France: Study finds bonus payments have no effect on total employee remuneration

The use of financial participation schemes is a subject of public debate and policy initiatives in France since the early 1980s. A study on the relationship between bonus payment schemes and wage levels has found that the payment of bonuses to employees has no effect on total remuneration and a negative effect on basic wage rates. The finding suggests that  financial participation is used to compensate moderation in basic wage rates through bonuses. Since financial participation is largely exempt from taxes and social security contributions, the authors raise the question of the effect of bonus payments on public finances.

Financial participation in France

Financial participation of employees in France, broadly speaking, takes two forms. One form, intéressement, is a voluntary collective measure that involves bonus payments to employees if certain company performance indicators are achieved, such as increases in productivity or lower rates of absenteeism. Bonus payments may be distributed immediately or may be transferred to an employee savings account, which is generally only accessible after five years (the law provides for early release in cases such as marriage or civil partnership or the acquisition of property). The conditions and mode of calculation of such financial participation schemes are decided by management or negotiated with social partners or the workforce. French legislation explicitly prohibits the use of variable pay elements through financial participation to substitute fixed wages for a period of twelve months after the introduction of such measures.

The second form of financial participation, profit-sharing (participation aux bénéfices), is compulsory for companies with at least 50 employees, and its mode of calculation is determined by law. Since 2009, profit-sharing benefits can be made available immediately or be held in employee saving accounts. Direct distribution had not been possible prior to a 2008 reform.

A study published by the Centre for Employment Studies (Centre d’étude de l’emploi, CEE) analyses the effect of financial participation agreements on wage levels, focussing on the first form of participation, unilateral or bilateral voluntary financial participation agreements.

Rationale behind participation agreements

Economic research literature suggests two different rationales for the introduction of employee participation schemes, namely incentives to increase employee productivity and wage flexibility. Based on efficiency wage theory, it is argued that the financial participation of employees strengthens the relationship between employees and management, and the authors of the CEE study cite empirical research that supports the hypothesis. However, other studies find that increased productivity is explained by the provision of employee voice mechanisms and work organisation rather than the existence of financial participation.

With regards to wage flexibility, the literature suggests that financial participation may be introduced as a partial substitution to basic wages. Empirical studies show that the introduction of financial participation schemes is associated with lower basic salaries but an overall increase of total remuneration. Other research reports that the effect on basic salaries and total remuneration is time-dependent: the introduction of profit-sharing has an immediate positive impact on both indicators, but the relationship turns negative after the measure has been in existence for five years. In contrast, more recent research provides evidence that suggests that financial participation has a positive impact on both basic wages and total remuneration.

The CEE study seeks to contribute to the debate by testing the effect of financial participation schemes on the level of basic remuneration, in other words, wages without bonus payments, and the overall amount of payments.

Research design

In order to analyse these issues, the researchers created a database combining three different sources: the Survey on profit sharing, financial participation, saving schemes and employee stakeholders (L’enquête sur la participation, intéressement, plans d’épargne salariale et actionnariat des salaries, Pipa); administrative data on companies (Ficus); and annual company social data declarations (DADS). The result was a company panel dataset of private sector businesses, excluding agriculture, that runs from 1999 to 2007.

Using propensity score matching, the data permitted the comparison of companies that introduced financial participation between 1999 and 2007 (1,715 companies) and those that have used such a scheme over the full period (863 companies) with businesses that do not offer financial participation (15,749 companies). In addition, the model took into account a range of control variables covering structural features of the company (size, sector, member of a group), economic performance indicators (profitability, labour productivity) and the structure of the workforce (proportions of managers and intermediate professions, proportion of women). The use of control variables is justified due to substantial intra-group variance.

Large subsidiaries more likely to pay bonuses

The study finds that financial participation is most common in large companies, in businesses that operate in the energy and finance sectors, and in workplaces that belong to a company group. It also finds that managers are more likely than workers to benefit from financial participation (63% of managers compared to 44% of non-managers). With regards to economic performance, the evidence indicates that 81% of companies with a financial participation agreement actually distributed bonuses between 1999 and 2007. It also indicates that more productive workplaces are more likely to have a participation agreement; this probability decreases with the profitability of the company. In addition, more profitable businesses are found to grant more and higher bonus payments to their employees.

No effect on total level of remuneration

An econometric analysis estimated the effect of the introduction and presence of financial participation agreements. Taking into account all control variables, the authors find that both the mean gross total remuneration per employee and the mean gross remuneration excluding bonuses are not significantly different between businesses that introduced financial participation in the year prior to the survey and businesses that do not make use of such practices. In other words, both total salaries and salaries without bonus payments are very similar just after the introduction of a financial participation agreement. Hence, newly introduced bonus payments are found to be insufficiently high to either substitute basic wages or to increase total remuneration.

A second model estimated the effect of the presence of a financial participation agreement over the full period covered. Similar to the first model, the estimates show no significant difference in total remuneration between companies with or without financial agreements. Thus, even agreements that have been in existence for several years are not found to increase the total level of gross wages. On the other hand, basic wage rates are found to be significantly lower in companies that use financial participation to remunerate their employees. The finding suggests that financial participation is associated with wage moderation that is compensated by bonus payments. Hence, the results provide evidence for the existence of a substitution effect of financial participation on basic wage rates.

Wage substitution as a burden on public finances?

The results show a long-term substitution effect of financial participation schemes on gross basic wage rates. Since financial participation payments are largely exempt from taxes and social security contributions, the authors raise the question of whether bonus payments may be interpreted as a tax break shared between employers and certain employees. According to the study, the computation base for social security contributions was lowered by €18 billion in 2012 as a consequence of tax-free bonus payments. The result is some €2.8 billion in unpaid social security contributions. The substitution effect of financial participation schemes thus has consequences for public finances that are not sufficiently addressed by French policymakers.


Delahaie, N. and Duhautois, R. (2013), 'L’effet de l’intéressement sur l’évolution des salaires', Connaissance de l’emploi, No. 108.

The publication is an extract of a more comprehensive study, whose results are published in:

Delahaie, N. and Duhautois, R. (2013), L’impact des dispositifs collectifs de partage des bénéfices sur les rémunérations en France. Una analyse empirique sur la période 1999–2007, Centre d’études de l’emploi, Rapport de recherche No. 83.

Useful? Interesting? Tell us what you think. Hide comments

Eurofound welcomes feedback and updates on this regulation

Add new comment