Salary grades in industry

From 1 May 1997, the grading system for white-collar workers' salaries in Austrian industrial establishments has been changed, redistributing lifetime income from later to earlier years, partly in an attempt to protect the employment chances of employees over 40.

According to the Austrian Chamber of the Economy (Wirtschaftskammer Österreich, WKÖ) there were 162,339 salaried employees in industrial establishments in 1995. This was nearly 35% of total employment in industry. (There were another 8,605 in industrial enterprises in the construction industry where they accounted for 23% of employment). The pay scales applying to these employees have been changed from 1 May 1997, affecting 84% of the total in industry. The changes come in the form of a collective agreement concluded between the Federal Section Industry (Bundessektion Industrie) of the WKÖ and the Industry and Crafts Section (Sektion Industrie und Gewerbe) of the Union of Salaried Employees (Gewerkschaft der Privatangestellten, GPA). The negotiations started in May 1995 and were concluded on 28 October 1996.

The old system

There are two basic elements of the remuneration system for salaried employees - the biennial salary advancement and the qualification grades. Both have been reformed.

The framework collective agreement for salaried employees in industry signed on 1 November 1991 specified six qualification grades ranging from unskilled, repetitive functions (grade I) to highly skilled, responsible and creative work with leadership functions (grade VI). From grade III, a growing degree of independent initiative is part of the job description, and from grade IV special qualifications and experience enter into the picture. As a rule of thumb, grades I and II do not require education or training beyond the basic minimum while from grade III at least a secondary school qualification or equivalent experience is necessary. The grades' relationship to each other can best be understood in terms of minimum entry salaries (see table below). Visibly, the differences between the grades become greater, the higher the grade. The entry salary of grade VI is more than 50% above that of grade V. Between grades III and IV the difference is more than one quarter, and between IV and V nearly one third. In addition, there are three "master "grades, M I to M III. These are mainly intended for employees with a completed formal apprenticeship, and at entry salaries between ATS 21,397 and ATS 29,581, are for the most part situated between grades IV and V.

From an employer's perspective, the pronounced cost differences between the grades are compounded by the biennial salary advancement entitlements, whereby the minimum monthly salary increases in steps every two years. Again the difference between the increments rises with the grade. Thus, not only is a grade V employee more expensive than a grade IV one, but she or he also becomes more expensive more quickly. In grades I to V, there are eight such advancements. There is a ninth advancement in the case of employees who had reached at least the sixth advancement before 1 November 1988. In grade VI there are only four increments and the first one, at ATS 5,112, is much larger than the later ones, at ATS 3,349 each. The framework collective agreement allows for a limited percentage of the workforce due for an advancement to be bypassed. Normally this is 10% in a calendar year.

The following table gives an example from the metalworking sector. It shows entry- level minimum gross monthly salaries in industry, payable 14 times per year, the average size of the biennial increment, and the number of advancements (the number of times the increment has to be added). Data relate to the collective agreement of 23 September 1996, valid from 1 November 1996.

The system had led to a certain tendency to leave employees in a lower grade even though they were already performing higher tasks, or to mix job description elements in such a way that a prevalence of lower-grade tasks appeared while the employee became eminently employable in higher-grade tasks. The system had also led to a feeling among salaried employees over 40 that they were being priced out of the market. This sentiment was supported by remarks employers made in public. Further, younger employees felt they were not being paid according to their productivity. All in all, a reform of the system could no longer be postponed.

System reform

The reform of the system agreed on 28 October 1996 essentially shifts income from later to earlier years of employment. This was achieved by raising entry-level minimum salaries while lowering increments, decreasing the number of advancements, and increasing the number of grades. The changes are intended to be cost-neutral. The table below shows the effects of the new system as it applies to employees' monthly salaries in metalworking industrial establishments from 1 May 1997.

Increments in grades III, IV, and V have been reduced by over 9% and in grade II by over 6%, while entry-level salaries have been raised by around 5%. In the master grades, entry salaries have been raised by 4%-5%, and average increments reduced by between 2% and 15%. After 10-12 years' service, salaries in the new and the old system match. From then on there are no further advancements in the new system, while in the old they would have continued for another six years. However, the creation of two new grades aims at increasing the likelihood that employees will be upgraded. If employees of grade IV or grade V perform during about one third of their normal working time tasks belonging to the next grade up, they must be moved to grades IVa and Va, respectively. The properties of grade VI remain unchanged. Advancements in grade I are now restricted to two. Instead of a third advancement, employees in this grade have to be upgraded to the next income level in grade II.

As a fifth point of reform, a clause was introduced in the collective agreements on advancements within grades, making it compulsory to raise actual salaries by at least as much as the minimum salary when the increment becomes due. In the remainder of 1997 from 1 May, at most 5% of the employees in an establishment can be passed over for advancements.

The table below gives a comparison of grade IV minimum monthly salary development, taken from the collective agreements on industrial salaries in the metalworking sector of 23 September 1996 (old) and 28 October 1996 (new).

Various studies carried out for the GPA union have tended towards the conclusion that, overall, the new system will not negatively affect either gross or net lifetime incomes. There may be some redistribution from taxes to social security. Furthermore, it is fairly difficult to say how pensions will be affected.

The changeover

From 1 May 1997, no white-collar employees in industry are paid according to the old scheme, and all have changed over to the new system. Regulations governing the changeover are too detailed to be reported here but, since actual salaries remain unaffected on the day of the changeover, the main aim is to protect the lifetime earnings expectations of employees well advanced in the old system. This is achieved mainly by securing in the new scheme some of the advancements that would have accrued in the old system.

Commentary

The new system is meant to close the income or cost gap between longer-serving and newly-hired salaried employees in industry, and thereby to protect the employment opportunities of older employees. Whether this result can in fact be obtained will depend on the response of actual salaries to the changed minimum salaries. It is conceivable, though perhaps not likely, that the higher cost of new entrants, combined with the still high cost of older workers will negatively affect the cost position of enterprises. They would then most likely react by shedding older employees. In this way it could happen that a collective agreement meant to be protective has in fact increased the pressure on older workers. At this time, however, none of the commentators expect such an outcome. (August Gächter, IHS)