Czech Republic: Wage formation
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The pay system in the Czech Republic is based both on legislation as well as on collective bargaining, with negotiations taking place at the company-level but also higher levels. Current conditions on the labour market (including regional segmentation of the labour market) also play a considerable role in wage formation, especially at the single enterprise. A minimum wage regulation is in place at national level. This current contribution will look in particular at the ICT sector, a sector that plays a key role in the Czech economy. The ICT sector includes a combination of ICT manufacturing and ICT service industries which are associated with the production and/or distribution of information and communication technologies and the provision of the related services.
1. Systems of wage formation
a) Please briefly describe the main systems of wage formation in your country (when relevant please distinguish between private-public sector). For example:
- is the system underpinned by legislation or collective bargaining, a mixture of both, or other factors, such as the labour market?
The pay system is grounded in legislation and is formed through collective bargaining (company-level and higher-than-company level collective agreements); current conditions on the labour market (including regional segments of the labour market) also play a considerable role in wage formation, especially in enterprise (see below).
- who are the main actors?
Participants in the legislative process, the social partners (see below).
- do state bodies play a role in wage setting?
In the Czech Republic, employees in the private (i.e. predominantly enterprise) sector receive a wage (“mzda”) from their employer for the work done. State/public sector (i.e. predominantly non-enterprise) employees receive pay (“plat”). Employees working under a so called “agreement on work done outside employment” (i. e. an agreement on the performance of work or an agreement on work activity) receive a reward (“odmena”), whether they work in the public or private sector.
The fundamental principles of remuneration are laid down by Act No. 262/2006 Coll., Labour Code, in Part VI: Remuneration for Work, Remuneration for Work Standby and Sums Withheld from Incomes from Labour Relations. This law also guarantees certain fundamental wage entitlements (overtime work, work on holidays etc.). However, the Labour Code does not determine the specific method of remuneration that is to be applied at an employer. In the enterprise sphere in particular it leaves considerable room for contractual autonomy (collective bargaining) and for taking into account the current conditions of the labour market and specific corporate traditions.
On the other hand, the majority of pay components and the rules for their provision are precisely defined by Act No. 262/2006 Coll., Labour Code, hence there is very restricted room for contractual arrangements on pay. (In the area of remuneration, the aforementioned Act was replaced by Act No. 143/1992 Coll., on pay and remuneration for work standby in budget-funded and certain other organisations, which now applies solely to professional soldiers). The basic component of pay is the “pay tariff” which is awarded to (all) employees on the basis of the type of work done, the meeting of the prescribed qualification requirements and the length of eligible work experience. A system of 16 pay tariffs is used. Employees are allocated to these tariffs on the basis of the kind of work and, in this context, the strenuousness of their work tasks and satisfaction of qualification requirements. Additionally, twelve pay degrees have been established, to which employees are allocated on the basis of the number of years of eligible work experience. Accordingly, the scale of pay tariffs has a total of 192 items. The pay tariff in the sixteenth (highest) pay class is at least 3.4 times the pay tariff in the first pay class. The pay tariff in the twelfth (highest) pay degree is at least 1.5 times the pay tariff in the first pay degree. Pay can also be increased through additional payments reflecting specific conditions of the work (personal bonuses, individual reward for specific employee performance and skills, bonus for leadership etc.). Allocation to pay classes, the method according to which employees are allocated to pay classes, their substance, the scale of pay tariffs etc. are defined by government regulation for the year in question (The most recent: Government Regulation No. 564/2006 Coll., on the pay of employees in public services and administration).
b) If collective bargaining is the main determinant, what is the main level at which this takes place (national, sectoral, and/or company level)? Where relevant, please refer to other European Foundation studies that you have written in this context. Where collective bargaining fails, what is the role of labour market institutions (i.e. labour court, labour commission)? Provide an example if relevant.
Provisions on wages can be found primarily in company-level collective agreements (although wage rules are not found in all enterprise-level collective agreements). As a rule, higher-level (sectoral) collective agreements only contain framework arrangements on the size and growth of salaries for the coming period – these are treated as the minimum standard for the given sector.
c) Monitoring. What monitoring of collective bargaining is carried out (if any)? Who carries this out? (Joint /Tripartite body at national/sectoral level)? How does it do this? Are there any studies or surveys?
Monitoring only covers higher-level collective agreements, which are registered by the Ministry of Labour and Social Affairs of the Czech Republic, (MoLSA, Ministerstvo práce a sociálních věcí České republiky, MPSV ČR). Since 1.1.2007, higher-level collective agreements have been accessible on the Ministry’s website (registration of the agreements is announced in the form of an Official Information of the MoLSA in the Collection of Laws in line with Section 9 of Act No. 2/1991 Coll., on collective bargaining, as amended).
The Czech-Moravian Confederation of Trade Unions (CMKOS, Českomoravská konfederace odborových svazů, ČMKOS) monitors collective bargaining and collective agreements affecting its members. Every year it draws up a Report on the Course of Collective Bargaining at Higher-Level and Company Level for its own purposes. This monitoring also covers wages (the data only apply to CMKOS and its members, though). The Information System on Average Earnings and the Information System on Working Conditions constitute nationwide annual monitoring conducted by the MoLSA.
2. Wage developments
a) Please briefly describe any major overall wage development trends over the past five years (refer to previous EIRO updates where appropriate)
Gross wages increased between 2003 and 2007, mainly owing to the fast pace of economic growth. Throughout 2007 the highest monthly nominal average wage was attained in computer technology occupations (CZK 47,161, € 1,886 a year-on-year rise of 4.5%, which was 2.9 percentage points lower than the average for all occupations). The lowest monthly nominal average wage was found in the textiles and textile products production sector (CZK 14,965, € 597), which grew by 7.1% year-on-year (0.3 percentage points below the average rise across the entire economy).
Smaller firms with lower wage levels gave their employees relatively higher pay increases than firms with 250 and more employees where wages are usually higher (around 8% and 7% respectively). It should be observed, however, that the higher percentage of a lower base in small firms amounts to almost the same increase in absolute terms as the lower growth percentage of a higher base in larger firms – that amount was roughly CZK 1,500 (about € 60). Wage differentiation between sectors (in converted figures) grew year by year: the variation coefficient of average wages (according to Industrial Classification of Economic Activities [NACE] categories) was 0.4 percentage points higher and reached 35.5%.
|Rok||Nominal average monthly wages CZK/€|
Source: Czech Statistical Office
b) What developments have there been regarding equal pay between men and women in your country? Is this an issue for debate?
Women’s average monthly wages in the CZ have for long been significantly lower than men’s – women’s earnings are on average roughly just three-quarters of men’s. As far as average values are concerned, the trend is towards a closing of the gap: in 2004 the difference between the average wages of man and woman was just 19%. The gap between men’s and women’s salaries varies in different groups of employees. The situation for women is least favourable in jobs with the highest salaries – in 2004 women’s earnings in this category were just 69% of men’s.
These differences cannot be generalised as “wage discrimination” – wage levels are affected by the fact that women work shorter hours than men, are more frequently in part-time work and also work less overtime. In addition, women and men generally work in different jobs and do different kinds of work, so it is very hard to make “same wage for same work” comparisons.
|Women's average as a percentage of men's||73.3||74.6||74.9||75.1||75.4|
|Women's median as a percentage of men's||78.2||81.1||80.9||81.1||81.7|
Source: Structure of Earnings Survey 2006, Czech Statistical Office 2006.
c) Please briefly describe the main recent sectoral agreements and outcomes in terms of pay
Salary development is covered in some scope and form by practically all higher-level collective agreements for enterprise sphere employees (data are available only for trade unions associated in CMKOS).
The provisions on pay developments in higher-level collective agreements usually comprise one of the following alternatives:
- an increase in average nominal salary defined by a specific number (used only in 3 sectoral agreements out of 19 in 2007)
- conservation of average nominal salary
- conservation of real wages
- increase of average wages in the form of an increase in wage tariffs, in wage bonuses and in other wage components
- combination of the above forms (used in 14 sectoral collective agreements out of 19 in 2007)
d) Are there any noteworthy trends at company level, such as an increasing individualisation of pay setting?
According to the PayWell 2005 survey report, in 81% of companies work assessment of employees is done on the basis of pre-defined targets and criteria while 32% perform assessment based on defined competences. In 78% of companies performance assessment has an impact on employees’ pay (in 61% of companies the assessment results influence the variable component, in 72% they are reflected in the level of basic pay).
Whereas in Western Europe the “defined contribution” system is the predominant employee benefit system, in the Czech Republic the “defined benefits” principle is still the most widespread.
The individual performance criterion is most important in the case of those jobs where this performance can be easily defined (e.g. number of completed products, rejects rate, amount of goods sold, cost cuttings on a particular activity etc.). In managerial and administrative positions, where it is harder to measure individual performance, the criterion of the entire company’s performance is more widely used. Assessment of team performance in the case of manufacturing workers is usually reflected in “team rewards”. The bonus amount is tied to achievement of a target that requires the joint effort of an entire work shift, team or equivalent work unit.
According to the results of the PayWell 2005 survey, the number of companies that tie employees’ variable pay component solely to team performance is growing, and fewer companies tie it to the individual’s results.
e) Recent main actions/strikes /protests on wages
Dissatisfaction with the pay system is found most commonly among non-enterprise sphere employees (public services, especially education and healthcare, state administration). These are receiving administratively defined pay, whose growth is often below inflation (see CZ0712039I, CZ0709019I, CZ0704029I). In the enterprise sphere trade unionists from Škoda Auto have recently expressed their dissatisfaction with their pay development (see CZ0703029I). There is no central monitoring of collective disputes and strikes in the Czech Republic – CMKOS keeps records of collective agreements involving its members, without differentiating between the reasons for strikes.
f) What are the main social partners’ views on wage developments in your country?
3. Minimum wages
In this section, we are aiming to update information from the previous study on the minimum wage (http://www.eurofound.europa.eu/eiro/2005/07/study/index.htm)
a) Does your country have a national minimum wage?
*If yes: b) How is it defined? How is it set and updated? Do you have any data as to its level and coverage rates?
The minimum wage is the lowest admissible remuneration for work in a labour-law relationship. The basic legislation on the minimum wage is Act No. 262/2006 Coll., Labour Code, as amended. The level of minimum wage and the conditions for its provision are specified by government regulation (most recent Government Regulation No. 567/2006 Coll., on the minimum wage, on the lowest levels of guaranteed pay, on the definition of a difficult working environment and on the size of extra pay for work in a difficult working environment, as amended).
The minimum wage applies to all employees in employment or in a legal relationship based on “agreements on work done outside employment” (agreement on the performance of work, agreement on work activity). There is no differentiation between fixed-term and indefinite-term work or concurrent employments. The entitlement to the minimum wage is established in every employment relationship or legal relationship based on agreements on work done outside employment.
The minimum wage is the only wage limit for employees in the enterprise sphere organisations in which there is collective bargaining on wages. A minimum wage provided for in a collective agreement it must be higher than the minimum wage stipulated by government regulation.
In other enterprise sphere organisations, where there is no collective agreement or the collective agreement does not contain provisions on wage conditions, the “guaranteed wage” also applies alongside the minimum wage. The guaranteed wage introduced by the new Act No. 262/2006 Coll., Labour Code, applies solely to employment relations. If pay is lower than the guaranteed wage, the employer is obliged to provide the employee with an extra amount equalling the difference between the pay attained in the calendar month and the appropriate lowest guaranteed wage. For the 1st category of work the lowest guaranteed wage is the same as the minimum wage.
In the non-enterprise sphere (public services and administration) a system of wage tariffs exists alongside the minimum wage and the lowest guaranteed wage. The lowest guaranteed wage levels are defined in the said Government Resolution No. 567/2006 Coll. for 8 categories of work. For the 1st category of work the lowest guaranteed wage is the same as the minimum wage.
|Validity||CZK/€ per month|
*Il no: c) Are there minimum wages (sectoral, regional) covering a major part of the workforce?
In 2007 roughly 2.5% of all employees received the minimum wage (source: MoLSA). The minimum wage fixed by government regulation applies for the entire national economy, i.e. it is the same for all regions and sectors, even though it has been proposed to differentiate by sector, e.g. by the Confederation of Industry of the Czech Republic (SP CR, Svaz průmyslu a dopravy České republiky). The position of the organisation regarding the minimum wage is that “differences and fluctuations in wages between sectors and branches of the national economy mean that it will probably be necessary to structure the minimum wage with regard to the specific features of the sectors and branches and to abandon the model of a uniform minimum wage”. (Source of the quote: Position of the Industry of the Czech Republic regarding the Proposal to Increase the Minimum Wage in 2006 and regarding the Proposal to Increase Minimum Wage Tariffs, 10.11.2005.)
d) What are the views of the social partners and the government on the minimum wage(s)?
See CZ0712049I and e).
e) Is the minimum wage a subject for debate in your country?
Is there any debate on minimum wage and minimum income? Please indicate the main issues and policy implications that are debated in this respect.
The minimum wage always becomes a topic of debate when increases are discussed. Trade unions have continuously demanded that to increase the minimum wage to at least 40% of the average monthly earning (the proportion has so far been below 40%). They claim that in other EU countries the proportion is roughly 50%. Employers state that a higher minimum wage increases their costs and harms their competitiveness.
f) Do you have any data on the minimum wage in relation to average wages, how it interacts with the tax system and any effects it is having on employment?
|Year||Minimum wage as a proportion of gross average wage (%)|
Average nominal monthly wage see in Table 1 and minimum monthly wage see in Table 3.
*since 1 7. 2006
Source: Czech Statistical Office
Opinions vary on the significance of the minimum wage and its relationship to the tax system and the rate of unemployment. Right-wing economists are convinced that the minimum wage increases the number of unemployed in the Czech Republic (see e.g. Petr Mach: Pros and Cons of Current Unemployment in the Czech Republic, 31.10.2007 – available only in Czech). That is also the view of the Czech National Bank (CNB, Česká národní banka) (see Michaela Erbenova: The Minimum Wage is Harmful, 2. 11. 2004 – available only in Czech). Opposing views can also be found, though – see e. g. Rusek, M: Incompetent Businessmen Skilfully Exploit Their Employees, Britske listy, 9. 10.2003 (only in Czech). However, no quantitative research has been done on this subject in the Czech Republic: these are merely economists’ opinions and commentaries.
4. Wage formation within the IT sector
Please describe in detail the wage formation process in the IT sector in your country.
I Please give the main features of the sector
a) Importance of the sector in the economy
In general, the term ICT sector (industries producing information and communication technologies) includes a combination of ICT manufacturing and ICT services industries which are associated with the production and/or distribution of information and communication technologies and provision of the related services.
ICT sector definition (OECD 1998, 2002) is based on the following guiding principles to identify ICT industries (economic activities):
1) For manufacturing industries, the products (goods) of a candidate industry must be primary intended to fulfil the function of information processing and communication including transmission and display, or must use electronic processing to detect, measure and/or record physical phenomena or control a physical process
2) For services industries, the products (services) of a candidate industry must be intended to enable the function of information processing and communication by electronic means
For more information on ICT sector classification see Information economy in figures, Czech Statistical Office, 2008, available on-line http://www.czso.cz/eng/redakce.nsf/i/information_economy_in_figures_2008
The information and communication technologies sector plays a key role in the national economy. Secondary sources related to development forecasts for both the IT segment and the economy as a whole indicate that the IT market is expected to grow at a rate of 7.85% up to 2011 (the size of the IT services market is expected to grow at a rate of 10.35%). The growth of the gross national product is forecasted to a rate of 4-5% per year. The IT services segment, especially in banking and insurance, has particularly great potential.
In human resources terms the IT sector displays the following specific features:
- low proportion of women;
- higher proportion of younger workers, often both graduates and students;
- superior pay levels for all IT professions;
- concentration of workers in technology centres;
- above-average employee perquisites
(in 1000 persons)
|by age groups|
Source: Information Economy in Figures, Czech Statistical Office 2008
Source: Kaňková, Michaela: Development of IT labour market and its impact on employers, thesis, University of Economics Prague 2007 (only in Czech).
b) % of the workforce in the sector
1,8% in 2006 (source: Czech Statistical Office)
c) Main pay-related characteristics, such as: low pay, differences in pay between men and women and/or older and young workers, wage drift;
II Describe the main characteristics of the sector pay decision process
IT professionals have the capability to specify, design, develop, install, operate, support, maintain, manage, evaluate and research IT and IT systems. They also develop and put in place the IT tools for others. It includes following tasks:
- business software development, programming, web development, database development, communication network development, systems integration and installation,
- technical support, user help and support, network administration, web administration, database administration
IT professionals are defined as persons employed in the national economy whose principal activity comes within the following two main occupations groups expressed in terms of the current International Standard Classification of Occupations 1998 (CZ-ISCO-88 in the Czech Republic):
Computing professionals conduct research, plan, develop and improve computer based information systems, software and related concepts, develop principles and operational methods as well as maintain data dictionary and management systems of databases to ensure integrity and security of data.
Computer associate professionals provide assistance to users of computers and standard software packages, control and operate computers and peripheral equipment and carry out limited programming tasks connected with the installation and maintenance of computer hardware and software.
Details see in Information economy in figures, Czech Statistical Office, 2006, available on http://www.czso.cz/eng/redakce.nsf/i/information_economy_in_figures_2008
|Profession||Monthly Nominal Wage in CZK/€|
|Specialist programmer in the field of computer technology||55,259/2,210|
|Information systems programmer||44,080/1,763|
|Other computer technology experts not mentioned elsewhere||47,007/1,880|
|Integrated information systems and networks engineer, administrator||47,873/1,915|
|Computer technology expert not mentioned elsewhere||50,112/2,004|
|Computer technology consultants||43,389/1,736|
|Computer technology operators||27,599/1,104|
Source: Average Wage Information System, MoLSA 2008.
a) Is the wage formation process in this sector shaped by institutions? If there is a collective bargaining process, how does it work? Eg:
- at sector level only;
- at sector level, which then provides a framework for company level;
- at company level only
Who are the main actors?
The wage system applied in the IT sector is not markedly different from that in other sectors of the economy. There is practically no collective bargaining in this sector, except for the telecommunications branch: enterprise-level collective agreements are negotiated in Telefónica O2 Czech Republic and T-Mobile Czech Republic, where the Trade Union of Workers in Postal, Telecommunication and Newspaper Services (OSZPTNS, Odborový svaz zaměstnanců poštovních, telekomunikačních a novinových služeb) operates. Based on the available information it is fair to say that basic trade union organisations do not operate at firms in the IT sector and employees have little interest to join unions. There are several reasons for this:
- The high proportion of young employees and students among IT firms’ staff (some IT firms actually “specialise” in employing students, mainly because of the lower wage costs). The motivation among young people and students to join trade unions is low.
- The relatively high salaries in the sector and superior employee perquisites (company-provided mobile phones, notebooks etc., and especially the chance to undergo further training). Representatives of IT firms concur that employee bonuses in the form of extra training are currently more appealing than both wage levels and other (traditional) employee benefits. (See Kaňková, Michaela: Development of IT labour market and its impact on employers, thesis, University of Economics Prague, 2007).
- The level of wages and the offer of other bonuses are therefore an entirely individual contractual matter between employee and employer and the only restriction is (theoretically) the lower limit of the minimum wage.
b) Specific issues: upward pressures on pay such as wage competition between firms, the effects of a tight labour market, and using pay as an attraction and retention tool, the effects of migration on pay, the effects of the presence of multi-national firms within a sector and whether comparisons have been made between the pay offered by multinationals and local companies
Wages in the IT sector are above the national average. Demand for labour has for long outstripped supply in this sector, which puts pressure on wage growth, because firms want to retain skilled workers. Even school-leavers’ earnings are equal to the average wage.
III Analysis on trends and views of the actors
a) Are there any major differences between this sector and the rest of the economy in terms of wage formation?
The wage system applied in the IT sector is not markedly different from that in other sectors of the economy. One specific feature is the non-existence of collective bargaining, see 9a.
b) Are there any noteworthy trends at company level, such as an increasing individualisation of pay setting?
Given the broad range of professions, jobs, educational credentials, qualifications etc. in the sector, wage individualisation is relatively pronounced in the sector and further increases as the amount of time worked increases (the highest wage increases are found among programmers and IT analysts). Source: Kaňková, Michaela: Development of IT labour market and its impact on employers, thesis, University of Economics Prague, 2007).
c) What are the main views of the social partners in this sector on wage formation?
Not relevant (as there is no collective bargaining in the IT sector).
d) Are there any positions of the authorities on the sector’s wage policy ?
5 Views of the national centre
CMKOS: Report on the Course of Collective Bargaining at Higher-Level and Company Level in 2007, CMKOS 2008.
CSU: Information economy in figures, Czech Statistical Office 2008, available on-line http://www.czso.cz/eng/redakce.nsf/i/information_economy_in_figures_2008)
Kaňková, Michaela: Development of IT labour market and its impact on employers, thesis, University of Economics Prague 2007 (only in Czech).
MoLSA: Information System on Average Earnings, MoLSA 2008.
Soňa Veverková, Research Institute for Labour and Social Affairs