Multinationals and the Rise of Variable Pay in Germany

Abstract

• This article examines the use of variable pay in large German companies. lt is shown that the implementation of contingent pay has increased, in spite of institutional constraints deriving from the German system of industrial relations. The increase can be explained by the growing internationalization of product and capital markets as it is the multinational companies with a high percentage of foreign sales and a strong orientation toward shareholder value that are most likely to use flexible pay. Unions and works councils are not excluded from, but are actively involved in, these changes. Hence, the trend toward decentralization and flexibility of remuneration schemes indicates a change toward a more Anglo-American business system, but also reveals the strong embeddedness of German companies in the German system of industrial relations.

Performance-Based Rewards and Work Stress

“…Even in some European countries, in which some forms of performance-based pay plans are seen as controversial, they are still commonly employed. For example, in a sample of 90 large German firms, 63 reported using a performance-related pay plan, and about half of these had only recently introduced or extended such plans (Kurdelbusch, 2002). Thus, performance-based rewards are commonplace throughout work organizations worldwide.…”

Is there a Glass Ceiling over Germany?

“…While the use of flexible pay schemes and their exact share of overall wages has not yet been investigated over the distribution of wages, studies show that the mean share of fixed wages is around 90% (Bassen et al 2000) and variable pay is often only used in non-union wages (Kurdelbusch 2002).…”

Variable Pay, Industrial Relations and Foreign Ownership: Evidence from Germany

“…One might speculate that councils are only open to variable pay when it does not substitute for fixed wages (Kurdelbusch 2002). Nonetheless, the presence of a council has been shown to increase the probability of using variable pay schemes and, indeed, the role of the council in trust-building which increases the effectiveness of the schemes would seem to apply regardless of the extent of substitution between variable and fixed pay.…”

“…Descriptive statistics by Kurdelbusch (2002) indicate that firms with a high percentage of foreign sales are more likely to use variable pay. Hence, we include the share of establishment sales generated by exports.…”