13% pay increase for top managers criticised by unions

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While the average pay increase for Dutch workers amounted to 3.7% in 1999, top managers secured an average increase of 13% (excluding share-option schemes), it emerged in July 2000. Trade unions have called on employers to justify this development, which apparently contradicts their persistent calls for wage moderation. While the FNV union confederation will not respond by calling for a 13% pay increase for its members, it does believe that the time is ripe for all employees to share in favourable company results through share-option schemes.

While the average pay increase for all employees amounted to 3.7% in 1999, top managers secured an average increase almost 10 percentage points higher, at around 13% (compared with increases for senior managers of 8% in 1998 - NL9908159N- and 4% in 1997). This emerged in July 2000 from a study conducted by the de Volkskrant newspaper, based on analysis of the annual reports of 300 stock exchange-listed companies – details on the salaries of individual top managers are not yet open to public scrutiny in the Netherlands. The research also reveals that company results do not appear to affect the level of pay increase for senior management; companies with both increasing and declining profits paid out the same average pay increase to their top managers and directors. The highest increase, at 25%, was recorded at the ING banking and insurance group. Finance was a sector that, with the best financial results, contributed considerably towards an average increase in the profits of Dutch companies of 13% in 1999. Performance-based share-option pay-outs are excluded from these calculations.

Irresponsible pay increases

The Lower House of the Dutch parliament dubbed the management pay rises as "irresponsible". The increases will certainly spark debate in autumn 2000: according to some members of the Lower House, the cabinet must compel the upper echelons of the private sector to assume greater responsibility and stem the upward pay trend. The revelations about management pay have already prompted the government to oblige private sector companies to publish figures on individual top salaries in 2001, rather than 2002 as originally planned in legislation announced in June 2000 (NL0007196N). At the same time, the management pay debate has fuelled top-level government officials' calls for higher salaries for ministers and senior civil servants, who generally earn far less than top managers in the private sector. It is notable that privatisation of the social security system translated directly into a pay increase of 15% in 1999 for top managers and directors at the Joint Administration Office (Gemeenschappelijk Administratiekantoor, GAK), one of the largest executive bodies responsible for the administration of the social security system.

Lodewijk de Waal, the chair of the Dutch Trade Union Federation (Federatie Nederlandse Vakbeweging, FNV), demanded an immediate explanation in light of the pay revelations. Given the high management pay increases, it seems that employers will once again have to clarify the concept of wage moderation and justify recent developments. The bipartite consultative Labour Foundation (Stichting van de Arbeid, STAR), following the pay increases recorded for senior management in the private sector in 1998, has published a list of recommendations on the issue. In 1999, for example, agreement was reached within the STAR to achieve modest wage developments across the board within organisations and to justify differences in pay increases on the basis of objective criteria.

The largest employers' organisation, VNO-NCW, believes the level of management pay increases in 1999 stemmed from favourable operating results, which have a strong impact on the salaries of top managers and directors. According to VNO-NCW, other factors include: competition in recruiting and retraining talented managers; and far-reaching internationalisation, with high management salaries in the USA and UK affecting wages in the Netherlands. Employers believe that they are merely catching up with their counterparts abroad. The Federation of Managerial and Professional Staff Unions (Bond voor Middelbaar en Hoger Personeel, MHP) agrees with this assessment.

Nonetheless, the FNV chair has continued to express his confidence that the employers will address this issue, because in 1999 agreement was reached with VNO-NCW on maintaining control over share-option schemes to ensure a more even distribution of options for all employees (as has been achieved at Unilever). The absence of transparency on top salaries is criticised by Mr de Waal, and he is pushing for the speedy introduction of the new legislation on this point. Objective criteria for assessing salary discrepancies are perhaps an even more important issue for FNV. While FNV's current demands for a 4% pay increase in 2000 will not be trebled to match the 1999 increase in management pay, Mr De Waal would like to see bonus schemes applied more generously. FNV will make participation in share-option schemes a demand in forthcoming private sector collective bargaining (NL0008101N). In the public sector, FNV would like a year-end bonus introduced instead – as is currently being demanded in the healthcare sector. Finally, the FNV chair does not want social security benefit recipients to lose out, calling at the least for an increase in benefits.

Share-option schemes for all employees

Shareholders and companies are in favour of the FNV's plan to include demands for personnel-wide share-option schemes in forthcoming collective bargaining rounds. Employers are open to the demand, but warn that share-option claims cannot be submitted in conjunction on top of demands for a consolidated pay increase - it is a question of one or the other. FNV, however, sees share-option schemes as an addition to wage demands. The demand for share-option schemes for all employees is seen as the unions' response to performance-related payment, enabling a company's performance to benefit the entire personnel.

Share-option schemes as such are obviously viable only in the private sector. Possible arrangements suggested for the public sector include enabling employees to receive a share of the assets from the sale of state interests in companies such as the KPN telecommunications operator. Moreover, even if no exactly analagous scheme can be found for the public sector, it is pointed out that terms and conditions of employment already differ from sector to sector: in one sector, "time off" and special leave arrangements, for example, might be more generous than in another sector. FNV does, however, draw a sharp distinction between share ownership as an aspect of primary pay and conditions, and as a means of employee participation, which is seen as a matter for individual workers.

Commentary

It is noteworthy that FNV has included the distribution of share-options among employees in its collective bargaining demands, especially given that share-option schemes: are not open to employees in the public sector or to benefit recipients; and are linked to company performance, which could turn out badly or well. The essential issue at stake is whether employer and employee interests should become even more intertwined. Labour and capital have long since ceased to be at loggerheads in the Netherlands, but the friendship seems to have gone too far for some, as illustrated by the media response to FNV's initiative. Opinions also differ within FNV. The AbvaKabo civil servants' union in particular has displayed considerable resistance to the envisaged share-option plan, pointing to the fact that it applies only to listed companies. An alternative will therefore have to be sought for the public sector. The union suggests submitting higher wage demands for public sector workers, coupled with a year-end bonus, particularly since this sector suffers from major labour shortages. (Marianne Grünell, HSI)