New company agreement signed at Volkswagen AG

In June 1997, the collective bargaining parties at Volkswagen signed a new company agreement which provides for moderate wage increases, the introduction of new profit-related bonus payments and, for the first time, a provision on partial retirement.

On 24 June 1997 the recent collective bargaining round at the leading German motor company Volkswagen (VW) ended with the conclusion of a new company agreement. Volkswagen is one of the very few large German corporations in the metalworking sector which, traditionally, are not covered by branch-level collective bargaining, but have always concluded their own company agreements. The negotiations for the about 95,000 VW employees take place between VW management and the regional office of the IG Metall metalworkers' union in Lower Saxony, where most of the six west German VW plants are located.

Agreements on wages, bonus payments and working time

The recent Volkswagen bargaining round was accompanied by relatively high expectations on the part of the VW workforce in respect of pay rises. In the last few years, VW employees have had to accept significant pay reductions as a result of the shortening of working time to 28.8 hours per week with only partial wage compensation. At a time of deep economic troubles at Volkswagen, this working time reduction was agreed in 1994 to secure jobs and avoid redundancies. Meanwhile, VW's economic performance has since been improving. In April 1997, the company announced that in 1996 its turnover was more than DEM 1 billion for the first time, and that it had doubled its profits from DEM 336 million in 1995 to DEM 678 million in 1996.

After more than three months of negotiations, VW management and IG Metall finally agreed to a 1.5% pay increase from 1 August 1997 to 31 July 1998 and another 2.5% pay increase from 1 August 1998 to July 1999. The VW employees will thus receive the same pay rises which had already been agreed in the recent metalworking branch-level agreement at the end of 1996. Volkswagen has also guaranteed 100% continued payment in the event of sickness, but excluded overtime bonuses from the calculation of sick pay. The company agreement also provides that each full-time employee will receive a profit-related bonus (ertragsabhängiger Bonus) of DEM 500 in 1997, in line with the good current economic situation of the company. Next year there are to be additional negotiations between VW and the company's works council to determine a profit-related bonus for 1998.

Originally, VW management had plans to create a new company for some of its service activities (for instance, canteens, cleaning, driving services and factory security) and take this new "service company" out of the coverage of the VW company agreement (DE9704210N). Management proposed to pay the service employees under the conditions of the metalworking branch-level agreement, which provides for pay levels significantly below the VW company agreement. After the VW works council and IG Metall had sharply rejected these plans, the collective bargaining parties finally found a compromise which foresees that the newly-established Volkswagen Services Business Unit will continue to be covered by the VW company agreement (DE9705113N). To avoid a further outsourcing of service activities, and at the same time to reintegrate already outsourced activities, two new low-level pay grades will be inserted into the agreement. However, Volkswagen gave a guarantee to all service employees that the recent level of pay will be maintained.

Finally, the collective bargaining parties agreed to continue with the 28.8 hour week which had been introduced in 1994. The new agreement states that the normal working time at Volkswagen will be from Monday to Friday, but with the agreement of the VW works council there could also be work on Saturdays, if this would have a positive effect on employment. Management originally demanded a significant reduction in the special bonuses for Saturday work, but in the end agreed to continue with a 50% premium on normal pay rates.

Agreement on partial retirement

During the last few years the use of partial retirement (Altersteilzeit) - whereby employees combine work with early retirement - has become a very important instrument of VW's employment policy of reducing its workforce without redundancies. However, this became very difficult after the German Government repealed the former Early Retirement Rule in 1996 and replaced it by a new Partial Retirement Law (Altersteilzeitgesetz). The latter is much less attractive to older workers because they lose a relatively high proportion of their payments and pensions if they opt to take partial retirement. For instance, employees taking partial retirement receive only 70% of their former full-time remuneration and have to renounce 18% of their pensions.

Even though the current economic situation at VW is so strong that the company agreed to hire about 400 new employees in May 1997, both bargaining parties at Volkswagen were in favour of concluding a new company agreement on partial retirement because they see it as an important instrument to handle further increases in productivity in the coming years without creating redundancies. A new collective agreement on partial retirement was eventually concluded which, compared with the provisions of the Partial Retirement Law, contains a number of improvements for the employees:

  • Volkswagen will pay 85% of former full-time remuneration to all employees taking partial retirement, instead of the 70% prescribed by law;
  • for each employee taking partial retirement, Volkswagen will pay 100% of the full-time employee's contribution to the national pension system, instead of the 90% prescribed by law; and
  • Volkswagen will reduce the losses in pensions from 18% to 9% for all employees taking partial retirement .

The VW company agreement on partial retirement provides that the so-called "block model" will usually be applied. This model means that over a period of five years, employees aged 55 and upwards continue to work full time in the first two and a half years, and then stop working in the second two and a half years. Over the whole five-year period, the workers receive the 85% partial retirement payments.

Commentary

In times of growing mass unemployment in Germany, partial retirement is an important instrument to reduce the burden on the labour market. However, the provisions of the 1996 Partial Retirement Law seem not to be acceptable for most older workers, and only little use has so far been made of this new law. As a result, more and more employers and trade unions have started negotiations to reach collective agreements on partial retirement which, in comparison with the legal provisions, should improve the situation for older workers. Nevertheless the current negotiations in the metalworking industry between IG Metall and the sectoral employers' association, Gesamtmetall, seem to be blocked, and an agreement has not so far been reached. The recent Volkswagen company agreement could therefore be seen as a "social pioneer" in the metalworking sector. However, the comments of the social partners in the industry further underline their opposed viewpoints. While the president of IG Metall, Klaus Zwickel, called the VW agreement "an excellent example of a socially acceptable contract between generations", the metalworking employers have already declared that the agreement could not be transferred to the whole sector. (Thorsten Schulten, Institute for Economics and Social Science (WSI))

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