Opel Hoppmann, Germany: Make work pay – make work attractive
Opel Hoppman, a car sales and repair company, implemented a profit-sharing scheme in 1961. Employees receive 50% of the company’s profits. Financial participation is complemented by the influence on economic decisions by the workforce and its representatives and extended general participation rights beyond the Works Constitution Act. Direct participation at the workplace is practised in work teams.
Opel Hoppman was founded in 1936 and transformed into a limited-liability company in 1973. In 1973, the owner established the Life Foundation, and 1974 the property was transferred to this foundation. The foundation is the only shareholder of the Opel Hoppmann company and receives an annual dividend of 1% on the equity capital.
The company has five subsidiaries and six locations. Of the 260 predominantly permanent employees, 25% are female, 50% are employed as blue-collar workers in car repair and 50% are white-collar workers, mostly employed in sales. Female apprentices for craft jobs left the company, either for family reasons or for qualification in another occupation. The age average is high and staff turnover very low. The average length of service is 19 years. Management staff is predominantly recruited internally.
The company’s 47% union density is comparably high for the motor vehicle trade. Only one woman is a member of the works council. The company is a member of the employers’ association and pays salaries and wages above the level of the collective agreement for this sector. Car sales staff receive an additional commission. The profit-sharing scheme is in addition to other payments.
In 1969, the profit-sharing scheme in its final form was laid down in a works agreement, which can only be changed or terminated with the agreement of both sides.
Description of the initiative
The key motivator of the initiative was the company owner, who started to experiment with profit-sharing and employee participation. The model has five interrelated elements which together form a holistic unit:
- Profit-sharing scheme.
- Qualified co-determination and employee participation at all levels up to the management of the company.
- Direct participation in the workplace by work teams with particular entitlements.
- An economic committee with parity.
- Employee representation on the foundation board.
The initial profit-sharing model, implemented in 1961, was modified in 1969. The workforce decided to shift from the model of profit-sharing, related to the job function, to a model with an equal share for all employees. Each full-time employee receives the same amount; part-timers receive an amount according to their working time, apprentices a percentage from 10% to 45%, depending on the years of their apprenticeship. The required length of service to participate is three months.
The formula of the profit-sharing scheme is that both the enterprise and the workforce receive 50% of the distributable profit, which is calculated as the profit before taxation minus 7% interest on equity capital. Fifty per cent of the share for the employees is paid out, while the other 50% is invested for the retirement age and personal loan accounts for the employees. Of the 50% cash share, 25% is paid out monthly and the other 25% at the end of the year. Employees receive the same interest rate for the invested share as the company. There are neither losses foreseen in the scheme nor any participation in losses.
After retirement, the invested part is paid out monthly in fixed rates, laid down in the company agreement. The entitlement is inheritable. In the case of an employee quitting the employment contract, there is a waiting period of 15 months and then the monthly amount is paid out until the account is empty.
As the invested part is dealt with as a reserve in the balance sheet, employees do not have any access to the money. Therefore, they do not need to pay income tax or social security contributions during their active working life. Employees only have to pay taxes on the annual interest if the interest exceeds the tax-exempt maximum.
The company benefits from an excellent equity capital position, which increased from 16% to more than 50% over the last 30 years. At present, the invested share of the profit-sharing scheme amounts to more than three million euro. There is no employer’s pension liability insurance in case of bankruptcy.
Currently, there are considerations to reduce the interest of 7%, based on the development of the car sales and repair trade. This would also imply an increase in the amount available for profit-sharing.
Over the last two years, no profit could be shared. For the workforce, however, a secure job is the most important item, especially in view of two recent bankruptcies of similar companies in the region. Even in years without any distributable profit, employees receive an interest payment on the invested capital. On average, the loan accounts have a value of around 30,000 euro. This implies an annual interest of more than 2,000 euro.
In 1969, an economic committee was established, according to the Work Constitution Act. In 1973, its responsibilities were extended considerably beyond a consultative function, and it became the highest decision-making body of the company. The committee consists of five management and five employee representatives. This parity was introduced in 1973. Decisions at the monthly meetings or extraordinary meetings are made with a simple majority.
A system of work teams was introduced in 1969. The system provides entitlement to direct participation at the workplace, which is not covered by the works council or the economic committee. The functions of the teams are:
- To provide more direct influence at the workplace.
- To complement participation by the work council and in the economic committee.
- To improve the quality of working conditions.
- To eliminate unnecessary hierarchy.
- To promote creativity, responsibility and social competence.
For the works councils, the teams offer further insight and information on concrete problems at the workplace.
The 17 teams are set up in relation to functions and departments and comprise between 5 and 22 persons. They meet monthly and once a year in a seminar day outside the company.
Team spokespersons are considered as moderators to the heads of departments. Each spokesperson is obliged to inform and consult the entire team on any issue affecting the work team and work processes. The teams are entitled to be heard. Their position or description of difficulties is laid down in the minutes of the meetings. If no agreement with the supervisor can be achieved, a specific arbitration committee, comprised of the representative of the foundation, the managing director and the head of the works council, can be called. This committee can decide with a simple majority although a unanimous agreement is the goal.
The model combines in a beneficial way equal involvement of employee representatives in economic and strategic decisions, direct participation at the workplace and an open and trustful relationship between management and employees. An outstanding key feature is the parity in the economic committee, which makes the economic and strategic decisions for the company.
The management representative at Opel Hoppmann emphasised the need to have managerial staff able to deal with participative management and emancipated workers. This management strategy benefits the company in terms of motivation, commitment and identification of working conditions as a basis for providing excellent service to customers. The involvement of employees provides many stimuli for further development of the company and the working atmosphere. The participative management leads to higher efficiency, productivity and success of the company.
The model of participative management requires different qualifications and experiences on both the management and the workforce, with benefits to both and to the profit-sharing scheme.
The work of the economic committee is seen as very beneficial and is reflected in the success of the company. The employee representatives have a detailed insight into the economic development of the company and take part in the responsibility of the company and its long-term development.
Exemplary and contextual factors
The personal and social ethical background of the company owner and his vision of including employees in the economic decisions and providing a scheme of participation has had a strong influence in the company’s success. The establishment of a foundation also has a social political impact.
Anni Weiler, AWWW GmbH, Göttingen