SSAB, Sweden: Make work pay – make work attractive
SSAB is a major steel company in Sweden. For over ten years, a profit-sharing scheme has been in operation in the company, whereby profit above the goals set by the board is shared among employees. All employees receive the same amount. The shared profit can either be taken in cash or be paid into a pension fund.
SSAB is a leading producer of high-strength sheet steel and steel plate. The company was formed as a merger of several Swedish steel mills during a crisis in the steel industry in 1978. SSAB consists of a headquarters company and four subsidiary companies. The SSAB group has developed from a standard steel producer into a producer of more specialised steel products. The group has an income of almost 2.7 billion euro and has 8,400 employees worldwide, with 8,000 in Sweden.
SSAB is listed on the Stockholm stock exchange. Industrial relations are cooperative. SSAB is a member of the steel industry employer organisation and union density is high: 90% for blue-collar employees and 80% for white-collar employees. The economic performance of the company is highly dependent on the world market.
Description of the initiative
The profit-sharing scheme in SSAB was introduced in 1994, as an initiative by the management. The view of the management was that employees should be rewarded when the company is profitable. It was also expected that a profit-sharing scheme would contribute to company morale and loyalty.
The part of the profit that is shared among the employees is based both on a calculation and on a decision by the company board of directors. The calculation is based on the profit goals set by the board on company capital and on total capital. When these goals are met, a portion of the remaining profit is set aside for the employees. There is an upper limit, calculated on a per employee basis. The maximum profit per employee has, for some years, been 2,580 euro but in 2006 was raised to 3,225 euro.
The sum set aside for profit-sharing is paid into a fund and invested in prime shares (including SSAB shares). After three-and-a-half years, the money is paid to the eligible employees.
Eligible employees are employees who are in permanent employment and are still with the company at the time of the shareholders’ annual meeting the year after the profit was made. All permanent employees receive the same amount. Part-time permanent employees get a share of the profit in relation to their working time.
The reason for the delay in paying the profit-share has to do with the Swedish tax system. By delaying the pay-out, wage tax is reduced by about 10%.
The money set aside for profit-sharing is invested in public shares including SSAB shares. This is done by a board of six persons, two nominated by management and four nominated by the local trades unions. This practice means that the actual sum paid to the employees differs from the sum originally set aside for the purpose.
The employees can receive their share of the profit in cash as an ‘extra salary’ or they can invest it in a personal pension fund. If the money is placed in a pension fund, the tax is postponed until they retire. It is not known how many employees take their share in cash and how many put it in a pension fund. This is a choice made by each employee every year.
There are no formal links between the wage-setting system of SSAB and the profit-sharing scheme. The trade union representative emphasises that the profit-sharing bears no relation to the wage system, and management shares this view. Wages at SSAB follow the industry agreement for the steel industry. There has never been any attempt to measure the effects of the profit-sharing scheme. There are regular attitude surveys conducted in the company but they have never been linked to the profit-sharing scheme. Personnel turnover is low, which is to be expected as the main SSAB mills are located in small communities, where SSAB is a large and dominant employer.
Dividends to the employees from the profit-sharing scheme at SSAB have varied over the years. One year there was no dividend and in other years the dividend reached the set maximum. The maximum equals at least one month’s salary for the majority of employees. The majority of employees in SSAB are on monthly salaries. There are no piece-rate payment systems. In one of the mills, Oxelösund, there is a bonus scheme in operation. The scheme is based on productivity and on factors related to the environment. This scheme results in a small amount of extra pay.
Profit-sharing schemes are not very common in Sweden, and the majority are short-lived. Schemes that have been maintained for longer periods are generally found in larger corporations. SSAB’s is an example of a scheme that has been in use for over ten years and is still popular with management and employees. The method of calculating the portion for the employees gives the shareholder’s representatives control over the scheme.
The scheme cannot be expected to have any noticeable effect on the daily efforts by the employees. The scheme, however, is seen by the employees as ‘fair’ in the sense that when the profits go up they get a share, and when the company has a loss salaries are not affected. The option to place the individual profit share into a pension fund is an additional element to strengthen the long-term relationship with the employees.
The practise of using the shared profits to buy shares, and the delay of over three years from the year the money was earned to when it is paid out can undermine the motivational aspects of the scheme. It is a common view of the management and the local trade union representative; however, that the scheme is popular among the employees and that is does contribute to company loyalty and morale.
Exemplary and contextual factors
Profit-sharing is not very common in Sweden. The discussion on employee pay is concentrated on individual pay-setting schemes. The SSAB case is an example of a scheme that exists among a handful of major corporations in Sweden. The scheme is designed to give a share of the profit during good years to the employees. This arrangement is seen as fair, but is not designed to influence how the employees carry out their daily work. The profit-sharing scheme at SSAB has been in operation for a long time and is seen as an element in building company loyalty and morale.
Olle Hammarström, National Institute for Working Life, Stockholm