Finnish wage earners have accepted a moderate wage increase in the 1998-2000 incomes policy agreement. This moderation was justified by the argument that it would help guarantee stable growth and improve the employment situation. At the same time, however, Finnish executives are being rewarded with share options worth millions of FIM during the current intense economic upswing, resulting in resentment amongst the labour movement.
According to the current incomes policy agreement for 1998-2000 (FI9801145F), Finnish wage earners will receive annual pay increases of 1.6%. The national agreement covers over 98% of wage earners. At the same time, with the economy growing vigorously (by around 5% a year), executives in large companies are being awarded share options - the possibility to subscribe to shares in the future at a fixed price - as an incentive by their employers. Left-wing political parties and wage earners' organisations have begun to criticise these arrangements - with some even demanding that the partners to the incomes policy agreement should be called back to the negotiation table.
Share option schemes spreading
Behind these share options lie US financial doctrines which have spread, in the spirit of "neoliberalism", to Finland. The options are justified by the argument that they tie the management to a company: if the stock goes up, the management can make good profits. Previously, the options were also very lightly taxed, being covered only by capital taxation, but under public pressure the tax treatment has been changed so that options are considered as wages. At the moment, the Finnish economy is growing vigorously and share prices are following this development. The criticism from left-wing parties and wage earners has been focused on what they see as an undeserved incentive system, because the shares would go up anyway. At the same time as the management has been encouraged through options, in some companies profit-sharing schemes aimed at the whole staff have been cut. On the other hand, in some companies the whole staff has been given a chance to subscribe to share options, though under 10% of the large companies are planning to extend their option schemes to all employees. Options open to all staff are used mostly in companies whose employees are relatively few in number and highly skilled.
An example of how a Finnish-based international, growth-oriented company tries to hold to its management employees is provided by Nokia. Competition in the telecommunication business is quite intense and there is a risk that management may move from the company to a competitor if the salary is not competitive enough. Nokia thus has a share option scheme, which is directed only at the management. Other Nokia staff receive bonuses that work as incentives. Among the Finnish forestry companies, UPM-Kymmene and Enso have - besides management share options - a profit-sharing scheme for the personnel in general.
Criticisms
The irritation among wage earners has been aggravated particularly by the perceived unfair inequality between bonus pay for management and that for other staff. While some executives will become millionaires through share options, wage-earners have had to listen to homilies on the importance of the national incomes policy agreements, especially in the name of economic growth and employment. The last two agreements have guaranteed moderate wage settlements: during the previous 1995-7 incomes policy agreement period, wages increased by 2.9%, while the latest agreement will provide an annual increase of 1.6%. At the company level, various profit-sharing schemes can be agreed on for employees. The difference between the schemes for management and those for other staff is that the latter are based on short-term results, while management is being motivated to make longer-term strategic decisions that might be favourable for companies.
Executives defend share option schemes by claiming that the global economy requires competitive salaries for management, because otherwise top managers will look for a new employer. International markets do not have a home country.
In an article the Helsingin Sanomat newspaper on 21 March 1998, the chair of the Central Organisation of Finnish Trade Unions (Suomen Ammattiliittojen Keskusjärjestö, SAK), Lauri Ihalainen, writes about the options as follows: "In future working life, where quality and results are essential goals, there must also exist bonus systems that are considered as justified even among the staff. The contradiction is enormous if incentives like options reward only the executives. Achieving good results requires the commitment of the whole staff, know-how and cooperation. Even the best executive can hardly be so supremely important to company success, that he or she would justifiably be entitled to options that are de facto risk-free."
The chair of the Union of Salaried Employees in Industry in Finland (Suomen Teollisuustoimihenkilöliitto, STL), Helena Rissanen, considers that executives have violated the latest incomes policy agreement (signed in December 1997) by arranging large share options for themselves and extra bonuses for the shareholders. She proposes that the parties to the agreement should reconvene for negotiations during the spring of 1998 in order to review the wage increases. Ms Rissanen says that companies have forgotten that it was the workers who produced the results out of which the option bonuses are being issued; they should thus be paid the same bonuses as the management, if the money is not being used for the development of the company (Helsingin Sanomat, 1 April 1998).
The Confederation of Finnish Industry and Employers (Teollisuuden ja Työnantajain Keskusliitto, TT) does not take any official stand, as it regards management share options as more of a company-level issue.
The Prime Minister, Paavo Lipponen, hopes that companies which have share option schemes will evaluate their social acceptability, and issued a reminder that the government has approved a stricter direction in this area for state-owned companies. He proposes a consideration of whether it is socially acceptable to distribute large options to the management if share prices are booming through the help of the state or because the personnel has been cut. The staff should be better taken into consideration. However, Mr Lipponen admits that options are needed in open competition. (quoted in Helsingin Sanomat, 31 March 1998).
Commentary
As the world economy opens up, there is also competition for qualified labour power. The American-style share options are part of the system of salaries and incentives that encourage management to be committed to a company. Generally it is considered that options with fair conditions function as a good method of motivating the management. In this present Finnish debate, it is more a question of what is reasonable. Are the executives' salaries as such not a sufficient incentive? If appreciation is shown to management rather than employees, it can be assumed that in the long run the work of the whole staff will suffer if only the top management gathers the "sweetest fruits". On the other hand, while unemployment remains high, the staff do not have much choice. The shareholders approve the conditions for share options, and the wage earners cannot interfere with shareholders' decisions. This means that the issue cannot become a real labour market issue and should be considered more from an moral point of view. (Juha Hietanen, Ministry of Labour)