 23% | 32% | 74 |
| Profit-sharing | 22% | 16% | 21% | 32% | 18% | 11% | 57 |
| Performance-/merit-related (Individual) | 65% | 69% | 67% | 92% | 36% | 47% | 173 |
| Performance-/merit-related (Company) | 39% | 34% | 45% | 40% | 32% | 42% | 110 |
| Teamwork pay | 4% | 3% | 9% | 4% | 9% | - | 17 |
| Skill-based pay | 2% | 11% | 6% | 4% | 5% | 5% | 18 |
| Competency pay | 4% | 1% | 3% | 8% | 3% | 11% | 10 |
| Gainsharing | 2% | 3% | 3% | - | 3% | 5% | 8 |
| Broad banding | 9% | 3% | - | - | - | - | 7 |
| Total number of companies (100%) | 46 | 75 | 33 | 26 | 102 | 19 | 301 |
In terms of comparison between the manufacturing and banking sectors in Ireland, the IBEC survey indicates that, as of 1998, individual PRP (92%) is the most common form of VPS in Irish banking by some distance, followed by company-related performance pay (40%), commission (40%), and profit-sharing (32%).
In contrast, the most common forms of variable pay systems (VPS) used in the Irish manufacturing sector are output/production-related bonuses (49%). However, there are differences depending on what type of manufacturing we are talking about (e.g. low-end or high-end).
In addition to the IBEC study, a research study carried out during 2001 by Lansdowne Market Research (LMR) looked at compensation practices in a sample of 1,361 private sector firms, which completed 422 questionnaires. On variable pay, the LMR survey found that 45% of all firms made shift or overtime payments and 40% paid commission. Bonus payments related to individual employee performance were made by 55% of employers, with 29% using bonuses related to company profits, 22% using bonuses related to group performance and 12% of employers using employee share ownership. The incidence of all forms of variable pay was higher in larger firms.
More recently, according to a comprehensive Economic and Social Research Institute (ESRI)/National Centre for Partnership and Performance (NCPP) survey of employment practices in 1491 private sector employers (published in 2005), 14% of private sector employers recorded implementing financial participation initiatives based on profit sharing/share options or gain sharing. The ESRI/NCPP survey uncovered quite a range of variation in the diffusion of financial participation according to sector in 2005. For example, profit sharing/gain sharing ranges from a low of 6 per cent in construction to 30 per cent in banking and finance.
The ESRI/NCPP also conducted a comprehensive separate survey of 5,198 employees in 2005, which includes data on VPS. The ESRI/NCPP employee survey measures the extent to which VPS are used, including performance appraisal/performance-related pay, and profit sharing, share options/gainsharing. Overall, just under half of all employees are employed in workplaces that conducted regular performance reviews or appraisals. Among those that are so employed, almost 87% are personally involved in the practice. There are no discernible gender differences. Less than a quarter of workers are employed in workplaces that use performance related pay. Men are more likely than women to encounter this practice (28% versus 20%). Among those who are employed in workplaces that implement the practice, about 80% are personally involved, irrespective of gender. Just under 16% of workers are employed in workplaces that offer profit or gain sharing or share options, and men are somewhat more likely than women to report this practice. Among those who do work in workplaces that implement these forms of FP, well over 70% are personally involved in the practice. This suggests that while the practice of offering profit or gain sharing is rare in Irish workplaces, it has broad coverage within the companies where it is implemented.
The ESRI/NCPP employee survey uncovered significant sectoral variations in the use of VPS. There is substantial variation by sector in the extent to which workers report that performance appraisal is implemented in their workplace. About one-third or less of workers in construction, hotels and restaurants and other services encounter this practice, compared to 69% in banking and finance and 55% in manufacturing. Almost half of those employed in banking and finance report that performance-related pay is used in their workplace, substantially higher than in any other sector – including manufacturing (35.5%). Profit and gain sharing is largely confined to a few sectors, mainly banking and finance (36.2%) and manufacturing (28.6%).
2) For each type of VPS, please provide information on their quantitative significance as a proportion of earnings.
No breakdown is available for each form of VPS as a proportion of earnings. In the LMR survey referred to above, respondents were asked to estimate the proportion of total pay accounted for by basic pay relative to variable elements. The LMR survey found that, on average, basic pay accounted for 80%, with variable pay making up 20% (variable included shift and overtime as well as all forms of bonuses). While there were major differences in the type of variable pay used by different areas within the private sector, the 80/20 proportion between basic and variable pay was ‘relatively consistent’ across sectors, including manufacturing and banking.
3) What have been the main trends in VPS in recent years?
a) which types of scheme have become more prominent / widespread? b) which types of scheme have become less widespread?
According to the IBEC (1998) survey, the majority of VPS identified had been in existence for more than three years. More companies had initiated company performance-related systems in the last three years (31%) than individual performance-related systems. In relation to the VPS showing lower incidence, such as teamwork pay, gainsharing, skill-based pay and broad-banding, between a quarter and three-quarters of these systems were introduced within the last three years prior to the survey. In addition, between 1% and 6% of companies were currently considering introducing one or other of these VPS.
There is some slight evidence to suggest that the incidence of variable pay and financial participation schemes have increased since 1998 – some forms more than others. However, a note of caution is required, given that different surveys/studies use different sampling techniques.
Section 2. Wage flexibility and collective bargaining
Please state, for each sector,
i) whether it is governed by single or multi-employer collective bargaining arrangements;
The banking and manufacturing sectors in Ireland are mainly governed by multi-employer collective bargaining arrangements, in the form of national-level wage agreements setting out the pay increases that apply year on year (usually over a three year period). These national social partnership agreements also contain guidelines on VPS. However, as well as multi-employer collective bargaining, individual employers also have scope to introduce their own specific VPS arrangements tailored to company requirements.
ii) the coverage (percentage of companies and employees) of collective bargaining;
Union density and collective bargaining coverage have been on the decline in the manufacturing and banking sectors in Ireland over the past decade or so. According to data by Ireland’s Central Statistics Office (CSO) on union density, density in ‘other production industries’ has declined to 37.2%, and has fallen from 34.3% to 22.5% in financial and other business services. The large banks such as AIB and Bank of Ireland are unionised. However, due to the presence of national wage agreements, the coverage of collective bargaining (both directly and indirectly) is higher than union density would suggest at first sight. For example, a new study on employment relations in multinationals in Ireland by Gunnigle et al. (2007) sheds new light on the impact of national level pay agreements on the pay policy of non-union multinationals operating in Ireland. Six in ten non-union MNCs reported that national deals had some influence on pay decisions regarding the largest occupational group (LOG), and almost half (48 per cent) on pay decisions with regard to managers.
iii) the percentage of the workforce that is female
According to the CSO Quarterly National Household Survey (QNHS), in the third quarter of 2006 there were 298,000 people employed in ‘other production industries’ in Ireland: 214,300 males and 83,700 females. Therefore, females account for about 28% of those employed in ‘other production industries’. In the finance and other business services sector there were a total of 296,400 employed: 145,900 males and 150,500 females – so over 50% of those employed in this sector are female.
2a. Wage flexibility under multi-employer bargaining arrangements
As noted in 2) above these two sectors are primarily covered by multi-employer bargaining through national level wage agreements. The current national multi-employer pay deal provides for a 10% pay increase over 27 months. However, at company level, there is scope for employers and unions to negotiate over the introduction of VPS.
1) In the sector(s), are there any recent instances of
a) sector agreement(s) which have provided for a wage freeze or wage increases below inflation?
The current national wage agreement in Ireland, Towards 2016, does not specifically provide for wage freezes or wage increases below inflation. But it contains ‘hardship’ clauses whereby employers can plead inability to pay etc (which are described under c below), which are basically similar to wage freeze applications.
b) ‘unauthorised downwards’ wage flexibility, whereby companies have effected wage freezes or wage increases below inflation which are not authorised by a sector agreement?
No specific examples of ‘unauthorised downwards’ wage flexibility spring to mind in banking and manufacturing, which are not authorised by national wage agreements.
2) Is there scope for derogations from the wage norms established by the sector agreement(s) through mechanisms such as hardship, opt-out or discount clauses?
Yes. There are various exemption clauses in Ireland’s current national wage agreement, Towards 2016, for companies who plead inability to pay due to competitive/financial difficulties.
a) details of the mechanisms and the circumstances under which they can be triggered, including whether use is contingent on the presence or involvement of a union or works council in companies;
Under the ‘inability to pay’ procedures contained in Ireland’s current national wage agreement Towards 2016, the first stage of an ‘inability to pay’ case is at local level, where a company that claims to be in competitive/financial difficulty is obliged to ‘open the books’ to employee representatives. If this does not convince the union(s), then the matter can be referred to normal Labour Relations Commission conciliation, and should this fail to resolve the dispute, then the LRC can call in an agreed independent assessor, who assess whether or not the ‘inability to pay’ claim by an employer is valid. The subsequent report of the independent assessor(s), if not immediately accepted, then comes back to the LRC for conciliation. Only if the final conciliation stage fails is a dispute referred on to the Labour Court for a full hearing and, ultimately, a binding decision. The wording of the relevant clause (1.9) in Towards 2016 reads as follows: “i) If a dispute arises as to what constitutes a breach of the Agreement, after local discussion, the matter will be referred to the LRC and, if unresolved, it shall jointly be referred to the Labour Court under Section 20 (2) of the Industrial Relations Act, 1969, and the parties will accept the outcome. ii) If a dispute arises out of a claim of inability to pay by an employer, the onus will be on the employer to convince the union of the case and provide supporting arguments and full disclosure of information to the union. At LRC stage, assessors may be appointed from a pool, agreed with the employers and the unions, to examine the economic, commercial and employment circumstances of the employment involved and the LRC may also draw on the assistance of IBEC/CIF and ICTU representatives, where appropriate. The parties commit to full co-operation with the assessors and the employers commit to full disclosure of information to the assessors. In the event of no agreement being reached, the matter will be referred to the Labour Court under section 20 (2) of the Industrial Relations Act, 1969, and the report of the assessor will form part of the report of the LRC to the Court and will be given serious weight by the Court. The onus will be on the employer to convince the Court of their case. The Court will issue findings only in respect of whether the employer can or cannot pay the terms of the agreement at all and the parties will comply with the findings. All information disclosed as part of this process shall be treated on a confidential basis by all parties in receipt of such information. iii) Should a dispute arise out of a claim by an employer that it is not possible to pay the terms of the agreement in full and/or that some cost offsetting measures are necessary to do so, the parties will proceed as in paragraph (ii) above except that the Court will issue its recommendation to the parties under Section 26(1) of the Industrial Relations Act, 1990. Where a decision is taken to reject the Labour Court recommendation, a three week cooling off period will apply during which every effort shall be made to resolve the issues. No strike or other forms of industrial action will be threatened, sanctioned or taken by trade unions or employees during the cooling off period and until appropriate ballots have taken place and due notice given to the employers. Reference can be made during such a period to the National Implementation Body. iv) Where there is agreement as to what constitutes normal ongoing change, after local discussion, the matter will be referred to the LRC and, if unresolved, it shall jointly be referred to the Labour Court for adjudication under Section 20 (2) of the Industrial Relations Act, 1969, and the parties will accept the outcome”. Crucially, unlike the ‘inability to pay’ clauses 1.9 (i) (ii) and (iv) – which are legally binding, and are covered under Section 20(2) of the Industrial Relations Act, 1969 – clause 1.9 (iii) is non-binding on the parties, and is covered under Section 26(1) of the Industrial Relations Act, 1990.
b) information on the take-up by firms of such mechanisms (including size or other organisational characteristics);
The ‘inability to pay’ procedures were first introduced early in 2003 under Ireland’s previous national wage deal, Sustaining Progress. A review of ‘inability to pay’ claims conducted by the independent weekly IR magazine, Industrial Relations News, found that, by the end of 2003, over sixty ‘inability to pay’ cases had been notified to the Labour Relations Commission, with just seven of these going as far as the independent pay assessor stage. The large number of inability to pay claims during 2003 reflected the economic downturn at that time. Most of the inability to pay claims have occurred in manufacturing firms facing economic and competitive pressures. Since 2004, however, there have been far fewer inability to pay claims by employers, as the economy picked up again. As of the end of 2007, however, the economy is showing signs of slowing down – though whether this feeds into increased inability to pay claims from 2008 remains to be seen.
c) the quantitative significance of the reduction in wage levels typically involved as compared to basic pay determined by the sector agreement.
It would be hard to put a precise figure on this. Much depends on the individual company. By and large, many companies who plead inability to pay would refuse to pay one or more phases of national agreements. Frequently, productivity or cost-offsetting measures have been sought in return for payment. In some firms, the phasing of national deals has been extended over a longer time period.
3) Is there scope for supplementary negotiations over wages at company level (two-tier negotiations) within the sector agreement(s)?
a) details of the criteria for supplementary company-level wage negotiations (e.g. is there provision for implementation via VP systems?);
Yes. National multi-employer agreements provide some scope for supplementary negotiation over wages at company level. However, the national agreement stipulates that trade unions and employees are prohibited from lodging ‘cost increasing’ claims for improvements in pay and conditions of employment. In practice, this does not prevent local productivity deals providing for wage increases in return for extra productivity/cooperation with new work practices, or negotiations over various forms of variable pay.
b) information on the incidence of such company-level negotiations and characteristics such as organisational size;
Industrial Relations News (IRN) has tracked pay trends above and below national deals over the course of a number of years. In 2005, IRN concluded that the number of ‘above the norm’ pay deals under the then national agreement Sustaining Progress was much lower then under the Programme for Prosperity and Fairness (PPF), but higher than under all previous national deals. There have been very few ‘above the norm’ local pay deals under the current national agreement, Towards 2016. Economic and labour market pressures, above all, are determining whether pay moves either in an upwards or downwards direction. The last detailed IRN pay analysis examined thirty-five ‘above the norm’ (ATN) pay deals - over and above the terms of the Sustaining Progress national agreement – from 2003 up until the end of 2004, which were recorded in IRN over the two-year period.
Two thirds of the 35 ATN SP deals recorded by IRN were in 2004, as the economy showed signs of motoring again after what turned out to be a temporary blip in 2002/2003. Consequentially, there were fewer ATN deals in 2003, and employers were more likely to plead inability to pay the basic terms (see 2) above). A large number of the 35 ‘above the norm’ pay deals under SP were granted in exchange for productivity concessions of one sort or another, sometimes relating to VPS. In contrast, under the PPF – notably the first half – many deals were ‘pure’ labour market deals, in the sense that few serious productivity concessions were included. Back then, the priority of many employers was to recruit and retain workers in a very tight labour market. In terms of sectoral breakdown, certain sectors were characterised by ATN pay deals in 2003-2004, notably pharmaceuticals/chemicals, and healthcare, which comprised nearly one third of the 35 ATN deals identified. In addition, the catering and food and drink sectors also constituted nearly one third of ATN deals under SP.
c) the quantitative significance of the wage supplements which result as compared to basic pay determined by the sector agreement.
This varies widely. See link below for indication.
d) information on any trend in wage drift arising from company-level negotiations (whether formally envisaged under a two-tier arrangement or not). Has it been stable, increased or decreased over recent years?
See 3b) above.
There has not been any wage drift in the private sector in Ireland under the current national pay deal, Towards 2016 (2005-2007) – though significant pay pressures are occurring in the public sector. In comparison, the number of ‘above the norm’ pay deals under the previous national deal Sustaining Progress (2003-2005) has been much lower then under the PPF (2000-2003), but higher than under the other national deals. Accordingly, apart from a brief blip in the PPF boom years of 2000-2001 (when economic growth was the highest in Ireland’s history and there were quite large numbers of pay deals above the national terms, and the PPF had to be re-negotiated upwards), there has not been any significant wage drift in Ireland since the current type of national wage agreements commenced in 1987. One reasonably solid indicator of the number of private sector companies who breached the basic pay terms of the PPF is provided by Ireland’s largest union, SIPTU, which, at the time, indicated that about 25% of the employments the union dealt with had gone over and above the PPF. Thus, the compliance rate was still in the region of 75%, even at the height of the boom in 2000/2001.
4) Are VPS regulated by provisions in the sector agreement(s)?
a) what types of variable pay are covered by any provisions in sector agreements? b) what form does such regulation take? E.g. does it provide a sector-wide framework? Does it specify procedural rules? Does it specify the substantive dimension of variable pay? c) what, if any, recent changes have taken place?
Yes, VPS, namely financial participation (FP), are regulated by national wage agreements, but there is no compulsion on adoption of FP. In the current national agreement, Towards 2016, Ireland’s National Centre for Partnership and Performance (NCPP) devised new voluntary guidelines on employee financial involvement (EFI), which were agreed with the social partners. Up until that point, employers and unions had been unable to reach a compromise position on employee gainsharing. With this now achieved, it is envisaged that gainsharing will now become more common. While popular in other jurisdictions (e.g the US), the development of schemes which share gains between employers and employees has not really taken hold yet in Ireland. There is, for example, no Revenue-approved gainsharing scheme currently in Ireland. Part of the difficulty to date has been the lack of a clear definition of gainsharing. For the first time in Ireland, the guidelines entitled ‘Improving Performance - Sharing the Gains’ presents such a model, the NCPP believes. The guidelines draw particular attention to joint management/union collaboration, and outlines basic steps that are important regardless of the particular EFI scheme being put in place: establish joint union/management working group; examine requirements and key concerns of employers and employees; identify outcomes that each group requires and the possibility for sustainable mutual gains; assess need for outside expertise; examine each of the available schemes; inform, consult and educate employees about the concept; and establish and use an effective feedback process.
5) Is there provision in the sector agreement(s) for individual employees to make choices trading an element of wages against e.g. working time (hours/ holidays) or deferred income (pension contributions)?
No.
6) Are there instances of any of the above forms of wage flexibility becoming the focus of industrial disputes?
Yes. For example, in 2007, a threatened strike at Diamond Innovations was averted following agreement on payment of national wage agreements and avoiding planned layoffs. About 50 general operatives at the Dublin-based industrial diamond manufacturer - members of SIPTU - had issued notice of strike action, which was to expire from July 27. But the company had responded by giving notice of 19 layoffs among operatives only. The original notice of strike action had followed the workers’ rejection of a Labour Court recommendation on whether the company was entitled to cost-offsetting measures in return for payment of Sustaining Progress.This recommendation had been made under Clause 1.10(iii) of the national agreement, which meant that while it was not binding, a ‘cooling-off period’ of three weeks had to be observed – and was - before a strike ballot could be taken. Payment dates and retrospection were the main ostensible points remaining between the parties on the national wage agreement issue. The Labour Court said the last phase of Sustaining Progress should be paid on January 1, 2006 (six months before the company’s date of July 1, 2006) while the union said it should paid on July 1, 2005. However, the main reason for the strong line on this issue was the fact that no phases of Towards 2016 had yet been paid. The workers felt that if they conceded on SP, then further concessions on future national deals would become the order of the day.
A threatened strike at Boxmore Plastics in 2004 was revoked after management and SIPTU agreed a local pay deal giving an increase of 7.5% - including the last 2% due under part 1 of the Sustaining Progress national deal and a re-phasing of SP2, whereby the payment dates were brought forward.
Also, in 2006 workers at Waterford toy maker, Hasbro, accepted management cost offsetting measure proposals, including the continuous running of machines through breaks, in return for full payment of Sustaining Progress from the due dates. Approximately 60 SIPTU members were in dispute with management over the fact that they had not been paid any element of Sustaining Progress part two, dating back eighteen months to July 2004 – the full 5.5%. The company invoked Clause 1.10 (iii) of SP, which provides that cost offsetting measures may be sought prior to the payment of increases. The dispute had already been to the Labour Court in 2005. However, the workers rejected the Court recommendation. They mounted an unofficial lunchtime picket on February 21, 2006.
7) Is there any evidence or debate about a gender dimension to wage flexibility, in terms of its effects?
Yes. There is a general national debate on the gender pay gap.
2b. Wage flexibility under single-employer bargaining
1) Are there any recent instances in either/both sectors of wage freezes or wage increases below inflation concluded under company wage agreements, with unions and/or works councils?
2) In the relevant sector(s), are organisations without collective bargaining
a) any more likely to implement wage freezes or below-inflation increases to base pay?b) more or less likely to use VPS than organisations covered by collective bargaining?
3) Are VPS in the relevant sector(s) regulated by provisions in company agreements with unions and/or works councils?
4) Are there any examples of company-level agreements concerning provision for individual employees to make choices trading an element of wages against either working time (hours/ holidays) or deferred income (pension contributions)?
5) Are there instances of any of the above forms of wage flexibility becoming the focus of industrial disputes in the applicable sector(s)?
6) Is there any evidence or debate about a gender dimension to wage flexibility, in terms of its effects?
Section 3. Views of social partners and government
3a Employers’ organisations
1) Under multi-employer bargaining arrangements, Is enhancing scope for ‘downwards’ flexibility in basic wage levels (e.g. via hardship clauses etc.) a prominent objective for employers’ organisations?
a) what specific proposals are being advanced (e.g. for changes to the procedures governing collective bargaining)? b) what are the main reasons being advanced?
Yes. Over the years, the Irish Business and Employers Confederation (IBEC) has been keen to ensure ‘downwards’ flexibility is applied to wage levels in national agreements. In relation to this, for IBEC, one of the key factors in determining the stability and success of national pay deals lies in the continued robustness of the pay assessor system under the ‘inability to pay’ clauses of national agreements, described above. The employer body would generally be happy with the way the ‘hardship’ clauses are operating.
c) is there any evidence of an organisational rationale or effect (e.g. retention or expansion of the employer association’s membership)?
No details on this.
2) Under multi-employer bargaining arrangements, is enhancing scope for ‘upwards’ wage flexibility through greater scope for supplementary negotiation at company level a prominent objective for employers’ organisations?
No. Most employers want to ensure wage moderation, particularly with the Irish economy now slowing down. The vast majority of employers pay the basic terms of national agreements. As noted above, few are currently paying over and above national deals – and those that do expect productivities in exchange.
3) Is the promotion of wage flexibility through VPS a prominent objective for employers’ organisations?
Yes. The promotion of wage flexibility through VPS is a prominent feature of IBEC and its member companies. In relation to banking and manufacturing, profit sharing and performance-related pay are being strongly promoted by employers in these two sectors. However, in negotiations on the current national agreement, Towards 2016, employer representatives insisted on a deal without local bargaining, due to concern it would feed above the norm pay claims. Local bargaining has a theoretical appeal, as it potentially favours performance related pay and change, but it has not been so popular with employers in practice
In relation to employer interest in profit-sharing, the Irish Profit Sharing Association (ISPA) was formed in 1987 as an independent association within IBEC. Among the objectives of the ISPA are to facilitate the exchange of information and best practices between companies that operate financial participation schemes, and to generate interest and provide information on different forms of financial involvement. Some employers see financial participation schemes as providing a potential means of improving organisational performance in certain circumstances, as well as a non-inflationary and tax-efficient means of recruiting, rewarding and retaining workers. The key question for employers is whether or not profit sharing can contribute to competitiveness, productivity and profitability. Employers' associations believe that the decision whether to introduce a scheme should be left to individual enterprises and, as such, it is strongly emphasised that initiatives should be introduced only on a voluntary basis. For a number of years, employers' associations have lobbied for the extension of tax relief on financial participation schemes.
Employers are less favourably predisposed towards gainsharing, and this reticence seems to be partly influenced by fears that employee pay expectations may become ‘institutionalised’. In other words, there seems to be a fear among employers that gainsharing may raise employees pay expectations, in that they may come to automatically expect payouts under gainsharing – regardless of the productivity output - which could create an imbalance between effort and reward, and result in costs getting out of hand.
4) At organisational level, in each of the two sectors, what are the key rationales leading companies to implement each type of VPS, as applicable?
As above, employers in banking and manufacturing see financial participation schemes as providing a potential means of improving organisational performance in certain circumstances, as well as a non-inflationary and tax-efficient means of recruiting, rewarding and retaining workers. The key question for employers is whether or not profit sharing can contribute to competitiveness, productivity and profitability.
In relation to PRP, ACC Bank management and worker representatives concluded a deal in 2007 on performance-related pay that will potentially cover 700 employees, including unionised staff traditionally opposed to PRP. In terms of the bank’s rationale for PRP, ACC Bank’s performance management process aims to build a more tangible link between business performance and individual/team performance, taking into account performance against core values. The Bank’s aim is to create a more transparent link between performance and reward. This rationale is likely to apply elsewhere in the banking sector where PRP exists.
5) Have employers’ organisations considered or addressed any potential gender dimension to wage flexibility, whether in terms of rationale or effects?
No evidence of this.
3b Trade unions
1) What is the position of trade unions towards proposals aimed at enhancing the scope for downwards wage flexibility?
Generally opposed. Unions had a more difficult time selling the binding pay assessor process to their constituency, as it was seen as removing a traditional freedom to reject a Labour Court recommendation if necessary. However, it is notable that although the pay assessor system in national deals referred to above was attacked by many trade unions when first agreed in 2003, relatively little criticism has been heard since. Put simply, this is because the system has bedded in and generally has worked well. Significantly, the assessor system also discourages some employers, who in the past might have been tempted to plead inability to pay, simply to ‘cough up’. If their reasons for pleading inability to pay were bogus, they would be quickly found out. Plus, they run the risk of having to open up their ‘books’ to independent pay assessors.
2) Where applicable, how have trade unions sought to regulate use of any increased scope in sector agreements for downwards wage flexibility?
See above.
3) Under multi-employer bargaining arrangements, is enhancing scope for ‘upwards’ wage flexibility through greater scope for supplementary negotiation at company / organisational level a prominent objective for trade unions?
a) what specific proposals are being advanced? b) what are the main reasons being advanced?c) is there any evidence of an organisational rationale or effect (e.g. retention or expansion of union membership)?
Yes. Unions have tended to favour local bargaining clauses in national wage agreements as a means of enhancing scope for upwards wage flexibility through supplementary negotiation at company level. In negotiations on the current national deal, Towards 2016, some private sector trade unions sought ‘an ability to pay clause’ to boost workers earnings where companies are making significant profits. However, while local bargaining clauses have been inserted in some previous national deals, employers opposed such a clause in the present agreement.
4) What is the position of trade unions towards each type of VPS? What objectives have they pursued in negotiations and consultation over the introduction and operation of different types of VPS?
Unions would tend to be opposed to individual forms of PRP, arguing, for instance, that it is divisive and anti-collective.
Unions are most highly disposed towards gainsharing schemes, which are yet to gain a significant foothold in Ireland. Trade union interest in the concept of gainsharing is largely based around ensuring that workers receive a fairer share of the gains emanating from what they see as the substantial increases in productivity and profits that have been generated in recent years. The unions do not just see financial participation as a means of securing a more equitable sharing of rewards, however, but also as a vital means of developing the broader employment relationship through underpinning and deepening workplace partnership, and facilitating the broadening of worker "stakeholding" in the modern enterprise. For trade unions in Ireland, the model process is where variable pay and/or financial participation is established through partnership structures, jointly determined, defined, sold to the workforce, monitored, reviewed. Thus, it may be said that Irish unions view variable pay as acceptable, and welcome, albeit under the aforementioned conditions.
In this regard, the Irish Congress of Trade Unions (ICTU) has acknowledged that union bargaining priorities have shifted somewhat from the traditional pay claim. An ICTU booklet launched in April 1999, entitled ‘Sharing the Gains’, provides advice for trade union negotiators on incentive-based reward mechanisms such as gainsharing, profit sharing and employee share-ownership plans (ESOPs). The booklet suggests that union representatives and managers in all commercial companies should examine options for financial participation by workers in their organisations. It states that the experience to date of the profit sharing/gainsharing schemes established shows that financial participation is one of the most effective ways of making the concept of workers as stakeholders a reality, and that ICTU’s feedback from the organisations involved in these financial agreements shows that both workers and companies are benefiting.
5) Have trade unions considered or addressed any potential gender dimenstion to wage flexibility, whether in terms of rationale or effects?
No details.
3c Role of Government
1) Have there been any recent government policy initiatives to promote ‘downwards’ or ‘upwards’ wage flexibility, or variable payments systems?
Discussed above. Government agreed independent pay assessor system with social partners in 2003. Apart from that, nothing springs to mind.
2) Are there any legal provisions which regulate any of the different types of VPS?
No, the respective VPS are voluntarist. They are not covered by Government regulation, apart from tax treatment of profit share schemes.
3) Are there any fiscal incentives aimed at promoting the take up of different types of VPS?
Yes, there is tax relief in relation to profit-sharing/employee share ownership. Earnings under profit sharing schemes can now be included in pensionable remuneration, effectively allowing higher annual pension contributions. A change in Revenue practice means that an employee can include income taken in the form of payments under an Approved Profit Sharing Scheme as part of pensionable income.
For some time now, unions have been lobbying for tax relief on approved gainsharing schemes along the lines of the exemptions already in place for profit share schemes. So far, the union campaign on gainsharing tax relief has been unsuccessful.
4) Have there been any significant developments in wage flexibility, as broadly defined in the introduction, in the public sector in recent years?
Yes. In 2003, sectoral Performance Verification Groups (PVG’s) were established in the Irish public service (health, education, justice, civil service, local government) under the Sustaining Progress national deal, which states that public service pay increases are ‘…dependent, in the case of each sector, organisation and grade, on verification of satisfactory achievement of the provisions on cooperation with flexibility and ongoing change; satisfactory implementation of the agenda for modernisation…and the maintenance of stable industrial relations and the absence of industrial action…’ (para. 26.1). In other words, public service employees are expected to meet various modernisation, flexibility and productivity criteria before pay increases are endorsed. There would be disagreement between unions and employers/other observers as to the extent to which modernisation/change/flexibility has been secured in the public service.
5) Has the government considered or addressed in any way the potential for forms of wage flexibility to have differential impacts according to gender?
No.
Commentary by the NC
VPS have increased in Ireland over the past decade or so, with some forms more common than others. Individual PRP is the most common form of VPS in Irish banking by some distance, followed by company-related performance pay, commission, and profit-sharing. In contrast, the most common forms of variable pay systems (VPS) used in the Irish manufacturing sector are output/production-related bonuses, and this has been the case for some time now. In recent years, the Government and the social partners have negotiated novel forms of wage flexibility in national collective agreements, notably in the form of the pay assessor system governing inability to pay claims by employers. Moreover, after initial opposition, unions have learned to live with this. However, unlike some previous tripartite wage pacts, there is no local bargaining clause in the current national deal, Towards 2016, as called for by some private sector unions - largely due to employer concerns that this would encourage local pay claims on top of those in the national deal. In theory, the presence of a local bargaining clause could be expected to encourage VPS, but there is currently little appetite from employers for such a clause.
Moreover, employers are not as keen on gainsharing as unions, partly due to concern that gainsharing could ‘institutionalise’ pay expectations. But many commentators, not just unions, see many merits in gainsharing. A very important reason cited by many commentators for introducing initiatives such as gainsharing is the flexibility that they can facilitate through linking incomes to changing economic circumstances and possible ‘external shocks’. Innovations such as gainsharing may serve to stabilise ‘shocks’ by enabling employers and employees to work together to deal with problems in a flexible and cooperative manner. This is particularly significant given that the Irish Government now has a limited number of fiscal tools at its disposal in the context of membership of the European single currency. Crucially, it can no longer respond to economic fluctuations by adjusting exchange rate or interest rates.
Tony Dobbins, IRN Publishing