Shift in traditional wage bargaining formula

The opening of this year’s collective bargaining round has been brought forward from autumn to spring, following an initiative by the metal industry employers in May 2006. Employers had questioned productivity as a key pay-setting criterion, proposing that profit-sharing schemes – reflecting profitability at individual company level – should be included instead. The unions are strongly opposed to the employers’ demands.

Subsequent to the launch of an initiative in May 2006 by the industry branch of the Austrian Federal Economic Chamber (Wirtschaftskammer Österreich, WKÖ), the President of WKÖ, Christoph Leitl, the Federation of Austrian Industry (Industriellenvereinigung, IV) and some individual business representatives have questioned Austria’s traditional wage bargaining formula. Negotiations on pay increases have, for many years, been conducted on the basis of the so-called ‘Benya formula’ (named after Anton Benya, a former president of the Austrian Trade Union Federation, Österreichischer Gewerkschaftsbund, ÖGB), according to which wages are calculated on the basis of the national inflation rate and productivity.

In general, this formula has been acceptable to both sides of industry, particularly in the metalworking sector, which traditionally opens the Austrian bargaining round and sets the pace for subsequent negotiations in other sectors and branches of the economy (AT0510201N). This system of strongly coordinated pay and incomes policy ensures that macroeconomic goals, such as price stability and maintaining international competitiveness, can be observed.

However, this year, the metalworking bargaining round, which usually commences in the autumn, was brought forward by the metalworking employers, after they called for the end of productivity as a key pay-setting criterion in May 2006.

WKÖ’s demands

This position was adopted by Mr Leitl when, on 13 June 2006, he emphasised that, in the future, collectively agreed wage increases should compensate only for the rate of inflation. The possibility of additional pay for employees should be made contingent on profitability at individual company level: hence, profit-sharing schemes should be introduced. WKÖ suggests that each employee should receive an additional 0.1% of their annual total wages per percentage point of the company’s earnings before interest and taxes (EBIT) margin. According to this model, additional pay beyond compensating for the inflation rate is provided only when the respective company yields a profit. Moreover, a maximum bonus threshold of 1% of the employees’ annual total wages should be established, in order to avoid unduly burdening well-performing enterprises.

The aim of this bargaining model is that the individual companies’ profitability is taken into account when calculating wage increases. Such a flexible pay scheme would help to minimise the labour costs of companies which perform badly and thus reduce a possible risk of their bankruptcy.

Trade union response

The Austrian trade unions, in particular the Union of Salaried Private Sector Employees (Gewerkschaft der Privatangestellten, GPA), have vehemently rejected the demands of the business side. Karl Proyer, chief negotiator for GPA, emphasised that such an amendment of the Austrian wage bargaining formula is likely ‘to bring about significant income losses for employees over the medium term’. He stated that while the unions appreciate any performance-related bonuses paid by individual companies in addition to collectively agreed pay increases, they strongly disapprove of a dilution of the existing sector-level bargaining system, which – from the unions’ point of view – must not be replaced by company-level arrangements.

The unions argue that any pay related to the respective company’s performance signifies a single bonus for one year only, and does not affect subsequent bargaining rounds. By contrast, collectively agreed wage increases have a lasting effect for future pay, since the pay increase of the subsequent year will add on the raised earnings of the previous year. Moreover, companies’ profits are ‘elastic’, as balances can usually be manipulated by management for tax and other reasons. Such ‘creativity’ in drawing up balances is likely to underestimate profitability, which would translate into underpayment of the employees concerned. Therefore, Mr Proyer stated, ‘a wage mechanism, which takes its cue only from the rate of inflation but does not take into account productivity growth, is by no means acceptable’ for organised labour.

Commentary

Some commentators presume that this year’s business initiative to open the autumn bargaining round as early as spring and to question Austria’s traditional wage bargaining formula is linked to the unions’ currently weakened position in the light of ÖGB’s severe financial problems, which have resulted from the major losses of its own BAWAG bank (AT0604019I). According to its own statements, the bank scandal has almost entirely dissolved ÖGB’s funds, including the so-called ‘strike fund’. Moreover, the Austrian trade union movement’s involvement in derivatives trading has reduced its credibility among union members. Nevertheless, it appears unlikely that these problems will impact negatively on the member unions’ bargaining capacity.

Georg Adam, Institute of Industrial Sociology, University of Vienna

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