Distribution option for pay rises proves popular

In Austria, four sectoral collective agreements on pay took effect from 1 November 1997 which included a "distribution option", allowing for some of the agreed increase to be allocated at company level. Related works agreements were concluded in 11.5% of eligible companies, covering 22% of the relevant employees, and have generally met expectations. The distribution option is now being taken up in other collective agreements.

On 20 October 1997 wage and salary collective agreements for industrial enterprises in the metalworking sector were concluded, which became effective from 1 November 1997 (AT9710138N). They were negotiated by the Industry Federal Section of the Austrian Chamber of the Economy (Wirtschaftskammer Österreich, WKÖ), the Union of Metals, Mining and Energy Workers (Gewerkschaft Metall Bergbau Energie, GMBE) and the Industry Section of the Union of Salaried Employees (Gewerkschaft der Privatangestellten, GPA).

The parties agreed to raise minimum wages by 2.7% and actual wages (and apprentices' remuneration) by 2.1%. A novel element was the inclusion of a "distribution option" (Verteilungsoption). Works agreements concluded before 20 December 1997 could limit the across-the-board rise in actual wages to 1.9%, if the company agreed to raise the total paybill by an additional 0.5%, which would be distributed to groups designated in the works agreement, but principally in line with criteria of low income and high performance, favouring women in particular. The necessity of a works agreement limits the applicability of this option to companies with a works council (which alone is empowered to sign such agreements). The option was also included in the salary collective agreements for industrial enterprises in the chemical and glass sectors concluded on the same date, and a total of 113,298 salaried and 162,000 waged employees are thus covered.

The idea was primarily to provide leeway for pay rises, disregarding the seniority principle. In this way the process of flattening the pay scale, which was negotiated in 1996 and took effect from 1 May 1997 (AT9705112F), was to be enhanced and accelerated. Since average pay rises where the option clause was used would be 2.4%, rather than just 2.1%, there was some doubt that it would actually be implemented. These doubts proved to be unfounded.

More than 100 works agreements

There are 1,250 companies in the metalworking sector that could have concluded works agreements on the distribution option. Of these, 144 actually did so. There were some further cases in glass and chemicals, where the relevant collective agreements apply to salary earners only. The companies concerned tend to be larger firms, since only they have works councils and a management with the capacity to conclude complicated works agreements. As a result, the works agreements cover about 34,000 of the 153,000 wage earners who could potentially have been affected. According to the GPA, roughly 30,000 of the 113,000 salaried employees are also covered. In this way coverage among eligible companies is 11.5% in the metalworking sector but around 22% among employees.

The beneficiaries

Broadly speaking, the distribution option was used in the intended way. The 0.5% of the paybill is generally aimed at two groups - those on low incomes and key personnel. In the former case, younger or female employees benefit disproportionately. In the latter case, to award some of the benefit to key personnel is a means of retaining them in the company (and often in the country) and also a means of providing a greater monetary incentive for high performance.

For example, at Siemens Austria AG about 5,000 of the 13,000 employees, of whom about 8,000 are salaried, benefit from the distribution option. In addition to the 0.5% under the option scheme, Siemens also now pays 0.3% of the total paybill into a newly-created company pension fund. For the company, this is cost neutral, since in return the 0.7% annual bonus normally paid in April will be foregone. In this way, Siemens was able to keep the overall rise of the paybill to 1.9% - less than the 2.1% it would have had to bear without negotiating the distribution option.

Rewarding trade union membership?

At Siemens it became publicly known in January 1998, that the works council intended to focus the benefits of the distribution option primarily on trade union members. This is a totally new departure in the Austrian industrial relations system. The works council's intention is to reward membership in the hope of providing an incentive for more employees to join. Membership in the company stands at about 80%, according to the works council, substantially above the general national 50% (which, in addition, is declining). The president of the Austrian Trade Union Federation (Österreichischer Gewerkschaftsbund, ÖGB) publicly defended the intention of the works council at Siemens, saying that it was legitimate for a council to do this, and that without the trade union there would not be a collective agreement in the first place.

Employer statements, including those of Siemens management, were very critical of any practice that would reward membership rather than productivity or achievement. The Government, as well as some leading trade unionists, cautiously distanced itself from union membership as a criterion for wage or salary rises. At Siemens, a final decision on the group of beneficiaries will be made between management and the works council before the end of January 1998.

Commentary

Contrary to the "opening clause" negotiated in 1993, the experience with the distribution option clause has been commented on favourably by employers and trade unionists. It seems likely that more of the same will be negotiated in the autumn of 1998. Indeed, the wood processing industry will implement a collective agreement from 1 March 1998 that includes a distribution option, and the mineral oils industry will do the same from 1 February 1998. Apparently workers receiving a rise of only 1.9%, instead of the 2.1% they could have had if the option clause had not been applied in their company, see no injustice. According to press reports, the chief secretary of the Industry Section of the GPA has said that some of the works agreements were concluded at the behest of the workforce and against the original intention of works councils. The most important aspect of the distribution option is the leeway it provides for company-specific wage and salary agreements. The Austrian industrial relations system is now clearly moving towards wage and salary settlements tailored more closely to the individual firm. New elements will no doubt be added to future collective agreements in order to facilitate this process. (August Gächter, IHS)

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