Italy: Wage flexibility and collective bargaining.
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The current bargaining system in Italy (introduced by the Agreement of 23 July 1993) divides collective bargaining between a national level (intended to recoup inflation) and a decentralized level (to distribute earnings from productivity or profitability). The largest proportion of the variable pay received by Italian workers pertains to this second level of bargaining. Decentralized bargaining, however, covers less than half of all workers. This explains the resistance of the trade unions against the proposals advanced by the employers’ organisations, to reform the bargaining system to give greater weight to decentralized bargaining as compared to the national level.
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 pay system for workers in both the banking and manufacturing sectors consists of a fixed part, and a variable part to which, in some cases, fringe benefits are added.
1. Fixed pay consists of:
− Automatic seniority increases
− Individually negotiated increments
− Automatic cost-of-living allowances
2. Variable pay consists of:
− Performance related pay (or bonuses) linked to second-level or decentralized bargaining (at company, group or territorial level). The performance related-pay can be linked to various parameters. The most common are productivity, profitability, quality, and the rate of workplace attendance.
− Stock options (mainly for higher job grades)
3. Fringe benefits may be:
− Direct (insurance coverage, health care, supplementary pension scheme)
− Indirect (lodgings, company cafeteria, company car, mobile phone, conventions, etc.).
This pay system originates from Italy’s collective bargaining structure (Agreement of 23 July 1993), which gives national-level bargaining the task of recouping inflation (fixed part of the wage) and second-level supplementary bargaining the task of distributing productivity and/or profitability increments collectively (at company, group or territorial level).
In some cases individual bonus systems, stock options, or fringe benefits are envisaged, mainly for middle-to-high job grades.
2) For each type of VPS, please provide information on their quantitative significance as a proportion of earnings.
According to the IRES (Institute of Economic and Social Research), the proportion of variable pay due to decentralized bargaining (performance related-pay bargained at decentralized level as provided for by the Agreement of 23 July 1993) represents 17.2% of the wage in the metalworking industry (all workers excluding executives) and 13% of the total wage in the services sector (to which the banking sector belongs).
Individual variable pay arrangements (the result of individual bargaining) are much less common and are concentrated among senior or middle managers. According to Od&M Consulting, the incidence of the variable part (including collective and individual bonuses) in the basic pay of executives (average of the number of earners) in the banking sector amounted to 28% in 2007 (it had been 24% in 2006). In the manufacturing sector it represented, again for executives, 20% of their basic pay in 2007 (19% in 2006).
As regards middle management, again according to Od&M Consulting, variable pay represented 16% of basic pay in 2007 in the banking sector. In the manufacturing sector, the variable pay component made up 14% of the basic pay. It is therefore very difficult to calculate the incidence in the total wage.
3) What have been the main trends in VPS in recent years?
According to a study by the IRES (Institute of Economic and Social Research) on the dynamics of Italian wages in the 1990s (A. Megale, G. D'Aloia, L. Birindelli (2003), La politica dei redditi negli anni '90, Ediesse Editore, Roma) around one third of de facto pay (corresponding to one point on the general average of wage growth in the period 1996-2001) is determined by factors external to the national agreement.
At least half this amount extraneous to the national agreement is represented by company-level bargaining and, in particular, by bargaining on performance related pay. This amount represents around 0.5% annual points for the entire economy and up to 1-1.5% annual points for industry. According to the IRES (Institute of Economic and Social Search):
‘in a context of low inflation and low nominal wage growth, an incidence of this magnitude of bargaining in the variable part of the wage must be regarded as anything but residual.’
One may therefore conclude that, since the Agreement of 23 July 1993, the decentralized bargaining of the variable pay component has displayed a positive dynamic. This concerns the form of variable pay that mainly affects middle-to-low job grades, and it consists in the performance related pay collectively bargained at decentralized level.
The share of variable pay received by medium-to-high job grades (individual bonuses and fringe benefits) has also grown. According to a survey conducted by Od&M Consulting for Manageritalia (trade union for managers in the services sector), in 2006 more than 80% of members received a variable pay component. The survey also found that the salaries of senior and middle managers had recorded a 22.3% increase gross of inflation in the last 6 months of 2006, thanks mainly to an increase in the variable part of the salary. The variable part of executive wages rose from an average of 6% in 2001 (relative to the fixed salary) to 11% in 2006. For middle managers it was 6.5%.
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;
Collective bargaining in Italy is multi-employer bargaining in both sectors, manufacturing and banking.
ii) the coverage (percentage of companies and employees) of collective bargaining;
Constitutional and legislative provisions extend the minimum sectoral wage tariffs established by the national-level collective agreements (Contratti Collettivi Nazionali di Lavoro, CCNL) to cover all workers. As regards pay, therefore, national sectoral bargaining has general coverage (erga omnes).
As for second-level bargaining, according to estimates by the Bank of Italy (Banca d'Italia, Bollettino Economico, no. 47, November 2006) this covers 45% of workers in industry and 40% of workers in services. According to trade-union (Cgil) sources, second-level bargaining (both on wages and work organization) concerns no more than 20-25% of firms. Hence also the bargaining of the variable part of pay concerns less than half of workers.
iii) the percentage of the workforce that is female
According to the ABI (Italian Banking Association), the percentage of female workers in the banking sector is 39.9% of the total. The percentage is much lower in manufacturing industry where, according to the ISTAT (National Institute of Statistics), women represent just 19.7% of the total.
2a. Wage flexibility under multi-employer bargaining arrangements
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?
Pay increases below inflation have been recorded neither in banking nor in the manufacturing. In the banking sector, pay increments have remained constantly above the inflation rate. As regards the manufacturing sector, the Economic Observatory of Fiom-Cgil (Federazione Impiegati Operai Metallurgici) reports that:
‘in the period January-August 2007, in comparison to the same period in 2006, contractual pay for dependent full-time workers in the metalworking sector grew by 2.8% on average. This value is higher than the rate of inflation in the period, which was 1.7%, and it testifies that the renewal of the CCNL for private manufacturing industry (19 January 2006) has been able to guarantee the purchasing power of workers. It should be borne in mind, however, that if the agreement, which expired in June 2007, is not renewed, the annual average value will tend to decrease substantially.’ (IT0602301F) (Source: Fiom-Cgil, Osservatorio sull'industria metalmeccanica, 23 October 2007, http://www.fiom.cgil.it/economico/osservatorio/oss23.pdf)
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 agreements of this type.
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?
No derogations of this type.
3) Is there scope for supplementary negotiations over wages at company level (two-tier negotiations) within the sector agreement(s)?
As already mentioned in section 1, the bargaining system in Italy comprises, alongside the national sectoral agreement (CCNL), decentralized bargaining at company and/or territorial level. As the CNEL (National Council for the Economy and Work) has recently stressed in a report (Cnel (2007), Rapporto: Lineamenti della contrattazione aziendale nel periodo 1998-2006, Rome, www.cnel.it) (IT0801029I), company-level bargaining on performance related pay is one of the items mostly frequently on the agenda of negotiations between firms and workplace union structures (RSU). The performance bonus is bargained at company level according to various parameters (or a mix of them). The CNEL reports that the parameters most frequently used are: productivity, profitability, quality, and attendance at work. In the banking sector, the performance bonus is linked in 95.2% of cases to corporate profitability. In the manufacturing sector, productivity is the usual parameter (59.5% of the cases).
The CNEL report also states:
‘bargaining on variable bonuses rose from an average incidence of less than 30% of agreements in the period 1992-1996 to 60% in the period 1996-1998. In particular, the percentage of agreements with bonuses more than doubled for the textiles and food industries, and more than tripled for the chemicals and metalworking industries (...) Analysis of the characteristics of bonuses shows a high frequency of agreements with several performance indicators (particularly in the metalworking sector, closely followed by chemicals and banking (...)). The linkage with the attendance parameter plays a major role in textiles and clothing (35% of agreements with bonuses) and partly in metalworking (14%), falling to less than 10% in the other sectors. As regards other parameters (productivity, profitability, quality) there are sectors in which these have approximately equivalent weight (metalworking), while one of the parameters predominates in others: profitability is the main parameter in the banking and insurance sector.’
The CNEL also reports that the prevalence of pay bargaining (and therefore of wage flexibility) in company-level negotiations is greater among smaller enterprises rather than among larger ones.
As regards the amount of bonuses, the CNEL states that company-level pay bargaining frequently fixes the bonus amounts for several years. This may happen both by assigning different values to the same variation of the benchmark parameter, and by fixing progressively higher targets over the years. The CNEL report’s estimates of the average amount of bonuses range from 3% of the annual wage for the first year to 5-6% of the annual wage for the following years.
4) Are VPS regulated by provisions in the sector agreement(s)?
No.
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)?
There are no provisions of this type.
6) Are there instances of any of the above forms of wage flexibility becoming the focus of industrial disputes?
Negotiations on renewal of the national metalworkers’ agreement (signed on 20 January 2008) centred on the proposal by the employers of a trade-off, at national bargaining level, between wage and productivity (IT0704019I). The proposal was considered unacceptable by the trade unions on the grounds that the statutory bargaining system foresees that trade-offs between productivity and wages (in the form of performance bonuses) be subject to company-level bargaining. As already said, in fact, performance bonuses constitute the most widespread form of wage flexibility. Not coincidentally, the main CCNL s often provide for the creation of a Joint Observatory, one of whose tasks is to monitor the payment of performance bonuses under company-level agreements, as in the case of the last metalworkers’ agreement.
7) Is there any evidence or debate about a gender dimension to wage flexibility, in terms of its effects?
Gender-based wage differences are frequently subject to political and trade union discussion, but this is not an issue connected solely with wage flexibility. According to the ISTAT (National Institute of Statistics), women receive wages on average 10% lower than those of their male counterparts, other conditions being equal. It should be pointed out, however, that women are advantaged by these forms of collectively agreed wage flexibility and penalised by individually bargained ones.
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?
The employers’ organisations show no intention of reducing wage flexibility; quite the contrary, in fact.
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?
The employers’ organisations and Confindustria in particular, have always declared themselves in favour of linking business results (in terms of profitability and productivity) more closely to wage increases. Confindustria proposes a strengthening of second-level bargaining (where variable or performance related pay are bargained) at the expense of the national level. In an interview with the Confindustria newspaper IlSole24Ore (22 January 2008), Massimo Calearo, President of Federmeccanica declared himself in favour of a revision of the bargaining model whereby the national agreement would act as a minimum safeguard, with triennial (today biennial) renewals, and a company-bargaining level where the trade-off between wages and productivity would take place. However, Confindustria and the other employers’ organisations do not want the two bargaining levels to be mandatory. Today, in fact, the second level of bargaining is not obligatory. The employers’ organisations fear that a mandatory level of bargaining would give rise, besides higher bureaucratic and administrative costs, to heavier general demands and, accordingly, inflate the wage increases granted in order to conclude agreements.
3) Is the promotion of wage flexibility through VPS a prominent objective for employers’ organisations?
As stated, the employers’ organisations have declared their preference for increasing forms of wage flexibility (like performance related pay or bonuses) which link productivity and pay in exchange for a weakening of the national bargaining level.
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?
The trade-off between pay and productivity is the principal motive behind the favour shown by employers’ organisations, in both sectors, for implementation of performance related pay as the main form of variable pay.
Individual forms of variable pay have instead the objective of enhancing workforce loyalty or, in the case of high job grades and managers, of linking economic bonuses with corporate performance.
5) Have employers’ organisations considered or addressed any potential gender dimension to wage flexibility, whether in terms of rationale or effects?
No.
3b Trade unions
1) What is the position of trade unions towards proposals aimed at enhancing the scope for downwards wage flexibility?
The trade union position tends towards flexibility in addition to the minimum levels fixed by the national collective agreements. The trade unions are opposed to possible company-level agreements that derogate downwards from the minimum wage conditions established at national level.
2) Where applicable, how have trade unions sought to regulate use of any increased scope in sector agreements for downwards wage flexibility?
The trade unions have sought to regulate wage flexibility collectively (through collective agreements) in order to reduce individually bargained flexibility, since this may penalize lower-skilled workers.
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?
The trade unions are in favour of an increase in the variable wage bargained at decentralized level if this is additional to the minimum levels established by the CCNL s.
There is no doubt that shifting part of the wage increase to the company level would penalize workers that do not engage in company-level bargaining, i.e. the majority in Italy. It is for this reason that the Cisl, and to some extent the Uil, argue that it is necessary to activate a mandatory level of territorial bargaining – for instance regional – that would supplement the national collective agreement to give coverage to workers who do not have company-level bargaining. The Cgi l, for its part, does not intend to call the pre-eminence of the national agreement into question, also because of the political repercussions that its downgrading might have on the role of the trade unions in Italy. It would accept a territorial agreement only if it supplemented the national level agreement. But it is precisely this ‘summation’ of two levels that Confindustria does not want.
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?
The trade unions believe that every form of wage flexibility must be additional in respect to the minimum wage levels established by national collective bargaining. In particular, performance related pay (the most common form of wage flexibility) must serve at company level to distribute to the workers the achieved productivity and/or profitability increases.
5) Have trade unions considered or addressed any potential gender dimension to wage flexibility, whether in terms of rationale or effects?
The trade unions tend to regard individually-bargained wage flexibility as less favourable to women than collectively bargained wage flexibility.
3c Role of Government
1) Have there been any recent government policy initiatives to promote ‘downwards’ or ‘upwards’ wage flexibility, or variable payments systems?
In January 2008, talks began between the Government and the social partners on the theme of low Italian wages. The sluggish growth of wages in Italy, for years denounced by the trade-union confederations (Cgil-Cisl-Uil), was stressed during 2007 also by the Governor of the Bank of Italy, Mario Draghi. One of the proposals put forward by the Government, through the Minister of Labour Cesare Damiano, is tax abatement on the wage increases deriving from second-level bargaining (and therefore of performance related pay). In the Government’s view, a measure of this kind would be an incentive to decentralized wage bargaining and would increase the variable wage component by fiscal means.
2) Are there any legal provisions which regulate any of the different types of VPS?
Negotiations on variable pay are subject to the bargaining autonomy of the parties. Legal provisions on the matter do not exist (except those connected with the fiscal regime mentioned below).
3) Are there any fiscal incentives aimed at promoting the take up of different types of VPS?
There is the proposal by the Minister of Labour, Cesare Damiano, for tax abatement on wage increases deriving from second-level bargaining. This proposal is not yet, however, a legal measure.
At present, the only form of pay subject to a facilitated tax regime consists of stock options. The fiscal regime of stock options, in fact, is advantageous in that the difference between the market value of the shares on allocation and the price of exercise of the option is subject to capital gains tax (i.e.at a 12.5% rate). The surplus thus realized is not subject to personal income tax (strongly progressive) but to the 12.5% fixed rate only.
4) Have there been any significant developments in wage flexibility, as broadly defined in the introduction, in the public sector in recent years?
Following lively debate in 2007 by the social partners and public opinion on labour productivity in the public sector, the new agreement for ministry workers has introduced a system of wage flexibility tied to the performance of public officials (IT0709019I). Many observers recommend that performance-related forms of wage flexibility should be extended to all public-sector workers. However, it is too soon to appraise the effects of the incentives system piloted in the agreement for ministerial workers.
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
It appears evident that the debate on wage flexibility in Italy focuses on the issues of second-level bargaining (where performance related pay is negotiated) and the role that this must assume in a possible reform of the bargaining system. Employers and Government appear to agree on the need to implement the second level of bargaining. The points of greatest disagreement concern the obligatory kind or otherwise of the second bargaining level, and whether this should be to the detriment of the strong role played today by the national sectoral agreement (CCNL). It was this issue that caused the breakdown of talks among the social partners which began, and then immediately halted, in 2004.
Cristina Tajani, Ires Lombardia