Wages and working conditions in the European Union.
Date: 2011-07-08
Institutions: Eurofound
Subjects: remuneration of work, wage determination, working conditions

Wages&WorkingCvEN    23/6/05    3.18pm    Page  1

4

5

T
J
-
5
5
-
0
5
-
8
3
0
-
-
E
N
-
C

Income and wages are an essential component of employment and quality

of  work.  They  also  have  implications  for  company  strategy  and

performance. 

The  main  objective  of  this  report,  Wages  and  working  conditions  in  the

European  Union, is  to  analyse  the  relationships  between  wages,  work

organisation and working conditions, as a result of managerial policy, and

as  an  element  of  organisational  performance  and  quality  of  working  life,

and to produce indicators accordingly.

The  research  model  examines  the  influence  of  various  environmental

factors, and produces qualitative information concerning the relationships

between the pay system, union density, employee representation, working

time flexibility and contract type.

The European Foundation for the Improvement of Living and Working Conditions is a
tripartite  EU  body,  whose  role  is  to  provide  key  actors  in  social  policymaking  with
findings,  knowledge  and  advice  drawn  from  comparative  research.  The  Foundation
was established in 1975 by Council Regulation EEC No. 1365/75 of 26 May 1975.

W
a
g
e
s

a
n
d
w
o
r
k
n
g

i

c
o
n
d
i
t
i
o
n
s

i

n

t
h
e

E
u
r
o
p
e
a
n
U
n
o
n

i

ISBN 92-897-0912-X

9 789289 709125

Wages and working conditions 
in the European Union 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Wages&Working05106    23/6/05    3.07pm    Page  i

Wages and working conditions in the European Union 

Wages&Working05106    23/6/05    3.07pm    Page  ii

Authors:
Conny H. Antoni and Ansgar Berger, University of Trier, Germany
Xavier Baeten and An Verbruggen, Vlerick Leuven Gent Management School, Belgium
Ben Emans, University of Groningen, Netherlands
Kiisa Hulkko and Matti Vartiainen, Helsinki University of Technology, Finland
Ian Kessler, Templeton College, United Kingdom
Elizabeth Neu, Uppsala University, Sweden

Foundation project: Wages and working conditions in the European Union
Research managers: Juhani Pekkola, Jean-Michel Miller and Bernard Housset

Wages&Working05106    23/6/05    3.07pm    Page  iii

Wages and working conditions in
the European Union 

Wyattville Road, Loughlinstown, Dublin 18, Ireland - Tel: (+353 1) 204 31 00 - Fax: (+353 1) 282 42 09 / 282 64 56 
email: postmaster@eurofound.eu.int - website: www.eurofound.eu.int

Wages&Working05106    23/6/05    3.07pm    Page  iv

Cataloguing data can be found at the end of this publication

Luxembourg: Office for Official Publications of the European Communities, 2005

ISBN 92-897-0912-X

© European Foundation for the Improvement of Living and Working Conditions, 2005

For rights of translation or reproduction, applications should be made to the Director, European Foundation for the Improvement of
Living and Working Conditions, Wyattville Road, Loughlinstown, Dublin 18, Ireland.

The European Foundation for the Improvement of Living and Working Conditions is an autonomous body of the European Union, 
created to assist in the formulation of future policy on social and work-related matters. Further information can be found on the
Foundation website at www.eurofound.eu.int.

European Foundation for the Improvement of Living and Working Conditions
Wyattville Road
Loughlinstown
Dublin 18
Ireland
Telephone: (+353 1) 204 31 00
Fax: (+353 1) 282 42 09 / 282 64 56
Email: postmaster@eurofound.eu.int
www.eurofound.eu.int

ENVIRONMENTAL
DIC

R
O
N

L
A
B
E
L

541

006

Printed matter

Printed in Denmark

The paper used in this book is chlorine-free and comes from managed forests in Northern Europe. 
For every tree felled, at least one new tree is planted.

Wages&Working05106    23/6/05    3.07pm    Page  v

Foreword

Income and wages are an essential component of employment and quality of work. For this reason,
pay  and  wage-related  issues  have  long  been  on  the  research  agendas  of  European  institutions.
Since the early 1990s, there has been growing interest in understanding the nature and impact of
wage systems. To a large extent, the focus has been on forms of financial employee participation,
particularly in terms of profit-sharing and share ownership schemes. 

To  date,  however,  there  has  been  relatively  little  research  into  the  connection  between  financial
participation and performance – the links between wages, working conditions, work organisation
and managerial strategy, on the one hand, and between performance and quality of working life on
the  other.  In  addition  to  the  effects  on  company  performance,  there  is  also  a  growing  need  to
consider the implications for working conditions and the quality of working life. 

This  report,  Wages  and  working  conditions  in  the  European  Union, seeks  to  analyse  the
relationships between wages, work organisation and working conditions, as a result of managerial
policy, and as an element of organisational performance and quality of working life, and to produce
indicators accordingly. This report gives an overview of the results of these analyses. 

We  trust  the  data  will  support  European  policymakers,  managers  and  financial  compensation
specialists  in  making  informed  choices  when  designing  legislation  or  corporate  compensation
packages. 

Willy Buschak 
Acting Director

v

Wages&Working05106    23/6/05    3.07pm    Page  vi

Wages&Working05106    23/6/05    3.07pm    Page  vii

Contents

Foreword

Introduction 

Research model 

Existing research

Secondary analysis of Foundation surveys

Methodology

Prevalence of wage systems

Relations between wage system, work organisation and strategy

Effectiveness of wage system, work organisation or strategy

Effectiveness of system alignment

Summary and discussion

Methodology

Case study: Belgium

Case study: Finland

Case study: Germany

Summary and discussion

Case studies

Conclusions

Bibliography

vii

v

1

3

9

15

15

20

29

33

37

43

51

51

52

59

63

66

71

77

Wages&Working05106    23/6/05    3.07pm    Page  viii

Wages&Working05106    23/6/05    3.07pm    Page  1

Introduction 

Income and wages are an essential component of employment and quality of work. For this reason,
pay and wage-related issues have been on the research agendas of European institutions for a long
time.  Since  the  early  1990s,  there  has  been  growing  interest  in  understanding  the  nature  and
impacts  of  wage  systems.  To  a  large  extent,  the  focus  has  been  on  forms  of  financial  employee
participation, particularly in terms of profit-sharing and share ownership schemes. Investigations
into  the  field  of  financial  participation  started  with  a  descriptive  and  theory-based  approach.
Research activities concentrated on examining the incidence of financial participation according to
differences between countries, sectors, company size, occupational groups and other factors. More
in-depth analysis was subsequently conducted by the European Foundation for the Improvement
of  Living  and  Working  Conditions.  Exploring  the  impact  of  financial  participation  on  industrial
relations became the focus and results looked promising. With a view to greater benefits for both
employees and companies, European institutions started promoting the use of broad based profit-
sharing and share ownership schemes for all employees. 

To  date,  however,  there  has  been  relatively  little  research  into  the  connection  between  financial
participation and performance (Pendleton, Poutsma, Brewster and van Ommeren, 2001; Poutsma,
2001). In this regard, one should consider wage systems and work organisation as an important
aspect of the process of strategy implementation (Heneman, 2001; Heneman, Fisher and Dixon,
2001; Lawler, 1990, 1995). In addition to the effects on company performance, the implications for
working  conditions  and  quality  of  working  life  should  also  be  considered.  These  links  between
wages,  working  conditions,  work  organisation  and  managerial  strategy,  on  the  one  hand,  and
between performance and quality of working life, on the other, had not been the focus of previous
research by the Foundation. In order to fill this gap, the main objective of this study has been to
analyse the relationships between wages, work organisation and working conditions, as a result of
managerial  policy,  and  as  an  element  of  organisational  performance  and  quality  of  working  life,
and to produce indicators accordingly. 

More specifically, the study set out to focus on the following research objectives:

to identify wage-related indicators;

to  analyse  wages  in  different  company  environments,  comparing  at  least  four  European
countries and taking into account:

different employment conditions, e.g. contract type and flexibility of working time

employee characteristics, i.e. sex and age

organisational factors, i.e. size and sector

institutional aspects, i.e. employee representation and union density;

to analyse the relationships between wages and:

■ work organisation

■ managerial policy 

organisational performance 

quality of working life;

1

■
■
■
■
■
■
■
■
■
Wages&Working05106    23/6/05    3.07pm    Page  2

Wages and working conditions in the European Union 

to complement this analysis through three company case studies;

to analyse the usability and opportunities of indicators for further applications.

To achieve these objectives, three types of analyses were completed:

1. Existing  European  cross-national  and  national  research  was  reviewed  in  six  EU  countries

(Belgium, Finland, Germany, the Netherlands, Sweden and the UK).

2. Secondary  analyses  of  Foundation  survey  data,  i.e.  European  working  conditions  survey

(EWCS) 2000 (Paoli and Merllié, 2001) and the Employee direct participation in organisational

change (EPOC) survey (EPOC Research Group, 1997), were carried out at cross-national and

national level in these six EU countries.

3. Three  qualitative  case  studies  were  undertaken,  to  explore  the  relationships  described  in  the

literature and to test the feasibility of the derived indicators.

This  report  gives  an  overview  of  the  results  of  these  analyses.  The  data  will  support  European

politicians,  managers  and  financial  compensation  specialists  in  making  informed  choices  when

designing legislation or corporate compensation packages.

Before  reporting  on  the  results  of  the  analyses,  Chapter  1  describes  the  central  concepts  and

research  model.  Chapter  2  reviews  existing  European  cross-national  and  national  research  on

wages, working conditions, managerial strategy and performance. In Chapter 3, the results of the

secondary analyses on the EWCS 2000 and on the EPOC survey are reported.1 Chapter 4 outlines

the  findings  of  three  qualitative  case  studies  in  Belgium,  Finland  and  Germany.  The  report

concludes with an overall picture of the research findings. 

It  is  important  to  note  that  the  results  of  the  secondary  analyses  rely  on  data  gathered  in  2000

(EWCS) and in 1996 (EPOC survey). In particular, with regard to the descriptive data about the

prevalence of wage systems or other variables, this information is quite old and may be outdated.

However, for the major topics of this project – the analysis of the relationships between working

conditions and wage-related policies in terms of managerial strategy – these time limitations are not

of great importance, as the focus is on testing whether relationships can be found at all, and on

developing explanatory models for them. Further limitations of this secondary analysis, due to the

structure of the primary databases used, are outlined in Chapter 3.

1 Detailed country specific results of the literature review and secondary analyses for Belgium, Finland, Germany, the Netherlands, Sweden

and the UK are described in separate reports.

2

■
■
Wages&Working05106    23/6/05    3.07pm    Page  3

Research model  1

To  establish  a  theoretical  framework  for  this  project,  a  research  model  was  developed,  which
sought  to  relate  wage  structures  and  systems  to  work  organisation,  working  conditions,  various
outcome  measures  and  certain  managerial  strategies.  Figure  1  visualises  the  assumed  model
relations, with bold arrows indicating focal research questions. These show potential relationships
between wage systems and the other model variables of particular interest to this project, i.e.:

■ managerial strategy;

■ work organisation;

quality of working life; 

organisational performance;

environmental factors.

The relations between work organisation, employment conditions, quality of working life, age and
gender, as indicated by the other arrows, have already been analysed in previous EU Foundation
research (Paoli and Merllié, 2001) and are not the primary focus of this study. The focus here is on
questions concerning wage structures and systems and at least one other variable.

Figure 1  Research model

Focus of prior research

Project focus

Managerial
strategy 

Work
organisation

Wage
systems

Quality of
working life

Performance

E
n
v
i
r
o
n
m
e
n
t
a

l

f
a
c
t
o
r
s

The basic theoretical assumption is that companies that design their work organisation and wage
systems according to their management strategy perform better than companies that do not have
this  strategic  fit  approach.  If  managerial  strategy,  work  organisation  and  wage  systems  are  not
aligned, this might lead to conflicting goals and steering mechanisms, with potentially detrimental
effects both on performance and on quality of working life. Ambiguity and conflict in terms of goals
are a major cause of stress, and can impair employee well-being and performance. 

More specifically, the assumption is that, in dynamic markets, company effectiveness depends on:

innovative product strategies; 

3

■
■
■
■
 
Wages&Working05106    23/6/05    3.07pm    Page  4

Wages and working conditions in the European Union 

■ work organisations characterised by participative decision-making and tasks with high variety

and autonomy; 

■ modern  wage  systems,  characterised  by  performance-based  pay  at  team  and  company  level,

and income from shares. 

(Antoni,  2000;  Antoni  and  Bungard,  2004;  Antoni  and  Eyer,  1993;  Gomez-Mejia,  1992;  Lawler,
1990).  Besides  these  core  model  variables  and  their  assumed  interdependencies,  differences  in
wages  and  wage  systems  are  analysed  according  to  age,  sex,  and  employment  conditions,
particularly contract type and working time flexibility.

The  model  builds  on  the  strategic  management  approach  developed  by  Tichy,  Fombrun  and
Devanna  (1982).  They  propose  that  company  effectiveness  requires  the  alignment  of  strategy,
organisation  structure  and  human  resource  management.  Effectiveness  is  not  explicitly  defined,
but their description implies a systemic approach in being able to deal with economic, political and
cultural forces, and to achieve objectives. In this study’s model, two types of outcomes relevant for
company effectiveness are differentiated: quality of working life, which may be more in the focus
of employees and society, and performance, which may be more in the focus of management and
shareholders. 

Tichy et al (1982) define strategy as the process through which a company sets its basic mission
and  objectives,  and  uses  its  resources  to  achieve  them.  This  report  prefers  the  term  managerial
strategy as a process or means to achieve a company’s mission and objectives. 

Organisational  structure  is  defined  by  Tichy  et  al  as  the  organisation  of  work  into  roles,  the
recombination  of  these  roles  into  broader  organisational  entities,  such  as  departments,  and  the
redistribution of power across this role structure. Organisational structure embodies the division of
labour, the nature of jobs, their aggregation into groups, functions or businesses, and the degree of
central  top  management  control.  This  report  shares  this  understanding,  but  uses  the  term  work
organisation, as the focus is on the division of labour, and the nature and aggregation of tasks.

With  respect  to  human  resource  management,  Tichy  et  al  consider  four  basic  interdependent
activities  forming  a  human  resource  cycle:  personnel  selection,  performance  appraisal,  rewards,
and personnel development. In a type of total reward management approach, they also consider
various forms of pay, such as salary, bonuses, stock options, benefits, and a wide range of other
potential  rewards,  such  as:  upward  and  lateral  promotion  into  desirable  positions;  management
praise;  career  opportunities;  appreciation  from  customers  and/or  clients;  personal  sense  of  well-
being,  e.g.  achieving  objectives;  opportunity  to  learn;  job  and  financial  security;  providing
organisational  responsibility;  respect  and  friendship  from  co-workers.  The  model  in  this  project
focuses on wage systems, as one important aspect of reward management.

The  strategic  management  approach  by  Tichy  et  al  (1982)  stimulated  research  in  strategic  and
human  resource  management.  Within  the  field  of  strategic  management,  many  studies  have
analysed  the  relation  between  company  and  reward  strategy  (Boyd  and  Salamin,  2001;  Carroll,
1987; Dolmat-Connell, 1999; Gomez-Mejia, 1992; Gupta and Govindarajan, 1984; Montemayor,
1996;  Thompson  and  Strickland,  1992).  Concepts  of  strategic  fit  between  company  and  reward
strategy  were  developed,  stating  that  reward  systems  should  be  in  line  with  the  corporate  and

4

Wages&Working05106    23/6/05    3.07pm    Page  5

Research model 

business  unit  strategies,  in  order  to  have  an  influence  on  organisational  performance  (Gomez-
Mejia, 1992; Lawler, 1990, 1995). 

Similar  concepts  were  developed  in  human  resource  management  (HRM)  research,  stating  that
HRM  practices  have  to  be  aligned  to  promote  company  effectiveness.  They  emphasise  the
importance of high employee involvement and commitment, some using these aspects for branding
high  involvement  management  (Lawler,  1986)  or  high  commitment  management  (Wood,  1996).
Popular  current  approaches  stress  the  presumed  high  performance  effects  of  aligned  HRM
practices  by  calling  their  concepts  high  performance  works  systems,  high  performance  work
organisations,  or  high  performance  practices.  A  wide  variety  of  HRM  practices  have  been
associated  with  these  concepts,  which  makes  it  difficult  to  establish  clear  definitions  and
distinguish concepts. In general, it might be helpful to view high performance works systems as the
broadest concept, encompassing high performance works organisations. Both concepts comprise
various single high performance practices. 

The concept of high performance works systems (HPWS), introduced by Appelbaum, Bailey, Berg
and  Kalleberg  (2000),  states  that  three  elements  have  to  be  aligned  to  ensure  company
performance and employee satisfaction, commitment and well-being: 

opportunity  to  participate,  characterised  by  autonomy  in  decision-making,  self-directed  team
membership, off-line team membership and communication;

incentives, financial and non-financial;

skills focusing on personnel selection and development, to ensure adequate employee skills.

Compared with the strategic management approach developed by Tichy et al (1982), the concept
of  HPWS  is  less  comprehensive,  proposing  that  the  opportunity  to  participate  reflects  many
aspects of organisational structure. According to the Tichy et al model, the two other variables –
incentives  and  skills  –  refer  to  most  aspects  of  human  resource  management,  including  wage
systems as financial incentives, which are the focus of this project. However, it does not integrate
environmental forces and company strategy, but rather promotes a specific set of HRM practices
as being the best for company effectiveness. 

The  concept  of  high  performance  work  organisations  (HPWO)  can  be  perceived  as  describing
characteristics of work organisation, but its definition varies between authors. Differences do not
appear to be driven by theory, but in terms of indicators available to calculate a HPWO index. For
example,  Bauer  and  Bender  (2001)  focus  mainly  on  work  characteristics,  defining  HPWO  by
teamwork,  job  rotation,  decentralised  decision-making,  flat  hierarchy,  horizontal  communication
and  diversified  tasks.  However,  in  his  definition  of  HPWO,  Thompson  (2002b)  also  includes
employee  relations  and  human  resource  practices.  The  latter  include  wage  systems,  such  as
performance-based  rewards,  and  broad  job  grading  structures.  This  illustrates  that  considerable
differences  exist  as  to  which  high  performance  practices  (HPP)  are  included  in  definitions  of
HPWO. 

Furthermore,  ambiguity  exists  in  relation  to  which  HRM  practices  are  regarded  as  high
performance.  Some  studies  try  to  solve  this  empirically,  by  analysing  the  differential  impact  of
single  HPPs  or  clusters  of  HPPs  on  outcome  variables  (Frick,  2002).  Research  within  this  high

5

■
■
■
Wages&Working05106    23/6/05    3.07pm    Page  6

Wages and working conditions in the European Union 

performance  paradigm  has  been  criticised  for  its  conceptual  ambiguity  and  its  generalised  best
practice claim, particularly as reviews report mixed findings regarding performance and uncertain
implications  for  workers  and  unions  (Godard,  2004).  Obviously,  more  conceptual  clarity  and
empirical research is needed in this field.

As  a  consequence  of  these  criticisms,  this  study  follows  a  more  focused  approach.  The  model
concentrates on wage systems, i.e. financial rewards as part of reward systems and human resource
management. It does not use the concepts of reward or compensation systems beyond that defined
remit. Reward systems can encompass all forms of returns, financial as well as non-financial, that
employees  receive  as  part  of  their  employment  relationship.  Compensation  or  remuneration
systems can entail a range of material rewards and benefits (Milkovich and Newman, 1999). The
wider focus in this report is on work organisations and on their task characteristics, particularly
variety  and  autonomy,  as  well  as  delegation  and  participation  in  decision-making,  because
research  has  shown  that  these  variables  enhance  employee  motivation  and  performance,  and
quality  of  working  life  (Antoni,  1990,  1996;  Hackman  and  Oldham,  1976;  Semmer  and  Udris,
2003). As outcome variables, both company performance and quality of work life are considered,
reflecting the interests of management, owners, employees and society as the key stakeholders in
organisational effectiveness.

Based  on  the  assumptions  that  work  organisations,  characterised  by  delegated  tasks  with  high
variety  and  autonomy  and  participation  in  decision-making,  support  employee  motivation  and
well-being,  the  study  adopts  the  popular  concept  of  HPWO  to  describe  this  kind  of  work
organisation. Following the model of Bauer and Bender (2001), wage systems are not included in
this concept, as distinct concepts are needed to analyse the relationships between the variables.
Unlike the work of these authors, this report does not include teamwork in general, job rotation,
the  reduction  of  hierarchical  levels,  or  horizontal  communication,  as  these  variables  are  either
ambiguous or not based on theory. For example, teamwork may refer to teams with very restricted
tasks and no direct participation, or to self-regulating teams with high task variety and autonomy,
which  should  not  be  mixed  up  in  a  single  category.  Similarly,  job  rotation  between  equally
meaningless tasks does not create a new motivating task, whereas tasks with different demands
might increase variety and autonomy. For this reason, job rotation cannot be interpreted without
knowing  task  characteristics.  Consequently,  task  characteristics  are  used  here  to  describe  work
organisation and to define HPWO. For the same reason, other aspects of working conditions are
also  differentiated,  such  as  employment  conditions  and  indicators  for  quality  of  working  life,  as
distinct model variables, in order to analyse their various relationships. 

Similar to Tichy et al (1982), it is assumed that environmental factors, such as economic, political
or cultural forces, can influence model variables. For this reason, different company environments
are  explored.  In  particular,  six  European  countries  are  compared,  encompassing  both  liberal
market economies, such as the UK, and coordinated or social-liberal economies, such as Germany
and Sweden. Furthermore, the study takes different employment conditions into account, namely:
contract  type  and  flexibility  of  working  time;  employee  characteristics,  i.e.  sex  and  age;
organisational factors, i.e. size and sector; and institutional aspects, i.e. employee representation
and  union  density.  It  is  assumed  that  these  aspects  reflect  different  economic  forces,  such  as
different  capital,  labour  and  product  markets,  as  well  as  different  political  influences,  such  as
legislation,  taxation  and  collective  bargaining  conditions,  and  cultural  differences  in  Europe.  As

6

Wages&Working05106    23/6/05    3.07pm    Page  7

Research model 

there  is  not  enough  theory  to  deduce  specific  hypotheses,  the  study  explores  whether  country
differences exist and whether these environmental factors are related to the other model variables.

With respect to the other model variables – and under the premise that most companies operate in
dynamic markets nowadays – it is assumed that companies have better performance and quality
of working life when they operate innovative product strategies, combined with work organisations
characterised  by  participative  decision-making,  and  delegating  tasks  with  high  variety  and
autonomy, as well as modern forms of variable pay systems.

Before  testing  this  assumption,  it  is  necessary  to  check  whether  these  forms  of  strategy,  work
organisation  and  wage  systems  are  used;  how  they  are  combined;  and  how  they  relate  to
performance and quality of working life indicators. 

Due to limitations of the EWCS 2000 and EPOC data basis, which are used for secondary analysis
in this study, effectiveness regarding quality of working life can only be analysed using the EWCS
2000 dataset (see Figure 2). Effectiveness regarding company performance as well as managerial
strategy can only be analysed using the EPOC data (see Figure 3, in the next chapter).

Figure 2  Research model for secondary analysis of the EWCS 2000 data

Work
organisation

Wage
systems

E
n
v
i
r
o
n
m
e
n
t
a
l

f
a
c
t
o
r
s

Quality of
working life

7

 
Wages&Working05106    23/6/05    3.07pm    Page  8

Wages&Working05106    23/6/05    3.07pm    Page  9

Existing research 2

Cross-national European survey research on wages, working conditions, managerial strategy and
performance has been carried out primarily by the Foundation. In addition, there are a number of
country specific studies on these subjects. These are presented in the following sections.

Cross-national European research
Two  types  of  Foundation  survey  data  are  available  regarding  salaries  and  working  conditions  in
Europe. One focuses on representative samples of individual employees – the European working
conditions  survey  (EWCS)  2000  (Paoli  and  Merllié,  2001).  The  other  refers  to  representative
samples of workplaces or companies – the Employee direct participation in organisational change
(EPOC) survey (EPOC Research Group, 1997). 

The EWCS aims to provide an overview of the state of working conditions in the EU, as well as to
indicate the changes affecting the workforce and the quality of work. It includes a wide range of
concepts in the focus of research. In the third EWCS, in 2000, questions regarding modern forms
of variable pay (team bonus; profit-sharing; income from shares) were added for the first time. A
similar survey using the same questionnaire was carried out in the then acceding and candidate
countries (Paoli and Parent-Thirion, 2003). Regarding wage systems, the report of the 2000 survey
provides mainly descriptive analysis of the following data (Paoli and Merllié, 2001):

income levels on a 12-level income scale for the 15 EU Member States; 

income levels categorised by sex for service workers, workers and managers;

payment systems compared by occupational groups and by country.

The following systems or components are differentiated by separate questions, i.e. as independent
wage components:

basic fixed salary/wage;

piece rate and productivity payment;

extra payments for additional hours of work/overtime;

extra payments compensating for poor or dangerous working conditions;

extra payments compensating for Sunday work;

other extra payments;

payments based on the overall performance of the company (profit-sharing scheme);

payments based on the overall performance of a group;

income from shares in the company.

The  relations  between  wage  systems  and  other  working  conditions,  as  well  as  their  impact  on
indicators of quality of working life, have not been analysed up to now, and form the focus of the
EWCS secondary analysis of this report (see Figure 2, in previous chapter).

Also  at  a  cross-national  level,  the  EPOC  survey  (EPOC  Research  Group,  1997;  Sisson,  2002)
focuses  on  the  nature  and  extent  of  direct  employee  participation  in  European  companies.
Concerning wage systems, the following questions were raised: What is the relationship between

9

■
■
■
■
■
■
■
■
■
■
■
■
Wages&Working05106    23/6/05    3.07pm    Page  10

Wages and working conditions in the European Union 

the  remuneration  system  and  direct  participation?  Is  the  scope  of  direct  participation  related  to
particular types of remuneration system? Are changes in remuneration systems linked to effects of
direct participation?

The  EPOC  survey  measures  the  following  components  of  wage  systems  by  means  of  separate
questions, i.e. as independent elements of pay systems:

pay for skills or qualifications;

bonus for individual attitude;

bonus for individual volume of output;

bonuses for team volume of output;

profit-sharing schemes;

share ownership schemes.

The  interpretation  of  these  wage  indicators  is  not  always  clear.  For  example,  do  components
reflecting skills in the EPOC study refer to graded skill requirements or to variable pay components
rewarding skills? More information is needed with respect to the structure and dynamics of basic
pay, i.e. criteria for grading, as well as in relation to variable pay, e.g. criteria and relative volume
of variable components. Some information was collected regarding changes to the remuneration
system to support management decision-making activities, but cannot be used to clarify company
wage  systems  in  general,  as  it  refers  only  to  system  changes.  In  this  respect,  changes  in
remuneration  structure  are  distinguished  in  terms  of  personal  and  task  skills,  bonus  payments
relating  to  individual  attitude  or  volume  of  output,  team/group  volume  of  output,  flexibility  and
quality, as well as different forms of financial participation (profit-sharing, share ownership).

In relation to wages and wage systems, the following key findings are reported (EPOC Research
Group, 1997; Poutsma, 2001; Sisson, 2002). There is no obvious link between different forms of
direct participation and specific types of remuneration systems (e.g. there is no relation between
group  bonuses  and  group  consultation  or  delegation).  However,  remuneration  systems  in
workplaces with direct participation tend to be more complex and have more special components
than those without some form of direct participation. For example, pay for skills and qualifications,
as well as bonuses for individual attitudes or team volume of output, are particularly prevalent in
workplaces  with  direct  participation.  Furthermore,  profit-sharing  schemes  are  slightly  more
prominent  in  workplaces  with  direct  participation,  whereas  bonuses  for  individual  performance
and share ownership are equally applied. 

The  EPOC  findings  suggest  that  there  are  changes  in  remuneration  systems  when  forms  of
participation  are  introduced.  A  quarter  of  the  workplaces  introducing  direct  participation  on  a
group  basis  changed  their  remuneration  system.  Figures  are  highest  for  permanent  group
consultation, and lower for temporary group consultation and group delegation. Changes in pay
systems  differ  between  countries  –  Italy,  Sweden  and  the  UK  being  the  most  active.  The  most
frequently  cited  changes  involved  bonuses  for  team  volume  of  output,  as  well  as  profit-sharing
schemes,  particularly  after  introducing  some  forms  of  group  participation.  Effects  of  group
delegation, such as cost reduction, have been reported more often when pay for flexibility or group
bonuses were introduced than when no changes were made in pay systems.

10

■
■
■
■
■
■
Wages&Working05106    23/6/05    3.07pm    Page  11

Existing research

In  summary,  existing  studies,  in  their  analysis  of  the  EPOC  data,  sought  to  ascertain  whether
relationships exist between forms of work organisation, wage systems and performance outcomes.
These studies have found some promising, but also inconsistent, results. This report continues this
analysis,  by  integrating  managerial  strategy  and  focusing  on  how  the  alignment  of  work
organisation,  wage  systems  and  managerial  strategy  changes  their  relation  to  performance
outcomes (see Figure 3).

Figure 3  Research model for secondary analysis of the EPOC data

Managerial
strategy 

Work
organisation

Wage
systems

E
n
v
i
r
o
n
m
e
n
t
a
l

f
a
c
t
o
r
s

Performance

The Cranet survey on international human resource management includes indicators that make it
possible to analyse the incidence of financial participation, i.e. share ownership and profit-sharing,
depending  on  organisational  characteristics  and  human  resource  management  instruments
(Pendleton  et  al,  2001).  The  data  were  collected  through  a  standardised,  postal  questionnaire,
addressed to the senior HR/personnel specialists. Questions focus on the organisational level and
consider relevant indicators of wage systems, such as:

employee share ownership/stock options;

profit-sharing (taking into account the hierarchical level);

group bonuses;

■ merit-based pay;

■ work–life related benefits;

pension plans;

changes in the size of variable pay and of non-financial rewards;

collective bargaining at sectoral level;

collective bargaining at company level.

11

■
■
■
■
■
■
■
 
Wages&Working05106    23/6/05    3.07pm    Page  12

Wages and working conditions in the European Union 

The  Cranet  survey  yields  little  information  regarding  working  conditions  and  mainly  examines
different aspects of remuneration systems. During the 1990s, there has been an increase in the use
of financial participation schemes in the EU. 

The  European  Industrial  Relations  Observatory  (EIRO),  part  of  the  Foundation,  published  the
comparative study Variable pay in Europe (van het Kaar and Grünell, 2001). The main focus was
the incidence of various types of variable pay, details of the main forms of variable pay used (the
level  at  which  schemes  are  applied,  criteria  used,  extent  of  the  variation  and  the  possibility  of
downward  variation),  trends  in  the  use  of  variable  pay,  the  extent  and  nature  of  collective
bargaining over variable pay, the views of trade unions, employer organisations and governments,
and public and academic debate on variable pay issues. The study was based on national reports
submitted  by  EIRO’s  national  centres.  Key  findings  from  these  literature  analyses  are  reported
below (van het Kaar and Grünell, 2001).

The larger the organisation, the more frequent the presence of variable pay.

The incidence and relative importance of variable pay varies between sectors.

The organisational level at which variable pay is located depends on the system that is used,
e.g. piece work occurs at individual level, profit-sharing at company level.

The criteria used for variable pay depend on the type of scheme in question. Output is, to an
increasing extent, no longer the only criterion. 

■ Downward variations are exceptional, and sometimes are explicitly ruled out. 

■ Overall, the incidence of variable pay, particularly the use of share and share option schemes,
is  increasing  throughout  the  EU.  The  more  traditional  forms,  particularly  piece  work,  are
decreasing.

■ Most collective bargaining over variable pay takes place at company level and is initiated by

employers. It is not a major source of conflict in EU industrial relations.

European governments have taken different approaches to variable pay, ranging from refusing
to introduce it (e.g. Denmark, Norway, Sweden) to strong commitment (Germany, Ireland, the
UK).

These  surveys  contain  interesting  information  about  wage  systems  and  organisational
characteristics. However, they yield little information regarding quality of working life and working
conditions.

National research in Europe

Besides these European level surveys, different institutions periodically carry out employee surveys
within  many  European  countries.  They  ask  about  different  aspects  of  working  conditions,  but
consider only the following three aspects of salaries: the gross or net income, the elements included
in that income, and the employees’ assessment of the salary received. Questions regarding fixed or
variable wages are usually not included. Only in Spain and the UK are there data on the balance
between fixed and variable pay. Furthermore, the design of these type of surveys does not provide
information about managerial strategies or organisational performance (Almovadar et al, 2004). 

12

■
■
■
■
■
Wages&Working05106    23/6/05    3.07pm    Page  13

Existing research

National  surveys  of  companies  focus  on  different  wage  aspects,  and  some  provide  information
about the balance of fixed and variable pay or even working conditions and well-being. However,
they apply different definitions and sampling methods, so their results are difficult to compare and
to interpret (Emans et al, 2003). In those cases where working conditions are considered, usually
only a few aspects are covered. 

The  main  indicators  of  wages  and  wage  systems  in  national  studies  are  income  level  and  the
presence  or  absence  of  different  types  of  pay  systems  or  components.  As  indicators  of  work
organisation,  many  studies  have  used  the  presence  or  absence  of  different  forms  of  teamwork,
participation, task variety and autonomy. Some have integrated several of these aspects into a high
performance  work  organisation  (HPWO)  variable.  Indicators  of  organisational  performance
revolving around productivity and profitability are prevalent in studies concerned with workplaces,
to the relative neglect of employee-related outcomes. This situation is reversed when the primary
focus of surveys addresses individual employees and working conditions. Some company specific
studies use both types of indicators. Managerial strategy is not addressed in most studies; the few
indicators reported appear to be questionable.

Consequently, the relationship between wage systems and managerial strategies has seldom been
studied. The results so far do not show consistent relationships. In part, this might be due to the
fact  that  there  is  often  a  time  lag  between  changes  in  strategy  and  congruent  changes  in  wage
systems.  The  relations  between  work  organisation  and  wage  systems  are  certainly  diverse  and
European  research  reflects  that.  One  more  or  less  common  result  is  that  aspects  of  HPWO  are
found  more  often  with  modern  forms  of  variable  pay  (e.g.  Lay  and  Rainfurth,  1999).  Problems
concerning  this  topic  are  the  lack  of  consistent  definitions  and  measures  of  variables  such  as
HPWO.  The  results  concerning  wage  systems  and  organisational  performance  are  very  different
between European countries and even between different studies within one country (e.g. Nilsson,
1990  or  Eriksson,  2002).  The  same  holds  for  the  relation  between  wage  systems  and  work
satisfaction (e.g. Holman, 2002 or Eriksson and Leander, 1995). Therefore, research is needed to
find and analyse moderating variables that can explain these differences.

Unfortunately, the research focusing on age and gender in the context of wage systems is limited
in  its  content.  In  terms  of  gender,  the  emphasis  has  been  mainly  on  examining  discrimination,
which can still be evidenced in lower wages for women doing the same job as men. Age was studied
almost exclusively in respect of how seniority relates to higher wages. 

With regard to the relationship between wage systems and employment conditions, there are few
results, indicating that modern forms of variable pay seem to be more popular with full-time than
with temporary or part-time workers (Baeten and Van den Berghe, 2002). Modern forms of variable
pay  are  more  prominent  than  other  pay  systems,  where  flexible  working  times  are  offered.
Organisational or institutional factors and their relation to wage systems have rarely been studied,
though  it  is  known  that  profit-sharing  is  found  more  often  in  the  private  sector  and  in  service
industries. The assessment of pay systems, particularly of variable ones, depends on the way that
performance is linked to pay and the way the system is practised. Problems such as the misuse of
bonuses  or  lack  of  system  transparency  and  communication  can  lead  to  dissatisfaction  with
variable pay systems (Steyaert, 2000).

13

Wages&Working05106    23/6/05    3.07pm    Page  14

Wages and working conditions in the European Union 

In summary, this review of European studies at European and national level has not shown many
significant  and  consistent  relationships  between  wages  systems,  work  organisation  and
performance. Data have been analysed primarily at a descriptive level or concerning relationships
between two variables at best, such as between wages and work organisation. This is typical for
the analyses of cross-national surveys. Since samples of company-based surveys or case studies
are not representative, it is difficult to generalise their results. Furthermore, it is difficult to interpret
conflicting results as studies use different concepts and measurement methods, as well as different
samples and time periods. Only a few studies try to explain the reasons for inconsistent findings
by systematically analysing moderating variables or comparing different conditions. This study will
try to solve some of these problems in its secondary analysis of the European working conditions
survey 2000 and EPOC data.

14

Wages&Working05106    23/6/05    3.07pm    Page  15

Secondary analysis of Foundation
surveys

3

The  two  main  data  sources  for  the  secondary  statistical  analysis  are  the  European  working
conditions survey (EWCS) 2000 (Paoli and Merllié, 2001) and the Employee direct participation
in  organisational  change  (EPOC)  survey  (EPOC  Research  Group,  1997),  both  produced  by  the
European Foundation for the Improvement of Living and Working Conditions. Before discussing
the results of these secondary analyses, it is important to mention several methodological aspects,
which have to be kept in mind when interpreting these results.

Methodology

A structural problem of secondary data analysis is that the EWCS 2000 and the EPOC survey were
designed to serve a different purpose than to answer the questions of this study. The EWCS aims
to provide an overview of the state of working conditions in the EU, and to indicate the changes
affecting the workforce and the quality of work. Some important issues central to this project, such
as  specific  questions  about  institutional  factors,  managerial  strategy  and  performance,  are  not
covered by the EWCS questionnaire. Therefore, it is impossible to run any in-depth data analysis,
as  would  have  been  necessary  for  the  investigation  of  the  contingency  or  strategic  fit  approach
between  performance  indicators,  aspects  of  work  organisation,  strategy  and  wage  systems.  The
focus of the EPOC project was to investigate the nature and extent of direct employee participation
in European companies. The questionnaire focuses on the scope and intensity of the various forms
of direct participation and their effects on performance, as well as on management initiatives and
their motives. For this reason, it does not provide much data concerning managerial strategies and
working conditions, and almost no information regarding quality of working life, such as stress and
job satisfaction. However, both studies overlap in relation to data on wages and work organisation,
and complement each other regarding outcome variables.

Another issue to bear in mind, when analysing and interpreting the results of this project, is the
problem of differences in data collection between surveys. The EWCS was designed as a face-to-
face interview with randomly selected ‘persons in employment’, i.e. persons who worked for pay or
profit  during  the  reference  week,  in  the  15  EU  Member  States  in  2000.  A  multi-stage  random
sampling,  called  ‘random  walk’,  was  used,  which  guarantees  to  a  high  degree  that  data  are
representative.  The  EPOC  survey  was  a  postal  survey  addressed  to  company  managers  in  10
European countries in 1996: Denmark, France, Germany, Ireland, Italy, the Netherlands, Portugal,
Spain, Sweden, and the UK. It was intended to be representative of workplaces in these countries,
but it should be added, from a management view only. Furthermore, it focused on the workplace’s
largest occupational group, and hence most questions refer to this group. As response rates varied
between  countries  from  9%  to  39%,  18%  being  the  average,  it  is  difficult  to  ascertain  how
representative  the  data  are.  Taking  these  aspects  into  account,  observed  differences  in  results
between  the  EWCS  in  2000  and  the  EPOC  survey  might  be  influenced  by  the  different
measurement periods and sample differences.

In summary, the comparability of the EWCS 2000 and the EPOC survey suffers from the diverging
concepts, methods and periods of measurement, but does provide some potential for comparative
and even more for complementary analysis.

15

Wages&Working05106    23/6/05    3.07pm    Page  16

Wages and working conditions in the European Union 

Concepts of secondary analysis

In  the  EPOC  survey  and  the  EWCS  2000,  a  variety  of  wage  indicators  are  used.  In  the  EWCS,
employees were asked about piece rate or productivity payments, payments based on the overall
performance of a group, payments based on the overall performance of the company (profit-sharing
scheme), and income from company shares. Whereas piece rate systems follow the tradition of the
Tayloristic  production  paradigm,  rewarding  workers  only  for  fast  work  and  high  quantities,  the
other forms of variable pay have a broader focus as they refer to overall performance, including
quality or other objectives. To contrast them from traditional piece rate systems, they are termed
modern forms of variable pay2. One would expect different relations between traditional piece rate
pay and the other model variables – particularly regarding quality of working life – compared with
modern forms of variable pay, whereas the different forms of modern pay should show a similar
result pattern. The analyses for this study showed support for these assumptions, leading to the
decision to put the different forms of modern pay into a single category, and forming a new variable
regarding modern forms of variable pay. 

In order to compare results from the EPOC survey and the EWCS, modern forms of variable pay
are defined in the same way, i.e. employees having:

team  bonuses,  based  on  the  overall  performance  of  a  group  (EWCS  2000)  or  on  the  team
volume of output (EPOC); and/or 

payments  from  profit-sharing  schemes  (based  on  the  overall  performance  of  the  company);
and/or 

income from shares (share ownership schemes) in the company. 

In defining this variable, it was necessary to accept some ambiguities, because the questions in
both surveys left some room for interpretation regarding what kind of performance indicators were
actually measured. For example, respondents reporting bonuses based on the overall performance
of a group might have complex bonus systems, combining aspects of product quantity and quality,
throughput times and on time delivery; or they might have systems based on product quantity only.
Similarly, team volume of output might refer to bonus systems, integrating both product quantity
and quality, e.g. counting only sellable products, as well as direct and indirect labour times (e.g.
planning  or  maintenance,  besides  direct  production  time);  or  it  might  refer  to  traditional  group
piece rate, counting all products and taking only direct labour times into account. Combining piece
rate  and  productivity  payment  in  a  single  indicator,  as  in  the  EWCS,  does  not  allow  for  a  clear
categorisation. 

However,  these  measurement  problems,  which  should  be  avoided  in  future  surveys,  reduce
differences between groups and relations between variables, and lead to conservative estimates.
This  means  that  if  the  expected  differences  or  relations  are  still  found  –  and  they  are  –  these
underestimate the real differences or relations. Table 1 lists all wage system variables used in the
secondary analysis. 

2

Labelling something as ‘modern’ is always questionable in terms of time-frame, but variable forms of pay, which are not based on piece
rate only, are comparatively new. Modern does not necessarily mean better, but reflects more contemporary trends.

16

■
■
■
Wages&Working05106    23/6/05    3.07pm    Page  17

Secondary analysis of Foundation surveys

Table 1 Wage system variables used in secondary analysis

Wage systems

EPOC

EWCS 2000

Modern forms of variable pay

Modern forms of variable pay

•

•

•

Bonuses for team volume of output

Profit-sharing schemes

Share ownership schemes

•

•

•

Payments based on the overall performance 

of a group

Payments based on the overall performance 

of the company (profit-sharing scheme) where an

employee works

Income from shares in the company that an 

employee works for

Piece rate or productivity payment

Basic fixed pay

Questions  regarding  work  organisation  differ  between  the  EPOC  survey  and  EWCS;  hence,  no
directly  comparable  work  organisation  variable  can  be  formed.  High  performance  work
organisation (HPWO) was chosen as a concept of work organisation in secondary analysis of the
EWCS 2000 data, characterised by:

time autonomy;

task autonomy;

task variety;

responsibility;

participation;

participation effects.

The  total  number  of  positive  answers  regarding  these  questions  was  summed  up  in  an  HPWO
indicator, ranging from a minimum of zero to a maximum of 18. This HPWO scale also showed
good  internal  consistency  (Cronbach’s  alpha).  For  further  analyses,  a  median  split  was  used  to
differentiate between high and low forms of HPWO. 

In the EPOC survey, these aspects were not measured. However, since forms of direct participation,
particularly group delegation, can be regarded as a key aspect of HPWO, the intensity of group
delegation  was  analysed  instead.  Group  delegation  is  described  in  the  EPOC  study  as  follows:
rights and responsibilities granted to groups of employees to carry out their common tasks without
constant reference back to managers – most often known as ‘group work’ (EPOC Research Group,
1997).  In  the  questionnaire,  group  delegation  was  described  as:  management  giving  non-
managerial  employees,  in  the  largest  occupational  group  at  workplace  level,  increased
responsibility to organise and do their jobs without reference back for one or more of the following:

allocation of work;

scheduling of work;

quality of work;

17

■
■
■
■
■
■
■
■
■
Wages&Working05106    23/6/05    3.07pm    Page  18

Wages and working conditions in the European Union 

time keeping;

attendance and absence control;

job rotation;

coordination of work with other internal groups;

improving work processes.

The total number of positive answers ranged from a minimum of one to a maximum of eight. This
number was used to assess the intensity of group delegation, which can be seen as an indicator of
group  autonomy.  This  scale  also  showed  good  internal  consistency.  Further  analyses  used  a
median split to differentiate between high and low intensity of group delegation. Table 2 shows the
work organisation variables used in the secondary analysis. 

Table 2 Work organisation variables used in secondary analysis

Work organisation

EPOC 

Group delegation

Group decision rights regarding:

•

•

•

•

•

•

•

allocation of work

scheduling

quality of work

time keeping

coordination of work with other internals

attendance and absence control

job rotation

EWCS 2000

High performance work organisation (HPWO):

•

•

•

•

•

•

task variety

task autonomy

time autonomy

responsibility

participation

voice (participation effects)

Teamwork

Interdependent tasks

Monotonous tasks

Repetitive tasks

The  concept,  innovation  strategy,  has  been  drawn  from  the  EPOC  questionnaire  referring  to
question  nine,  which  asks  about  initiatives  taken  by  the  management  in  the  last  three  years.
Initiatives towards product innovation were taken as an indicator for a strategy of innovation.

Organisational performance and quality of working life are perceived as two different stakeholder
perspectives  on  company  effectiveness.  The  EPOC  survey  provides  some  measures  of
organisational  performance,  whereas  the  EWCS  2000  includes  indicators  for  quality  of  working
life. Concepts for secondary analysis from both surveys are displayed in Table 3. 

Health  problems  and  physical  load  are  aggregated  scales,  based  on  different  indicators  of  the
EWCS 2000, showing good internal consistency. 

18

■
■
■
■
■
Wages&Working05106    23/6/05    3.07pm    Page  19

Secondary analysis of Foundation surveys

Table 3 Effectiveness variables used in secondary analysis

Effectiveness

EPOC 

EWCS 2000

Organisational performance:

Quality of working life:

•

•

•

•

•

•

•

•

management reduction

cost reduction

throughput time reduction

quality improvement

total output increase

sickness decrease

absenteeism decrease

employee reduction

•

•

•

•

•

•

•

sustainable work 

job satisfaction

work–life balance

excessive demands

physical load

health risks

health problems

Methods and procedure of data analysis 
The next section will describe the findings of the secondary analyses. For a better understanding,
the  results  are  presented  in  diagrams,  showing  and  comparing  percentages  of  dichotomous
variables. 

As this research aims at identifying relationships between the variables of the research model, it
used mainly product moment correlations to test these relationships statistically. The coefficients
range from -1 to +1.3 A negative relation indicates that a person scoring high on one variable has
a low score on the other variable; a positive correlation describes a relation of a high score on one
variable connected to a high score on the other. 

It should be kept in mind that, based on observed correlations, no causal relation can be deduced.
However,  if  there  is  no  correlation,  no  causal  relationship  can  be  assumed.  Nevertheless,  the
analysis discusses logical and reasonable explanations for these relations and suggests potential
causes.  For  testing  interaction  effects,  logistic  regression  analysis  was  used.  Although  regression
analysis tries to predict (criteria) variables by using other (predictor) variables, this does not imply
causality. Regression coefficients display the relative weight of the predictor variables. 

Based on the research model, the relationships between model variables were analysed, starting
with relations between two variables. The analysis then moved on to control for the influence of
other  variables.  Therefore,  at  the  first  level  of  analysis,  the  focus  is  on  the  following  bivariate
relationships between indicators of wage systems and:

■ managerial strategy;

■ work organisation;

quality of working life;

performance;

employment conditions (contract type and working time flexibility);

3 

In the literature, different suggestions of categorising effects/correlations can be found (e.g. Cohen, 1992: .10 to .30 small effects, .30 to
.50 middle and above .50 large effects), which depend on conventions and theoretical expectations. As rather small effects are expected,
due to the multitude of influencing factors, particularly regarding performance and quality of working life, significant correlations below
.10 are perceived as weak effects, .11 to .20 as small, .21 to .30 as medium, and above .30 as large effects.

19

■
■
■
Wages&Working05106    23/6/05    3.07pm    Page  20

Wages and working conditions in the European Union 

personnel factors (age, sex); 

organisational factors (size, sector);

institutional factors (density of union members, employee representation).

At  the  second  level  of  analyses,  three  variables  were  examined  and  analysed  for  contingent
relationships.  As  illustrated  in  the  research  model,  it  analyses  the  relationships  between  wage
systems and: 

■ work organisation for different types of managerial strategies;

performance for different types of work organisation;

quality of working life for different types of work organisation.

The third level of analysis examines four variables, analysing whether there are interdependencies
between specific forms of strategy, wage systems, work organisation and performance. This goes
beyond most existing survey research, which has focused on descriptive research or on bivariate
correlations.

Prevalence of wage systems

The description of findings from secondary analysis of the EPOC and EWCS 2000 datasets begins
with  the  relationships  between  indicators  of  wage  systems,  particularly  the  concept  of  modern
variable  pay,  and  indicators  of  environmental  factors.  Figure  4  shows  the  relevant  part  of  the
research model and indicators.

Figures  5  and  6  give  the  comparative  breakdown  for  the  occurrence  of  different  types  of  wage
systems  among  the  countries  included  in  this  project.  Obviously,  there  are  differences  between
countries  in  relation  to  the  prevalence  of  pay  components,  especially  regarding  variable  pay
elements.  The  stacked  percentages  for  countries  in  Figure  5  reach  above  100%  because  of  the

Figure 4  Research model and indicators for wage systems and environmental factors

Wage systems

•

•

•

•

Basic fixed pay

Piece rate or productivity payment

Variable all

Modern forms of variable pay

Environmental factors

• Personal conditions

o

o

Age 

Sex

• Organisational conditions

o

o

Sector 

Size

EPOC indicators only

• Institutional factors

EWCS 2000 (and EPOC indicators)

o Density of union membership

o Employee representatives

• Employment conditions

o   Contract type

o Working time flexibility

20

■
■
■
■
■
Wages&Working05106    23/6/05    3.07pm    Page  21

Secondary analysis of Foundation surveys

possibility to respond positively for more than one pay component in the EWCS 2000 interview.
For instance, respondents can report that they receive basic or fixed pay and an additional income
from shares. From the overall picture in Figure 5, it can be concluded that basic or fixed pay is the
most  dominant  pay  component  reported  in  the  EWCS  in  2000.  High  rates  for  modern  forms  of
variable pay are to be found in Finland (10%) and Sweden (10%), with the lowest rates in Belgium
(4%) and Germany (5%). The highest rates for piece rate or productivity payment are to be found
in Finland (16%) and Germany (7%). An above average rate for all forms of variable pay (piece
rate, additional payment, pay based on the performance of a group/team or company or income
from shares) is reported for Finland (23%). High rates for basic or fixed pay and a small amount of
other variable pay components are reported for Belgium. 

Figure 5  Percentages of types of wage 
systems, by country (EWCS 2000)

Figure 6  Percentages of modern variable 
pay, by country (EPOC)

%

10

23

16

10

14

12

94

94

94

98

11

93

9

11

90

11

92

160

140

120

100

80

60

40

20

0

100

80

60

40

20

0

Modern forms

Variable all

Piece rate

Basic fixed

Netherlands
Germany
United Kingdom
average

Sweden

Finland

Belgium

64

78

78

70

44

%

56

36

22

22

31

Modern forms

no

yes

average

Netherlands

Germany

United Kingdom
Sweden

Figure 6 shows the country breakdown of modern forms of variable pay (performance-based pay
at team and company level, or income from shares only), drawing on data from the EPOC survey.
From a management perspective, much higher rates are reported. More than half of all respondents
in the UK (58%) reported the prevalence of modern forms of variable pay in their company. This
is almost twice the proportion of the other countries. 

Higher  rates  for  the  EPOC  data  could  be  due  to  sample  differences  or  different  knowledge  and
frames  of  reference,  when  answering  wage-related  questions.  The  samples  of  both  studies  are
difficult  to  compare,  as  the  EWCS  is  based  on  random  sampling,  to  ensure  a  representative
population, whereas, as has been noted, the EPOC survey may be questioned in terms of sampling
method,  low  response  rates  and  its  questions  focusing  on  the  largest  occupational  group  of  the
respective company. 

Furthermore,  employees  may  not  be  able  to  describe  their  pay  components  as  accurately  as
management  can  (some  might  not  even  know  their  pay  components,  according  to  empirical

21

Wages&Working05106    23/6/05    3.07pm    Page  22

Wages and working conditions in the European Union 

studies). Another aspect of this problem might be that employees focus on pay practice, whereas
management answers according to pay systems: i.e. employees might receive stable income (‘fixed’
wages), even though the wage systems have components, which could vary in principle, but do not
in practice. The time gap of four years for data generation between the surveys (EPOC 1996, EWCS
2000)  could  also  account  for  differences  within  countries,  but  other  studies  show  that  variable
income has generally increased over time (see the national reports, available on request). 

Results suggest that there is a link between income level and wage systems, particularly for modern
forms of variable pay (Figures 5 and 6). As can be seen from Figure 7, the proportion of employees
with any kind of variable pay (piece rate or productivity pay and modern forms of variable pay)
ranges from 8% in the lowest income group to 17% in the highest. The proportion of employees
with  modern  forms  of  variable  pay,  i.e.  profit-sharing,  gain  sharing,  or  other  payment  related  to
group performance, ranges from 3% in the lowest income group to 11% in the highest, whereas the
range  for  piece  rate  pay  is  only  from  5%  to  8%.  It  seems  that  modern  forms  of  variable  pay  or
traditional  forms  (piece  rate)  are  paid  as  an  additional  component,  on  top  of  the  basic  pay  that
more than 90% of employees receive. 

Figure 8 focuses on the percentage of employees receiving modern forms of variable pay and shows
that,  even  in  the  high  income  class  bracket,  the  wage  package  of  89%  of  employees  does  not
include this form of pay. Modern forms of variable pay and income level are correlated positively
in analyses at cross-national as well as national level. These significant correlations indicate that
modern forms of variable pay are found more often in high income jobs.

As  has  been  indicated  in  the  research  model,  the  links  between  wage  systems  and  personal
characteristics, such as age and sex, are of particular interest. The roles of gender and age were

Figure 7  Percentages of types of wage systems,
by income level (EWCS 2000)

Figure 8  Percentages of modern variable pay, 
by income level (EWCS 2000)

% 

15

8

8

96

17

11

8

96

9

95

8

90

140

120

100

80

60

40

20

0

low (3077)

intermediate low (4454)

intermediate high (3867)

high (3158)

Variable all (1737)

Modern forms (941)

Piece rate (952)

Basic fixed (13747)

100

80

60

40

20

0

97

96

92

89

%

Modern forms

no (13615)

yes (941)

8

11

low (3077)

intermediate low (4454)

intermediate high (3867)

high (3158)

Income level

Income level

22

Wages&Working05106    23/6/05    3.07pm    Page  23

Secondary analysis of Foundation surveys

investigated by examining their relationships with types of wages systems and income level. Figure
9  illustrates  that  male  employees  receive  more  variable  pay  components,  compared  with  female
employees.  The  proportion  of  men  receiving  piece  rate  or  productivity  pay,  additional  payments
and modern forms of variable pay is higher for each of these categories than for women. At cross-
national level, a significant negative relation has been found between gender and modern forms of
variable pay, indicating that women receive modern forms of variable pay less often than men, as
shown in Figure 10. 

These results are also found at national level, with the Netherlands showing the biggest gap and
the UK showing the smallest (almost non-existent) difference between men and women within this
sample. According to these partly varying findings, it is difficult to interpret the results and further
investigation might be necessary. One explanation could be that this relation is influenced by the
fact that women still work more frequently in jobs lower in the hierarchy and pay level, and that
modern forms of variable pay mainly apply to jobs at the upper end of the hierarchy. The difference
in  compensation  between  men  and  women  can  be  illustrated  by  the  fact  that  women  tend  to
receive  lower  incomes.  This  could  be  partly  due  to  the  higher  proportion  of  females  working  on
temporary or fixed-term contracts or in different types of jobs. As another possible explanation, one
has to consider job discrimination: it seems that women generally earn less money in comparison
with men.

Figure 9  Percentages of types of wages systems, 
by sex (EWCS 2000)

Figure 10  Percentages of modern variable pay, 
by sex (EWCS 2000)

140

120

100

80

60

40

20

0

%

15

8

9

92

7

94

100

80

60

40

20

0

Variable all (2041)

Modern forms (1104)

Piece rate (1118)

Basic fixed (16646)

%

92

96

8

Modern forms

no (16793)

yes (1104)

male (9427)

female (8470)

male (9427)

female (8470)

There is no relation between types of wage systems and age, as all kinds of wage systems are found
at  different  age  groups  (Figure  11).  This  counters  expectations  that  seniority  and  a  long-term
commitment to a company are associated with variable pay. Modern forms of variable pay and age
do not show any significant correlation, either at cross-national or national level. Hence, modern
forms  of  variable  pay  seem  to  be  applied  independently  from  age.  However,  there  is  a  relation
between age and income level, as the percentages for the youngest age group (15 to 25 years), and

23

Wages&Working05106    23/6/05    3.07pm    Page  24

Wages and working conditions in the European Union 

in  the  45-64  age  group,  diminish  in  the  higher  income  categories  (Figure  12).  The  proportion  of
employees within the age group, 26–44 years, is greatest at every income level. Employees at this
age are to be found particularly in the intermediate high and high income levels, supporting the
assumption that higher income is linked with age4. 

Figure 11  Percentages of types of wages systems, 
by age (EWCS 2000)

Figure 12  Percentages of age, by income level 
(EWCS 2000)

%

12

11

93

94

10

90

13

88

140

120

100

80

60

40

20

Variable all (2041)

Modern forms (1104)

Piece rate (1118)

Basic fixed (16646)

65 + (80)

0

15–25 (2792)

26–44 (9710)

45 –64 (5315)

%

120

100

80

60

40

20

24

27

33

39

45

54

58

56

29

18

8

0

low  (3600)

intermediate   
low (4958)

intermediate   
high (4330)

high (3960)

65+ (220)

45-64 (6873)

26-44 (11595)

15-25 (3015)

Age

Income level

Investigating the relationships between wage systems and employment conditions (contract type,
working  time  flexibility)  reveals  that  the  proportion  of  employees  who  receive  modern  forms  of
variable pay is higher, when working on an unlimited contract (Figure 13). Long-term or permanent
contracts  seem  to  be  related  positively  to  group/team  or  company  performance-based  pay  or
income  from  shares.  Cross-national  results  show  a  low  significant  positive  relation  between
modern forms of variable pay and contract type, indicating that modern forms of variable pay are
found more often with unlimited contracts than with fixed-term or temporary types of contracts.
This  finding  suggests  that  companies  tend  to  use  more  complex  pay  packages  when  employees
work on long-term contracts. 

At national level, these findings could not be replicated for the six countries selected: Finland and
Sweden  show  significant  negative  relations,  which  means  that  people  working  on  unlimited
contracts are less likely to receive modern forms of variable pay than people working on fixed-term
or  temporary  contracts;  in  Belgium,  Germany,  the  Netherlands,  and  the  UK,  no  significant
relationships were found. These rather unusual results might be due to country specific laws and
regulations. In Scandinavian countries, modern forms of variable pay seem to be more common
with temporary contracts.

4  Relations between age and income level or wage systems do not change when the more specific age categories (15–24; 25–34; 35–44;

45–54; 55+) of the EWCS 2000 dataset are used.

24

Wages&Working05106    23/6/05    3.07pm    Page  25

Secondary analysis of Foundation surveys

Figure 13  Percentages of modern variable pay, 
by contract type (EWCS 2000)

100

80

60

40

20

0

98

96

93

%

Modern forms

no (15338)

7

yes (1060)

temporary
contract (345)

fixed-term
contract (1760)

unlimited
contract (14293)

Figure 14 shows that employees working to flexible working time schedules receive modern forms

of variable pay, more often than employees working on schedules with fixed start and finish times.

The EPOC data also show that there is a weak but significant association between employees in

workplaces with working time flexibility and modern forms of variable pay, such as performance-

based  pay  at  team  and  company  level  and  income  from  shares  (Figure  15).  Although  the

differences are not impressive (34% to 48%), it seems that workplaces with working time flexibility

are  linked  with  modern  forms  of  variable  pay.  The  cross-national  analysis  of  the  EWCS  2000

dataset shows a significant positive correlation between modern forms of variable pay and working

time flexibility. 

Figure 14  Percentages of modern variable pay, 
by working time flexibility (EWCS 2000)

Figure 15  Percentages of modern variable pay,
by working time flexibility (EPOC)

100

80

60

40

20

0

95

91

66

60

%

100

%

80

60

40

20

0

Modern forms

no (16557)

5

9

yes (1092)

34

40

Modern forms

no (3706)

yes (2080)

no (12633)

yes (5016)

no (4024)

yes (1762)

Working time flexibility

Working time flexibility

25

Wages&Working05106    23/6/05    3.07pm    Page  26

Wages and working conditions in the European Union 

At  national  level,  these  findings  could  not  be  replicated  for  the  selected  countries.  In  all  six
countries, negative relationships between modern forms of variable pay and working time flexibility
were found, although these relations were significant only in Germany and the UK. This means
that, at national level – at least for these six countries – organisations with variable pay are less
likely to have flexible working time schemes. Analysis of the EPOC national sub-samples shows an
inconsistent pattern of results: whereas Germany, Sweden, and the UK support the cross-national
results, no relationships are found for the Netherlands, indicating that there is no relation between
working  time  flexibility  and  modern  forms  of  variable  pay.  These  inconsistent  results,  especially
concerning the differing results between EPOC and EWCS data of the same countries, probably
reflect differences in concepts, methodology and samples between the two surveys.

The  next  figures  describe  the  relationships  between  wage  systems  and  organisational  factors  in
terms of sector and size. Figure 16 illustrates that variable pay is close to non-existent in the public
sector. Some 96% of employees working in companies in the public sector responded that basic or
fixed pay is part of their remuneration. Results for the private sector show a higher prevalence of
other  types  of  wage  systems  (15%  variable  all,  8%  modern  forms,  8%  piece  rate  or  productivity
payment).  Analysing  the  EWCS  2000  data  shows  that  modern  forms  of  variable  pay  are  found
significantly more often in the private than in the public sector. Establishments in the public sector
seem to rely on traditional compensation strategies and forms of remuneration, which include, to
a higher degree, basic or fixed pay. Nevertheless, a great proportion of employees in the private
sector  (92%)  also  work  for  companies  without  modern  forms  of  variable  pay.  This  leads  to  the
impression that basic or fixed pay is still setting the overall standard for compensation. 

Figure 16  Percentages of types of wage 
systems, by sector (EWCS 2000)

Figure 17  Percentages of modern variable pay, 
by sector (EPOC)

%

%

140

120

100

80

60

40

20

0

15

8

8

92

96

91

58

100

80

60

40

Variable all (2035)

Modern forms (1100)

20

Piece rate (1115)

Basic fixed (16587)

0

9

42

Modern forms

no (3442)

yes (1962)

public (5408)

private (12413)

public (871)

private (4533)

26

Wages&Working05106    23/6/05    3.07pm    Page  27

Secondary analysis of Foundation surveys

Findings of the EPOC survey (Figure 17) show similar results to the EWCS. Performance-based pay
at team or company level, and income from shares, are more commonly used by companies in the
private  sector.  Some  42%  of  managers  working  in  private  owned  establishments  responded  that
their company had introduced modern variable pay schemes. Compared with the proportion of 9%
in public companies, this result illustrates the imbalance in the prevalence of modern variable pay
components between sectors. As has been noted, differences between the EWCS and EPOC results
could be explained by the probably better overview and knowledge that managers have about the
wage system used by the company for which they work. Another reason may be attributed to the
different scope of surveyed countries and the resulting differences between both surveys. While the
EWCS  included  all  15  European  Member  States  in  2000,  the  EPOC  survey  draws  on  a  smaller
number of European countries. Analysing the EWCS data only for those countries covered by the
EPOC  study  resulted  in  no  significant  differences.  The  relationships  appear  quite  stable  across
different sub-samples. The positive relation between modern variable pay and companies in the
private sector was replicated for all countries, with Sweden showing the strongest relationship in
both surveys.

Figure  18  shows  the  distribution  of  different  types  of  wage  among  seven  categories  of  company
size,  measured  by  the  number  of  employees  working  at  the  establishment  or  the  largest
occupational group. The proportion of almost all types of variable pay elements grows stronger with
increasing company size. In general, the reward packages seem to become more complex as the
percentages, especially for the variable pay components, rise. The bigger the company, the more
likely  it  is  that  employees  report  on  different  wage  systems  contributing  to  their  remuneration.
Figure 19 illustrates findings drawing on EPOC data. Percentages for companies with modern forms
of  variable  pay  range  from  10%  for  smaller  companies  with  one  to  five  employees,  to  50%  for
companies whose size exceeds 500 employees. Companies with a large number of employees seem
to be more open to and more capable in using performance-based pay at team and company level,
or income from shares as part of their compensation strategy. 

Data from both the EWCS 2000 and EPOC survey support the assumption that modern forms of
variable pay are found more often in bigger companies. At national level, the strongest relationship
was found in Finland, meaning that there is a stronger link between modern forms of variable pay
and larger companies in Finland than in other countries covered by this secondary analysis. No
significant  relationships  were  found  for  Belgium  (EWCS  2000)  and  for  Sweden  (EPOC).  One
interpretation of this positive relation between modern forms of variable pay and size is that larger
companies may have a more differentiated wage system. They may have to be more flexible to keep
ahead in the competitive market and, therefore, possibly more open to innovative compensation
systems. Another explanation is specific statutory factors, legislation and national tax policies that
further or hinder the use and spread of modern variable pay. 

Institutional factors play an important role when it comes to the implementation of wage systems.
Attitudes  and  opinions  of  unions,  work  councils,  and  other  employee  representatives  highly
influence  negotiations  about  the  introduction  of  new  or  modern  forms  of  pay.  These  have  to  be
considered as important factors when exploring the prevalence of wage systems. The EPOC survey
provides  data  through  which  the  influence  of  institutional  factors  can  be  examined.  Indicators
include the number of employee representatives (of trade unions, workers councils and/or advisory

27

Wages&Working05106    23/6/05    3.07pm    Page  28

Wages and working conditions in the European Union 

Figure 18  Percentages of types of wage systems, 
by size (EWCS 2000)

Figure 19  Percentages of modern variable pay, 
by size (EPOC)

90

90

75

64

60

55

50

% 

140

120

100

80

60

40

20

0

% 

16

15

17

9

8

94

10

7

95

11

7

92

10

10

8

91

92

95

11

7

94

10

7

86

100

80

60

40

Variable all (1998)

Modern forms (1089)

20

25

Piece rate (1087)

Basic fixed (16171)

0

10

10

50

45

40

36

Modern forms

no (3705)

yes (2081)

2–4 (2040)
1 (556)

5–9 (2514)

10+ (5375)

100+ (1900)
50+ (1959)

250+ (1036)

500+ (1944)

1–4 (75)

5 + (55)
10 + (1214)

100 + (1367)
50 + (2013)

250 + (745)

500 + (317)

Size (Number of employees)

Size (Number of employees)

committees),  recognised  for  the  purposes  of  consultation/negotiation  and  joint  decision-making,
and the density or degree of union membership, i.e. the proportion of union members within the
workforce of a company. 

Figure  20  shows  a  slightly  positive  relationship  between  modern  forms  of  variable  pay  and
employee  representation.  Some  46%  of  companies  reporting  a  high  degree  of  employee
representation  have  performance-based  pay  at  team  or  company  level,  or  income  from  shares,
which is true for only 30% of companies that report no representatives at all. It seems possible that
a higher degree of representation is associated with a higher incidence of modern forms of variable
pay, although this relationship could be influenced by company size. No similar relationship exists
with  regard  to  the  density  of  union  membership.  The  prevalence  of  modern  pay,  by  differing
degrees  of  union  membership  (Figure  21),  illustrates  that  these  two  variables  are  quite
independent.  However,  correlation  analysis  shows  a  very  weak  but  significant  negative
relationship, indicating that higher degrees of unionisation are slightly linked with less prevalent
modern forms of variable pay. 

The  weak  significant  positive  relation  between  modern  forms  of  variable  pay  and  employee
representation  at  cross-national  level  cannot  be  replicated  at  national  level  in  Germany,  the
Netherlands and Sweden. Only in the UK is there a weak significant positive relation, although all
other  correlation  coefficients  also  show  positive  relations.  Consistent  weak  or  small  negative
correlations between modern forms of variable pay and the degree of unionisation are found both
in  cross-national  and  national  analysis.  Significant  negative  relationships  are  found  in  the
Netherlands and particularly in the UK, indicating that the greater the number of employees of an
organisation who are trade union members, the less likely that modern forms of variable pay are

28

Wages&Working05106    23/6/05    3.07pm    Page  29

Secondary analysis of Foundation surveys

Figure 20  Percentages of modern variable 
pay, by employee representation (EPOC)

Figure 21  Percentages of modern variable pay, 
by trade union members (EPOC)

100

80

60

40

20

0

70

62

55

54

%

45

46

38

30

100

80

60

40

Modern forms

20

no (3705)

low (2080)

0

59

64

66

69

67

60

60

70

57

69

68

%

41

36

34

31

33

40

40

43

30

32

31

Modern forms

no (3371)

yes (1934)

no (2150)

low (3065)

medium (536)

high (34)

(699)

(596)

 (406)

0% (1573)

(301)
50% (136)

(274)

(257)

(231)

(234)
100% (598)

Employee representation

Trade union membership

applied  in  the  compensation  system.  In  Sweden,  a  similar  tendency  exists  but  shows  no
significance;  no  relation  seems  to  exist  in  Germany.  These  findings  might  be  an  indicator  for  a
slightly negative attitude of unions towards variable pay in most European countries. The fact that
modern  forms  of  variable  pay  tend  to  be  found  more  frequently  where  numbers  of  employee
representatives are higher indicates that, at least in some countries, local employee representatives
have a different perspective than trade unions towards modern forms of variable pay.

Relations between wage system, work organisation and strategy

The connection between work organisation and the wage system is a focal point in the research
model.  As  a  concept  of  work  organisation  in  secondary  analysis  of  the  EWCS  2000  data,  the
indicator high performance work organisation (HPWO) was formed, and is characterised by:

time and task autonomy;

task variety;

responsibility;

participation;

effective participation.

Deriving  indicators  for  work  organisation  from  the  EPOC  survey,  to  match  the  concept  of  high
performance work organisation as described for the EWCS 2000 study, seemed to be impossible.
Instead,  a  single  indicator  was  used  to  examine  relations  between  work  organisation  and  wage
systems.  Figure  22  provides  an  overview  regarding  relevant  indicators  for  work  organisation,
managerial strategy and wage systems.

29

■
■
■
■
■
Wages&Working05106    23/6/05    3.07pm    Page  30

Wages and working conditions in the European Union 

Figure 22  Research model and indicators for wage system, work organisation and strategy

Work organisation

Managerial strategy

•

•

•

•

•

•

High performance work 
organisation (HPWO)

Intensity of group delegation

Teamwork

Repetitive tasks

Monotonous tasks

Interdependent tasks

EPOC indicators only

EWCS (and EPOC indicators)

•

Strategy for product innovation

Wage systems

•

•

Modern forms of variable pay

Team based pay

Group delegation is described in the EPOC study as the right to make decisions on how employees
perform their work on a group basis, without reference to immediate managers. This would include
decisions  on,  for  instance,  the  scheduling  of  work  or  time  keeping.  Figures  23  and  24  show  the
country breakdown for these concepts of work organisation after a median split, dividing them into
high and low forms.

The  assumed  relationship  is  found  between  specific  forms  of  wage  systems  and  aspects  of  high
performance  work  organisation.  Correlations  are  small,  but  significant.  Figure  25  shows  that
modern forms of variable pay, i.e. having income related to the performance of a group or company
and/or  income  from  shares,  are  found  more  often  at  high  performance  work  organisations.  The
percentage of employees working on jobs with a low HPWO profile (5%) is compared with those
working on jobs with a higher profile (11%). This result was also found at national level, indicating
that modern forms of variable pay are applied significantly more often in organisations with task

Figure 23  Percentages of HPWO, by country 
(EWCS 2000)

Figure 24  Percentages of group delegation, 
by country (EPOC)

100

80

60

40

20

0

55

64

56

55

54

49

46

%

100

%

52

56

50

47

36

54

51

45

44

45

46

36

average

Germany

United Kingdom
Belgium

Finland
Netherlands

Sweden

80

60

40

20

0

HPWO

low

high

30

64

53

50

48

44

average

United Kingdom
Germany

Netherlands

Sweden

Group 
delegation

low

high

Wages&Working05106    23/6/05    3.07pm    Page  31

Secondary analysis of Foundation surveys

Figure 25  Percentages of modern variable pay, 
by HPWO (EWCS 2000)

Figure 26  Percentages of modern variable pay, 
by group delegation (EPOC)

100

80

60

40

20

0

95

89

61

51

%

100

%

80

60

40

20

0

49

39

Modern forms

low (825)

high (654)

5

11

Modern forms

no (11728)

yes (891)

low (7505)

high (5114)

low (708)

high (771)

High Performance Work Organisation

Intensity of group delegation

or time autonomy, a greater task variety, responsibility and effective participation. The relations at
national level are all significant and of almost equal size.

As Figure 26 shows, modern forms of variable pay are found significantly more often at workplaces
with a high intensity of group delegation. Approximately half of such workplaces are linked with
performance-based pay at team and company level, or with income from shares. This result was
also found at national level for Germany and the UK. The Netherlands and Sweden do not show
significant  relationships.  A  more  differentiated  interpretation  is  given  in  the  context  of  further
analyses, later in this report.

However, the type of wage system seems to be less dependent than expected on the type of work
organisation. For example, there is only a weak relation between team-based pay and teamwork
(Figure  27)  or  interdependent  tasks.  Team-based  pay  is  found  significantly  more  often  with
teamwork  at  cross-national  level,  but  results  vary  for  the  national  sub-samples  in  the  EWCS
dataset. The link could be replicated at national level for Belgium, Finland, Sweden and the UK,
which show almost equal significant positive relationships. In Germany and the Netherlands, no
significant relationships were found. That team-based pay is applied more often in organisations
with teamwork seems obvious. An individual-based compensation system in a team-based work
organisation  might  provoke  competitive  behaviour,  and  does  not  promote  group  supportive
behaviour. For this reason, it is astonishing that the observed relationship is so small. This lack of
alignment could be one reason why teamwork is sometimes less successful than expected. 

Team-based  pay  and  interdependent  work  organisation  show  an  even  smaller  significant
relationship than that found between team-based pay and teamwork. For the selected countries,
none of the correlations is significant and all are close to zero. The findings indicate the lack of

31

Wages&Working05106    23/6/05    3.07pm    Page  32

Wages and working conditions in the European Union 

Figure 27  Percentages of team-based pay, 
by teamwork (EWCS 2000)

Figure 28  Percentages of piece rate/productivity 
pay, by repetitive tasks (EWCS 2000)

100

80

60

40

20

0

99

98

94

92

%

100

%

80

60

40

20

0

Team-based pay

no (17385)

yes (354)

no (6752)

yes (10987)

6

8

no (13079)

yes (4093)

Piece rate

no (16109)

yes (1063)

Teamwork

Repetitive tasks (1 minute)

alignment between work organisation and compensation system. Interdependent work should be
compensated in a form that supports cooperation between the dependent co-workers.

Traditional forms of variable pay, such as piece rate or productivity payments, are found slightly
more often at workplaces with repetitive and monotonous tasks. As can be seen in Figure 28, there
is only a marginal difference (6% and 8%) between the proportions of employees receiving piece
rate or productivity pay with or without repetitive tasks. The same finding can be inferred from data
on  the  prevalence  of  monotonous  tasks.  Obviously,  the  vast  majority  of  employees  engaged  in
repetitive or monotonous tasks do not get piece rate pay, although significant weak associations
exist between both monotonous and repetitive tasks and piece rate or productivity pay. At national
level, the same pattern of results is found for four of the six countries: Finland, Germany, Sweden
and the UK show significant relationships, whereas there is no significant relation in Belgium and
the Netherlands.

So far, this chapter has introduced indicators for wage systems, and individual, employment and
organisational conditions and factors. The EPOC survey makes it possible to derive an indicator
for  managerial  strategy,  which  is  important  for  analysing  the  alignment  hypothesis.  Company
strategy  was  not  explicitly  addressed  in  the  EPOC  study,  but  questions  were  asked  regarding
management initiatives in the last three years. It was possible to use answers referring to product
innovation  as  an  indicator  for  a  company’s  innovation  strategy.  Figure  29  gives  the  country
breakdown for innovation strategy. In every country, more than a quarter of managers reported that
their  company  had  introduced  a  product  innovation  strategy  in  the  past  three  years.
Establishments with an innovation strategy (Figure 30) have modern forms of variable pay (46%)
more often than those without such a strategy (32%). These findings are replicated in the country
specific analyses, with the UK showing the highest correlation, and the Netherlands the lowest and
the only non-significant correlation. 

32

Wages&Working05106    23/6/05    3.07pm    Page  33

Secondary analysis of Foundation surveys

Figure 29  Percentages of innovation 
strategy, by country (EPOC)

Figure 30  Percentages of modern 
variable pay, by innovation strategy (EPOC)

70

74

74

72

71

%

30

26

26

28

29

100

80

60

40

%

68

54

46

32

Innovation strategy

20

Modern forms

no

yes

no (4096)

yes (1690)

100

80

60

40

20

0

average

Germany

Country

Sweden
United Kingdom

Netherlands

0

no (3706)

yes (2080)

Strategy for innovation

Effectiveness of wage system, work organisation or strategy

The  effectiveness  of  wage  systems  can  be  measured  by  a  wide  variety  of  criteria.  Apart  from
performance or productivity indicators – such as the increase of output rates or quality standards
and  the  reduction  of  costs  or  scrap  percentage  –  a  series  of  indicators  relate  to  the  quality  of
working life and the well-being of the employees. Low rates in absenteeism, sickness, stress and
the assessment of work as sustainable and satisfying could be used as indicators for the success of
a particular type of wage system. 

The EWCS 2000 provides no data regarding managerial strategy and organisational performance5.
However, the design of the questionnaire enables analysis of the effectiveness of wage systems in
terms of employee well-being and the quality of working life. Single source indicators have been
formed  for  job  satisfaction,  the  perceived  sustainability  of  work,  and  work–life  balance.  These
indicators  are  derived  from  single  questions  included  in  the  EWCS  2000  questionnaire.  Further
quality of working life indicators include personal skills and work demands (excessive demands),
the presence of physically challenging tasks (physical load), the general perception of health risks,
and  health-related  problems,  e.g.  hearing  problems  or  backache.  Indicators  for  organisational
performance and quality of working life are shown in Figure 31.

The  research  model  assumes  that  there  is  a  relationship  between  wage  systems  and  quality  of
working  life.  These  expectations  are  only  partly  supported  because  data  analysis  reveals  no
consistent results. Figure 32 shows that employees receiving traditional forms of variable pay, such

5  Questions regarding management strategy and company performance could perhaps be included in the EWCS 2005, to assess employee

awareness of company goals and goal achievement.

33

Wages&Working05106    23/6/05    3.07pm    Page  34

Wages and working conditions in the European Union 

Figure 31  Research model and indicators for wage system, work organisation, 
performance and quality of working life

Wage systems

Quality of working life

•

•

Modern forms of variable pay

Piece rate or productivity 
payment

Work organisation

•

•

High performance work 
organisation (HPWO)

Intensity of group delegation

EPOC indicators only

EWCS 2000 (and EPOC indicators)

•

•

•

•

•

•

•

Job satisfaction

Sustainable work

Work–life balance

Excessive demands

Physical load

Health risks

Health problems

Performance

•

•

•

•

•

•

•

•

Cost reduction

Time reduction

Employee reduction

Management reduction

Sickness decrease

Absenteeism decrease

Output increase

Quality improvement

as piece rate or productivity pay, are more likely to report that their work is less sustainable6 than
those having other types of wage systems. An analysis of the national sub-samples of the EWCS
2000  dataset  leads  to  similar  results.  Weak  but  significant  negative  relationships  are  found  for
Belgium,  Germany  and  Sweden,  while  findings  for  Finland  and  the  UK  are  negative  but  not
statistically significant. In the Netherlands, there seems to be no relation between piece rate pay
and sustainability. 

Analysis of EWCS 2000 cross-national data indicate a weak significant positive relation between
job  satisfaction  and  modern  forms  of  variable  pay7.  Nevertheless,  the  distribution  in  Figure  33
illustrates  that  there  are  no  substantial  differences  between  categories  of  satisfaction  and  the
proportions of employees receiving modern forms of variable pay. Percentages range from 4% to
6%. Employees with modern forms of variable pay are not more satisfied with their jobs than those
without.  Additionally,  basic  or  fixed  pay  is  associated  with  higher  job  satisfaction,  and  a  weak
negative relationship is found between job satisfaction and piece rate or productivity pay. 

The national results show the same pattern of findings, but, because of smaller sample sizes, hardly
any  significant  relations.  One  consistent  finding  is  the  negative  correlation  pattern  between  job
satisfaction and piece rate pay in most of the sample countries (significant for Germany and the
UK), indicating that employees working on piece rate are less likely to be satisfied. The negative

6  Work is termed ‘sustainable’, in this instance, if employees think they will be able to do their (same) job when they are 60 years old (Q.37,

EWCS 2000).

7  Question 38 in the EWCS 2000 asks about satisfaction with working conditions, after covering all kinds of different aspects of the job
and its outcomes. Hence, it may be assumed that employees have a broad reference frame, including most job aspects, when answering
this question. Therefore, the question may be regarded as an indicator of job satisfaction.

34

 
Wages&Working05106    23/6/05    3.07pm    Page  35

Secondary analysis of Foundation surveys

Figure 32  Percentages of piece 
rate/productivity pay, 
by sustainable work (EWCS 2000)

Figure 33  Percentages of modern variable pay,
by job satisfaction (EWCS 2000)

100

80

60

40

20

0

%

100

%

92

95

95

95

94

93

80

60

40

20

0

Piece rate

no (13770)

yes (896)

8

5

not sustainable
(5633)

sustainable
(9033)

Modern forms

no (16667)

yes (1097)

not satisfactory
(530)

not very
satisfactory (2056)

fairly satisfactory
(9650)

very satisfactory
(5528)

6

7

Sustainable work

Job satisfaction

correlation pattern between job satisfaction and piece rate pay, and the positive pattern for modern

forms of variable pay, seem to indicate that employees evaluate these two forms of variable pay

differently. 

Significant  positive  relations  between  high  performance  work  organisation  (HPWO)  and  job

satisfaction  can  be  reported  for  the  overall  sample,  as  well  as  for  sub-samples  of  all  countries,

showing the strongest association for Sweden and the weakest for Belgium. These weak positive

relationships between job satisfaction and modern forms of variable pay, and the strong connection

between HPWO and satisfaction, suggest that job satisfaction is more dependent on the type of

work organisation than on the type of wage system. One plausible interpretation of these results is

that HPWO increases the quality of working life and, therefore, leads to higher job satisfaction. As

pointed out earlier, however, one has to be cautious, as correlations do not prove causal inferences. 

Cross-national  analysis  reveals  an  interesting  pattern  of  findings  for  the  other  variables  used  to

explore the relationship between modern variable pay and quality of working life. Modern forms of

variable pay seem to be related to a negative perception of employee work–life balance. Employees

with modern variable pay report more often that work and social commitments do not fit very well.

Although  modern  forms  of  variable  pay  are  negatively  correlated  with  physical  load  –  and,

therefore, less likely to be found at workplaces with high repetitive and physically demanding tasks

(blue collar job profiles) – the correlation with health problems is significantly positive, although at

a very low level (Figure 34). This means that people receiving modern variable pay report health

problems slightly more often than those receiving other forms of payment. 

35

Wages&Working05106    23/6/05    3.07pm    Page  36

Wages and working conditions in the European Union 

Figure 34  Percentages of modern variable pay, 
by health problems (EWCS 2000)

Figure 35  Percentages of HPWO, 
by physical load (EWCS 2000)

%

%

95

94

91

92

83

46

59

67

54

41

Modern forms

no (16793)

17

5

no (7760)

6

9

8

yes (1104)

low (7974)

medium (1838)

high (296)

very high (29)

33

HPWO

low (7859)

high (6539)

low (6209)

medium (6097)

high (2097)

Health problems

Physical load

The  results  change,  however,  when  HPWO  is  taken  into  account.  Employees  more  frequently
report  a  positive  work–life  balance  and  feel  they  have  a  sustainable  job,  when  they  work  in
organisations  characterised  by  a  high  HPWO  profile.  They  also  report  fewer  health  problems,
physical  load  and  excessive  demands.  The  strongest  relationship  exists  between  HPWO  and
physical  load.  However,  almost  no  relationship  exists  regarding  health  risks.  As  can  be  seen  in
Figure 35, employees working at high HPWO profile workplaces are more likely to report that their
work  includes  only  low  physical  load.  In  general,  HPWO  seems  to  support  a  more  positive
assessment of working conditions and other factors that contribute to a higher quality of working
life.

While  EWCS  2000  data  provide  no  information  about  organisational  outcomes,  the  EPOC
questionnaire includes questions about indicators for organisational effectiveness. Managers were
asked  if  they  could  report  any  outcomes  with  regard  to  the  introduction  of  direct  participation.
Criteria  for  the  assessment  of  performance  are:  reduction  in  the  numbers  of  employees  and
managers,  decrease  in  absenteeism  and  sickness  rates,  output  increase,  quality  improvements,
time and cost reduction. For two out of the eight criteria, companies with modern forms of variable
pay  report  more  effects  resulting  from  the  introduction  of  group  delegation  activities  than  those
without such pay (Figures 36 and 37). The two criteria are: output increases, and reduction in the
numbers of managers. 

Figure  36  shows  that  the  percentages  for  positive  responses,  with  regard  to  output,  increases  in
range, from 46% without modern forms of variable pay to 60% with modern forms of variable pay.
In terms of reducing the numbers of managers, the figures range from 22% to 33%. At a national
level,  the  number  of  cases  decreases  (ranging  from  17  to  125  respondents),  which  makes  a
statistical interpretation of the results for most criteria questionable; and only five out of 32 results

36

Wages&Working05106    23/6/05    3.07pm    Page  37

Secondary analysis of Foundation surveys

are significant. In the UK, modern forms of variable pay seem to be linked with cost reduction and
a  lower  decrease  in  absenteeism  and  in  numbers  of  employees.  In  Sweden,  modern  forms  of
variable  pay  seem  to  be  associated  with  less  quality  improvements  and  less  sickness  decrease.
However, these few significant results should be interpreted with caution, as they might be due to
sample  effects.  Furthermore,  they  could  be  dependent  on  the  influences  of  unknown  third

Figure 36  Percentages of performance, 
by modern variable pay (EPOC)

Figure 37  Percentages of performance, 
by modern variable pay (EPOC) 
(aggregated  performance variable)

500

400

300

200

100

0

% 

100

80

60

40

20

0

mgt. reduction (378)

employee red. (372)

absent. dec. (420)

sickness decr. (400)

output incr. (416)

quality impr. (625)

time reduction (500)

cost reduction (476)

22

28

40

35

46

96

62

62

33

26

34

33

60

93

69

61

% 

59

42

58

41

Modern forms

no (101)

yes (96)

no (1839)

yes (1749)

low (108)

high (89)

Variable pay (modern forms)

Performance

variables,  especially  as  correlation  patterns  differ  between  countries,  which  might  indicate
institutional differences.

Taking  into  account  these  predominantly  insignificant  relationships,  between  modern  forms  of
variable  pay  and  performance,  it  seems  that  wage  systems  on  their  own  have  only  a  minor
influence on performance. The next step is to analyse the influence of moderating variables, such
as  aspects  of  work  organisation  and  strategy,  which  might  explain  why  no  relationship  is  found
between wage systems and performance at a general level. Based on the theoretical model, it is
expected  that  an  inconsistent  alignment  between  wage  systems,  work  organisation  and  strategy
weakens the impact of modern wage systems on performance. 

Effectiveness of system alignment

As reported earlier, an important conclusion from reviewing research literature is the influence of
other  organisational  factors  that  contribute  to  the  success  of  compensation  strategies.  Positive
responses  regarding  effectiveness  are  supposed  to  be  dependent  on  the  alignment  of  different
elements  within  the  organisational  system.  If  certain  aspects  of  work  organisation,  managerial

37

Wages&Working05106    23/6/05    3.07pm    Page  38

Wages and working conditions in the European Union 

strategies and wage systems are aligned consistently, then they should facilitate and foster positive
outcomes. 

At this point, the study moves away from the first level of data analysis of relationships between
two  variables,  to  examine  three  and,  in  the  case  of  the  EPOC  data,  four  of  those  variables
simultaneously and to look for contingent relationships. 

Based on the EWCS data, it was possible only to analyse the effects of the alignment between work
organisation and wage systems on quality of working life.8 These analyses showed mixed results.
No  alignment  effects  were  found  for  the  indicators,  work–life  balance,  job  satisfaction  and
sustainable work. However, alignment effects were found indicating that high performance work
organisations  are  more  successful  in  reducing  health  risks,  health  problems,  physical  load,  and
excessive  demands,  if  they  are  combined  with  modern  forms  of  variable  pay.  More  research  is
needed, however, to corroborate these findings.

In  the  case  of  the  EPOC  data,  the  association  between  modern  forms  of  variable  pay  and
performance indicators under different conditions are analysed, first with regard to the intensity of
group delegation, before taking managerial strategies into account in the second step. Filtering the
data  allows  the  analysis  to  control  the  influence  of  group  delegation  as  an  aspect  of  work
organisation.  Given  the  assumption  that  the  alignment  of  wage  systems  and  work  organisation

Figure 38  Percentages of performance, 
by modern variable pay and low group 
delegation (EPOC)

Figure 39  Percentages of performance, 
by modern variable pay and high 
group delegation (EPOC)

100

80

60

40

20

0

32

66

47

33

%

100

%

68

80

60

40

67

53

34

Modern forms

20

no (21)

yes (30)

0

Modern forms

no (26)

yes (40)

low (37)

high (14)

low (27)

high (39)

Performance

Performance

8  For this purpose, the study looked for interaction effects, using hierarchical linear regression analysis and, for binary dependent variables,

logistic regression analysis.

38

Wages&Working05106    23/6/05    3.07pm    Page  39

Secondary analysis of Foundation surveys

leads to positive effects on organisational performance, modern forms of variable pay are related
to  performance  indicators  for  high  and  low  intensity  of  group  delegation.  Using  an  aggregated
variable for performance indicators, Figure 38 shows that, with low intensity of group delegation,
34%  of  the  companies  using  variable  pay  report  higher  positive  effects,  compared  with  67%  for
companies having a high intensity of group delegation (Figure 39). This emphasises the importance
of the alignment hypothesis.

The following figures show the breakdown of the single performance indicators, which were used
to form the aggregated performance variable, as presented in Figures 38 and 39. Companies with
a  low  intensity  of  group  delegation  and  modern  forms  of  variable  pay  report  more  often  than
companies with other forms of wage systems, that the introduction of group delegation does not
lead  to  time  reduction,  quality  improvements,  or  reduction  in  the  number  of  employees  and
managers  (Figure  40).  Managers  from  companies  with  a  high  intensity  of  group  delegation  and
modern forms of variable pay report more often that the introduction of group delegation does lead
to cost and time reduction, and to a reduction in the number of managers (Figure 41)9. A higher
output increase is also reported, but the findings are not of statistical significance. Due to small
sample sizes at national level, these analyses were only performed at cross-national level.

This  second  level  of  analysis  also  explored  the  influence  of  innovation  strategy  on  the  relation
between work organisation and wage systems. The important questions are: Does the influence of
strategy  make  up  for  differences  in  the  relationship  between  the  wage  system  and  work
organisation; and does strategy play an important role for the alignment of these variables? Can

Figure 40  Percentages of performance, 
by modern forms of variable pay and low 
group delegation (EPOC)

%

Figure 41  Percentages of performance, 
by modern forms of variable pay and 
high group delegation (EPOC)
%

300

200

100

0

16

16

18

15

24

75

38

26

15

14

23

59

31

25

500

400

mgt. reduction (26)

employee reduction (23)

300

absenteeism decrease (21)

sickness decrease (29)

200

output increase (47)

quality improvement (134)

100

time reduction (69)

cost reduction (51)

0

46

35

34

32

76

94

79

69

28

43

39

63

95

61

44

no (393)

yes (493)

Variable pay (modern forms)

no (512)

yes (630)

Variable pay (modern forms)

9

These interaction effects were tested using logistic regression analysis.

39

mgt. reduction (42)

employee reduction (36)

absenteeism decrease (45)

sickness decrease (45)

output increase (102)

quality improvement (182)

time reduction (110)

cost reduction (90)

Wages&Working05106    23/6/05    3.07pm    Page  40

Wages and working conditions in the European Union 

the  alignment  of  wage  systems  and  work  organisation  be  regarded  as  strategy  driven,  as  it  is
postulated, in the strategic fit approach? 

For  companies  without  an  innovation  strategy,  having  a  low  or  high  degree  of  group  delegation
does  not  seem  to  influence  whether  or  not  they  use  modern  forms  of  variable  pay  (Figure  42).
Significant  relationships  were  not  found  at  cross-national  nor  at  national  level.  However,
companies  with  an  innovation  strategy  and  intensive  group  delegation  choose  modern  forms  of
variable pay more often than companies with low group delegation, as can be seen in Figure 43.
Percentages differ from 40% for a low intensity of group delegation to 69% for a higher intensity.
Strategy seems to play an important role in the introduction of modern forms of variable pay, when
aligned  with  a  high  intensity  of  decisive  power  and  control,  transferred  from  management  to
employees. At national level, this is only the case for Germany. In the UK, the Netherlands and
Sweden, no significant relationship was found. In summary, there seems to be a positive relation
between modern forms of variable pay and group delegation, only for companies that implemented
a  strategy  towards  product  innovation.  These  findings  support  the  assumptions  made  by  the
strategic fit approach. 

Figure 42  Percentages of modern variable pay, 
by group delegation without innovation 
strategy (EPOC)

Figure 43  Percentages of modern variable pay, 
by group delegation with innovation 
strategy (EPOC)

%

%

62

61

38

39

100

80

60

40

20

0

60

31

69

40

100

80

60

40

20

0

Modern forms

no (633)

yes (395)

low (531)

high (497)

low (176)

high (274)

Intensity of group delegation

Intensity of group delegation

Modern forms

no (191)

yes (259)

Moving on to the third and highest level of analyses requires the arrangement of four variables.
This expands the scope of contingency and takes into consideration, for further analysis, indicators
for  strategy,  wage  systems,  work  organisation  and  performance.  The  exploration  of  contingency
relationships  is  difficult  because  selecting  sub-samples  and  applying  filters  to  these  samples
reduces the number of cases, when it comes to investigating the influence of moderating variables.
The  EPOC  questionnaire  contains  jump  rules  that  structure  the  way  through  the  course  of

40

Wages&Working05106    23/6/05    3.07pm    Page  41

Secondary analysis of Foundation surveys

questions and lead to calculating with smaller numbers. Due to the small number of cases, ranging
from 27 to 105, only big differences or very strong relationships become statistically significant.10

Assuming  that  an  alignment  of  wage  systems,  work  organisation  and  strategy  facilitates  positive
organisational  outcomes,  then  looking  at  companies  without  an  innovation  strategy  and  a  low
intensity  of  group  delegation  should  show  less  positive  responses.  As  Figure  44  shows,  75%  of
companies  with  modern  forms  of  variable  pay,  a  low  intensity  of  group  delegation  and  no
innovation strategy report low positive effects. The result for companies with high group delegation
is  49%  (Figure  45).  The  proportion  of  companies  reporting  high  positive  effects,  together  with
modern forms of variable pay, a low intensity of group delegation and no innovation strategy, is
22%, compared with 55% for companies with high group delegation. This finding underlines the
important influence of group delegation in an analysis of the alignment of variables.

Figure 44  Percentages of performance, 
by modern variable pay, low group delegation 
without innovation strategy (EPOC) 
(aggregated performance variable)

Figure 45  Percentages of performance, 
by modern variable pay, high group delegation 
without innovation strategy (EPOC) 
(aggregated performance variable)  

100

80

60

40

20

0

%

78

25

75

51

45

%

55

49

100

80

60

40

22

Modern forms

20

no (14)

yes (27)

0

Modern forms

no (16)

yes (18)

low (33)

high (8)

low (16)

high (18)

Figures  46  and  47  show  the  breakdown  for  the  single  performance  indicators.  Companies  with
modern  forms  of  variable  pay,  a  low  intensity  of  group  delegation  and  no  innovation  strategy
report,  more  often,  that  the  introduction  of  group  delegation  does  not  lead  to  time  reduction,
quality improvement and output increases, nor to a reduction in absenteeism or in the number of
employees (Figure 46). As expected, companies with modern forms of variable pay, a high intensity
of  group  delegation  and  no  innovation  strategy  report  more  positive  effects.  Managers  in  these
companies state that the introduction of group delegation leads to cost and time reduction, output
increases and a reduction in the number of managers. 

Figures  46  and  47  also  reveal  that  there  are  visible  differences  in  the  distribution  of  positive
outcome responses. For instance, percentages of cost reduction in a less aligned set of variables

10  Due to these few cases, no logistic regression analysis can be done to test for interaction effects.

41

Wages&Working05106    23/6/05    3.07pm    Page  42

Wages and working conditions in the European Union 

Figure 46  Percentages of performance, by modern 
variable pay, low group delegation without 
innovation strategy (EPOC)

Figure 47  Percentages of performance, by modern 
variable pay, high group delegation without 
innovation strategy (EPOC)

500

400

300

200

100

0

31

54

45

59

95

62

44

%

500

400

mgt. reduction (34)

employee reduction (41)

300

absenteeism decrease (92)

sickness decrease (30)

200

output increase (23)

quality improvement (21)

100

time reduction (10)

cost reduction (11)

0

26

29

81

38

37

26

41

38

50

93

53

34

%

55

32

33

73

96

82

78

mgt. reduction (24)

employee reduction (14)

absenteeism decrease (28)

sickness decrease (28)

output increase (47)

quality improvement (98)

time reduction (59)

cost reduction (49)

no (214)

yes (180)

Variable pay (modern forms)

no (365)

yes (282)

Variable pay (modern forms)

are 37% for companies with modern forms of variable pay, and 44% for companies without such
forms of pay (Figure 46). This ratio alters when there is a high intensity of group delegation, ranging
from 34% (without modern forms of variable pay) to 78% (with such forms of pay). These findings
illustrate the importance of group delegation when combined within a set of aligned variables, even
with the exception of innovation strategy.

Companies  with  modern  forms  of  variable  pay,  a  low  intensity  of  group  delegation  and  an
innovation strategy report, more often, that the introduction of group delegation leads to a decrease
in absenteeism, but does not lead to a reduction in the number of managers and employees. Figure
48  shows  that  the  proportion  of  companies  with  modern  variable  pay  and  with  a  decrease  in
absenteeism is 71%, whereas the proportion for companies without such pay is only 29%. Results
for  a  reducing  in  the  number  of  managers  and  employees  point  in  the  opposite  direction,  with
percentages ranging from 22% (with modern forms of pay) to 63% (without modern forms) in the
case  of  managers,  and  from  24%  (with  modern  forms)  to  55%  (without  modern  forms)  for
employees. 

Besides these positive and negative correlations, none of the other relationships between modern
forms of variable pay and outcomes are of statistical significance. This resembles the inconsistent
picture that was presented in Figure 40, where the alignment of variables was not achieved because
of the low intensity of group delegation. Contrary to assumptions, the reported positive effects do
not  increase  with  the  examination  of  aligned  variables.  Companies  having  modern  forms  of
variable  pay,  a  high  intensity  of  group  delegation  and  an  innovation  strategy  do  not  report  any
different effects from the introduction of group delegation (Figure 49). Statistical analysis showed
no  significant  results  for  any  of  the  outcome  indicators.  These  findings  do  not  support  previous

42

Wages&Working05106    23/6/05    3.07pm    Page  43

Figure 48  Percentages of performance, by 
modern variable pay, low group delegation 
with innovation strategy (EPOC)
% 

500

63

55

29

25

39

100

74

60

400

300

200

100

0

22
24

71

68

92

78

46

Secondary analysis of Foundation surveys

Figure 49  Percentages of performance, by modern 
variable pay, high group delegation with 
innovation strategy (EPOC)

600

500

400

mgt. reduction (15)

employee reduction (12)

absenteeism decease (13)

300

sickness decrease (7)

output increase (17)

quality improvement (42)

time reduction (28)

cost reduction (17)

200

100

0

% 

38

48

35

31

78

92

76

60

mgt. reduction (18)

employee reduction (23)

absenteeism decrease (20)

sickness decrease (17)

output increase (56)

quality improvement (83)

time reduction (53)

cost reduction (40)

31

35

50

45

87

100

76

67

no (178)

yes (84)

no (146)

yes (324)

Variable pay (modern forms)

Variable pay (modern forms)

figures, where the reported positive effects of the aligned variables gave a different picture. These
results  may  be  due  to  the  small  number  of  cases,  but  it  seems  that  innovation  strategy  may
compensate  for  modern  pay  effects  and  group  delegation,  although  high  group  delegation
companies report positive effects slightly more often than companies with low group delegation.
However, one has to bear in mind the comparatively small sample when interpreting the results;
effects might be due to sample effects.

Summary and discussion

What are the lessons learned from this secondary analysis of the EWCS 2000 and EPOC data, with
respect to indicators and relationships between model variables?

Identification of indicators

The main indicators of wages and wage systems in the EWCS 2000 and EPOC survey are income
level  and  the  presence  or  absence  of  different  types  of  pay  systems,  such  as:  basic  fixed  salary,
piece rate and productivity payment, payments based on the overall performance of the company
(profit-sharing scheme) or the overall performance of a group, income from shares in the company,
pay add-ons such as extra payments for additional hours of work/overtime, compensation for poor
or dangerous working conditions, for Sunday work or other extra payments. The interpretation of
these wage indicators is not always clear. Future studies should distinguish between base pay, i.e.
grading structure, and variable pay, i.e. bonus payments and financial participation, and should
specify criteria for grading, as well as components and criteria of variable pay. For analysing both
surveys, modern forms of variable pay were defined as an aggregated indicator encompassing team
bonus and/or profit-sharing and/or income from shares.

43

Wages&Working05106    23/6/05    3.07pm    Page  44

Wages and working conditions in the European Union 

As indicators of work organisation, many studies have used different forms of participation, task
variety and task autonomy, as well as the presence or absence of teamwork or job rotation. As team
characteristics and their effects differ between teams, e.g. high or low degrees of participation or
autonomy in decision-making, one cannot deduce task characteristics, solely from the incidence of
teamwork.  Similarly,  the  effects  of  job  rotation  depend  on  the  variety  of  the  tasks.  For  these
reasons,  the  common  practice  of  aggregating  these  aspects  into  one  high  performance  work
organisation (HPWO) variable may be questioned. Therefore, HPWO was defined in this study as
characterised by time and task autonomy, task variety, responsibility, and effective participation,
with reference to the EWCS 2000. In the EPOC survey, only direct participation was measured, and
the intensity of group delegation was analysed as a key aspect of HPWO. 

Regarding  outcomes,  employee-related  outcomes  are  used  in  the  EWCS,  but  organisational
performance indicators are missing. Conversely, the EPOC survey focuses on organisational effects
of direct participation, to the relative neglect of employee-related outcomes. Managerial strategy is
not  addressed  in  the  EWCS  2000  and  not  explicitly  addressed  in  the  EPOC  survey.  Instead,
analysis of the EPOC data made use of the question regarding product innovation initiatives as an
indicator for an innovation strategy, which is not a very elaborate strategy measure. Future EWCS
and EPOC surveys could address these aspects more explicitly.11

Prevalence of forms of wage systems, work organisation and strategy
Basic or fixed pay, without variable pay, is by far the most common wage system reported in the
EWCS 2000, with modern forms of variable pay very much the exception, at only 6%. In contrast,

Figure 50  Results of secondary analysis: Wage system and environmental factors

Environmental factors

Employment conditions

Organisational conditions

Working time flexibility

Contract type

Size

Sector

.05**

.06**

.05**

.10**

.16**

.12**

.25**

Income level

.12**

.16**

Modern forms of 
variable pay

.01

-.09**

.10**

-.04**

Age

Gender

Employee representatives

Union density

Personal conditions

Institutional factors

EWCS 2000

EPOC

11  For example, questions regarding management strategy and company performance could be included in the EWCS, to assess employee
awareness  of  company  goals  and  goal  attainment.  The  EPOC  survey  could  ask  management  to  distribute  questionnaires  among
employees or request their consent to approach employees (representatives) directly, via the Internet or telephone, to ask about quality
of working life indicators.

44

 
 
 
 
 
 
 
 
 
 
 
 
Wages&Working05106    23/6/05    3.07pm    Page  45

Secondary analysis of Foundation surveys

about every third workplace in the EPOC study reports the use of modern forms of variable pay for
the  largest  occupational  group.  Considerable  differences  exist  between  countries,  which  in  part
might be due to supportive government legislation (Poutsma, 2001). Figure 50 displays the strength
of relationships between indicators of wage system and environmental factors, as they have been
found at cross-national level. 

With respect to the relationship between wage systems and gender, cross-national results of the
ESWC 2000 consistently show men receiving more modern forms of variable pay than women and,
as  Paoli  and  Merllié  (2001)  have  already  shown,  earning  higher  wages.  This  corresponds  with
findings in national studies, which show that various factors cause direct or indirect discrimination
(e.g. Belgian Federal Government, 2004; Ylöstalo, 2003). No relationship was found in the EWCS
2000 data between the type of wage system and age, despite contrary findings in some national
studies (e.g. Ilmakunnas et al, 2003).

Concerning the relationship between wage systems and employment conditions, the EWCS 2000
results show that employees working full time have modern forms of variable pay, more often than
temporary  or  part-time  workers  do.  The  same  is  true  for  employees  with  flexible  working  times,
compared with those having fixed working times. National differences do exist, which might be due
to national laws and regulations. 

In the EPOC survey, modern forms of variable pay are found, more often, in the private sector than
in  the  public  sector,  as  well  as  in  larger  companies,  which  also  corresponds  with  other  findings
(Pendleton  et  al,  2001).  The  relations  of  other  organisational  factors  or  institutional  factors  and
wage systems have rarely been studied. 

Figure 51  Results of secondary analysis: Wage system, work organisation and strategy

.12**

Work organisation

Intensity of
group delegation 

High performance work
organisation (HPWO) 

Strategy for product
innovation

.11**

.12**

.13**

Modern forms of
variable pay

EWCS 2000

EPOC

Relation between wage system, work organisation and strategy
The result of this secondary analysis of the EWCS 2000 and EPOC survey is that aspects of HPWO
are found, more often, with modern forms of variable pay; this is consistent with existing research
(e.g.  Lay  and  Rainfurth,  1999;  Pendleton  et  al,  2001;  Poutsma,  2001).  Furthermore,  every  third
company reports the use of group delegation (EPOC Research Group, 1997) and almost the same
number have taken innovation strategy initiatives. Figure 51 gives an overview of the associations
between indicators of work organisation, strategy and wage systems. 

45

Wages&Working05106    23/6/05    3.07pm    Page  46

Wages and working conditions in the European Union 

Furthermore,  EPOC  data  show  that  modern  forms  of  variable  pay  and  high  intensity  of  group
delegation are found much more often in companies with an innovation strategy, whereas no link
exists for companies without an innovation strategy. All correlations between wage system, work
organisation and strategy are rather low, but can be found in almost all the sample countries. Only
a few studies have analysed the relationship between strategy and wage systems, and they found
no consistent relationships (Bahnmueller, 2001; Thompson, 2002a). This might be partly due to the
fact that there is often a degree of time lag between changes in strategy and congruent changes in
wage systems. This can be caused by sequential implementation, e.g. by changing strategy first,
then work organisation and, lastly, wage system. Another reason might be restrictions of collective
bargaining, which cause a time delay or may even block alignment of pay systems. An indication
that  collective  bargaining  could  delay  or  hinder  alignment  is  that,  in  the  UK  –  where  there  is  a
deregulated  liberal  market  economy  –  the  relationship  between  innovation  strategy  and  modern
forms of work systems is much stronger than the average, and much stronger than in Germany, the
Netherlands  and  Sweden,  all  of  which  can  be  characterised  by  socio-liberal  markets  and  strong
institutionalised  participation  rights.  Interestingly,  the  UK  also  shows  the  strongest  negative
relationship between union density and modern forms of variable pay.

Figure 52  Results of secondary analysis: Organisational performance

Strategy for product 
innovation  

.12**

.13**

Intensity of 
group delegation

15** cost reduction

.29** output increase

.17** time reduction

.11**

.19** time reduction

.13** employee reduction

Modern forms of 
variable pay

.17** output increase

.14** time reduction

.12** output increase

Organisational
performance

EPOC

Effectiveness of wage systems, work organisation or strategy
In the EPOC survey, each of the three variables – modern forms of variable pay, high intensity of
group delegation and innovation strategy – shows positive bivariate correlations with two or three
out of eight outcome variables. This means, for example, that more companies in the EPOC survey
report output increases, if they have an innovation strategy, high intensity of group delegation or
modern forms of variable pay (Figure 52).

Regarding employee-related outcomes, the EWCS 2000 data show that HPWO has much stronger
positive  relationships,  than  modern  forms  of  wage  systems  have,  with  indicators  of  quality  of
working life, such as job satisfaction, sustainable work or work–life balance. Figure 53 describes all
correlations between indicators of wage systems and work organisation, and indicators for quality
of working life.

46

Wages&Working05106    23/6/05    3.07pm    Page  47

Secondary analysis of Foundation surveys

Figure 53  Results of secondary analysis: Quality of working life

High performance work 
organisation (HPWO)

.12**

.14** Sustainable work

.21** Job satisfaction

.03** Work–life balance

-.05** Excessive demands

-.15** Physical load

-.07** Health risks

Modern forms of 
variable pay

.02* Sustainable work

.02** Job satisfaction

-.02** Work–life balance

≈0 Excessive demands

-.02* Physical load

≈0 Health risks

-.04** Health problems

.04** Health problems

Quality of 
working life

EWCS 2000

EPOC

Correlations between HPWO and quality of working life indicators reach medium level with respect
to job satisfaction, whereas they are weak for modern forms of wage systems, at cross-national and
national level. The results of existing studies concerning wage systems and/or work organisation
and organisational performance are very different between European countries, as well as between
different studies within a country (e.g. Nilsson, 1990 or Eriksson, 2002). The same is true for the
relation between wage systems and work satisfaction (e.g. Holman, 2002; Eriksson and Leander,
1995). 

Why are most of the correlations so low with respect to the relationships between wage systems,
work  organisation  and  quality  of  working  life  and  performance?  Interpreting  these  results,  the
following aspects have to be taken into account: 

■ With regard to indicators of quality of working life, it is known from research in the area of work-
related stress that only low correlations can be expected, due to interpersonal differences and
the furthering and hindering influence of many different variables.

Low  reliability  and  validity  of  assessments  might  also  be  one  reason  for  the  low  correlations
between reported effects of group delegation and other variables. 

■ Many  factors  influence  the  relationships  between  model  variables  in  different  directions  and
lead  to  low  correlations.  If  some  of  them  are  controlled,  e.g.  by  holding  them  constant  or
integrating them in the analyses, as was done in this study, correlations increase. However, this
reduces sample size and correlations might become insignificant.

System alignment and effectiveness 

The analysis of the EWCS data, regarding effects of the alignment between work organisation and
wage systems on quality of working life, showed mixed results. No alignment effects were found for
the indicators work–life balance, job satisfaction and sustainable work. However, high performance
work organisations seem to be more successful in reducing health risks, health problems, physical

47

■
Wages&Working05106    23/6/05    3.07pm    Page  48

Wages and working conditions in the European Union 

load,  and  excessive  demands,  if  they  are  combined  with  modern  forms  of  variable  pay.  More
research is needed, however, to corroborate these findings.

Results based on the EPOC data show that alignment effects also exist between group delegation
and  modern  forms  of  variable  pay,  for  at  least  three  out  of  eight  analysed  organisational
performance outcomes. More companies with modern systems of variable pay and a high intensity
of group delegation report reduction of costs, output times and management personnel, as a result
of group delegation, compared with companies having a low intensity of group delegation. 

Existing research regarding high performance work systems also shows inconsistent results at best
(Godard, 2004); more research is needed to find and analyse the moderating variables, which can
explain these differences.

Company strategy seems to be one important moderator of the relationship between wage systems
and  work  organisation,  and  organisational  performance.  Results  based  on  the  EPOC  data  show
that the effects of wage systems depend on strategy. 

If a company has an innovation strategy and high intensity of group delegation, the type of wage
system does not matter for group delegation effects (Figure 55). 

Figure 54  Performance, by modern variable pay, 
low group delegation with innovation 
strategy (EPOC)

Figure 55  Performance, by modern variable pay, 
high group delegation with innovation 
strategy (EPOC)

Modern forms 
of variable pay

Modern forms 
of variable pay

-.37* management reduction

.39* absenteeism decrease

-.34* employee reduction

No significance

Performance

Performance

If an innovation strategy is combined with low intensity of group delegation, three out of eight
outcomes  of  group  delegation  are  dependent  on  having  modern  forms  of  variable  pay:  these
companies report management and employee reductions less often, and absenteeism decreases
more often (Figure 54).

If a company has no innovation strategy, effects of group delegation differ for both low and high
group delegation, where modern forms of variable pay are present: 

Companies with low group delegation report less group delegation effects concerning five out
of  eight  outcomes,  i.e.  less  throughput  time  and  employee  reductions,  less  output  and
quality increases, and less absenteeism decreases (Figure 56); 

48

■
■
■
Wages&Working05106    23/6/05    3.07pm    Page  49

Secondary analysis of Foundation surveys

Figure 56  Performance, by modern variable pay, 
low group delegation without 
innovation strategy (EPOC)

Figure 57  Performance, by modern variable pay, 
high group delegation without 
innovation strategy (EPOC)

Modern forms 
of variable pay

Modern forms 
of variable pay

-.24* time reduction

-.22* quality increase

-.30** output increase

-.37** absenteeism decrease

-.30* employee decrease

.45** cost reduction

.31** time reduction

.24* output increase

.44** management reduction

Performance

Performance

Companies with high group delegation report more group delegation effects regarding four
out of eight reported outcomes, i.e. more cost, throughput time and management reductions,
as well as more output increases (Figure 57). 

Assessing the results 

Comparing  the  effects  of  work  organisation  and  wage  systems,  the  data  indicate  that  work
organisations  show  much  stronger  relations  to  quality  of  working  life,  such  as  job  satisfaction.
Regarding performance, data directly measuring performance outcomes were not available, as the
EPOC survey only measured direct participation effects. Within these limits, the analyses indicate
that the intensity of group delegation seems to be more important than wage systems in achieving
group delegation effects. This supports the notion that aspects of work organisation have stronger
effects  than  wage  systems  have,  not  only  on  quality  of  working  life,  but  also  on  performance
outcomes. Furthermore, the data support the theoretical assumptions that one should not consider
only isolated variables, to improve quality of working life and performance outcomes, but rather
should align these variables, based on their explicit or implicit steering mechanisms for employee
behaviour.

The  data  show  that  interaction  effects  exist  between  work  organisation  and  wage  systems,
regarding  quality  of  working  life  indicators  and  organisational  performance.  Furthermore,  the
results  support  the  view  that  alignment  between  strategy,  work  organisation  and  wage  systems
promotes company performance. This means that, if these variables are aligned, they have stronger
effects  than  if  considered  independently.  It  is  important  to  be  aware  that,  if  strategy,  work
organisation and wage systems imply different goals and directions for employee behaviour, this
might adversely affect performance and quality of working life. These counteracting effects can be
considered as one reason for the observed low correlation between work organisation and wage
systems,  and  performance  and  quality  of  working  life.  The  relationships  become  much  stronger
when  these  counteracting  effects  are  controlled  and  an  analysis  is  made  of  the  effects  of  work
organisation, with high degrees of direct participation and autonomy, combined with modern forms
of wage systems, such as team bonuses and/or profit-sharing. 

49

■
Wages&Working05106    23/6/05    3.07pm    Page  50

Wages and working conditions in the European Union 

What kind of mechanisms might underlie these interaction effects? Company strategy comes first:
a product innovation strategy requires that one is the first to market, to meet unfulfilled customer
wishes and requirements. Costs are not irrelevant, but they are not the number one priority, as one
can fix market prices for new products, within certain limits. To be able to develop and launch new
products  successfully,  one  must  not  only  have  creativity  and  a  clear  customer  focus,  but  also
competent and flexible employees along the whole process chain, who are able and willing to react
quickly  to  market  opportunities  and  changes.  This  requires  a  flexible  and  market-oriented  work
organisation,  process  and  customer  focus,  few  hierarchical  levels,  employee  participation  and
delegation,  and  efficient  communication  processes,  allowing  employees  to  react  quickly  to
changing  demands.  Wage  systems  can  support  these  processes,  by  rewarding  competence
development and taking responsibility, as well as the achievement of core business goals. Variable
forms  of  pay,  based  on  team  outcomes  or  company  profit,  are  often  business  goal-oriented,
whereas  traditional  piece  rate  pay  is  only  based  on  parts  produced,  without  taking  quality  or
process goals into account. 

However,  these  interpretations  remain  speculative  and  require  a  better  empirical  basis.  More
research  is  needed  to  specify  and  to  explore  these  mechanisms,  and  to  explain  the  inconsistent
results and country differences. Nevertheless, the results of these secondary analyses of the EWCS
2000  and  EPOC  data  are  promising,  although  the  surveys  were  not  designed  to  answer  these
research questions. To gain a better understanding of company decision processes regarding the
strategic  alignment  of  wages  and  work  organisation,  and  the  influence  of  collective  bargaining,
three  case  studies  were  prepared.  More  in-depth  information  for  various  countries  has  been
collected through a review of existing national studies and the secondary analyses of the EWCS
2000  and  EPOC  data.  These  country  reports  provide  a  detailed  and  complete  picture  of  the
situation in Belgium, Finland, Germany, the Netherlands and the UK, and are available on request
from the European Foundation for the Improvement of Living and Working Conditions.

50

Wages&Working05106    23/6/05    3.07pm    Page  51

Case studies 4

Only a few studies have addressed the influence of company strategy on wage systems and work
organisation,  or  how  collective  bargaining  influences  the  ability  of  companies  to  align  wage
systems and work organisation to their strategy. As these aspects were not part of the focus of the
EWCS  2000,  and  only  marginally  so  in  the  EPOC  survey,  secondary  analyses  of  these  datasets
offer  limited  insights.  An  analysis  of  the  EPOC  survey  shows  a  very  weak  negative  correlation
between modern forms of variable pay and degree of trade union membership. However, the data
suggest  that  the  alignment  of  company  strategy,  wage  systems,  and  work  organisation  has  an
impact  on  company  effectiveness.  For  this  reason,  more  research  is  needed  regarding  these
questions and, particularly, in relation to whether and how companies want to align strategy, wage
systems and work organisation, and how conditions of collective bargaining influence their ability
to  do  so.  As  a  first  step,  it  was  decided  to  carry  out  three  exploratory  case  studies,  in  Belgium,
Finland and Germany. The methods used and their results are described in the following sections.

Methodology

As not much is known about European companies, in terms of the issues mentioned above, and
as resources were limited, exploratory case studies were the method of choice. These case studies
aim to gain a better understanding of the various actors and interest groups, their goals, intentions,
actions and opinions regarding strategies, wages and work organisation, and how these influence
company practices, outcomes and working life.

They analyse the model variables and their influencing factors in a company setting, and describe
their dynamics, mutual interdependencies and consequences, from the perspective of key actors
and interest groups or stakeholders of a company. 

To control for sector effects and gather comparable data from different countries, it was decided to
draw all three case studies from the banking sector and to focus on retail banking. The banking
sector was chosen for practical reasons, in terms of available contacts, and because it has been
subject  to  consolidation  processes  for  the  last  couple  of  years.  Therefore,  it  was  expected  to
illustrate  new  strategies,  reorganisation  of  work  processes  and  wage  systems.  Due  to  limited
resources, the field was restricted to three case studies. Belgium and Finland belong to the smaller
countries  of  the  EU,  Belgium  since  the  outset,  whereas  Finland  entered  in  a  later  round  of
accession, and experienced dramatic economic changes quite recently. Germany represents one of
the  large  and  traditional  EU  countries,  with  significant  recent  changes  in  the  banking  sector;  in
2003, a new collective labour agreement was introduced in that sector, regarding modern forms of
variable pay.

The  case  studies  are  based  on  interviews  with  individuals  and  focus  groups,  representing  key
stakeholders of pay systems. Available documentary material on current pay systems and practices
was  also  analysed.  In  all  three  cases,  human  resources,  line  management  and  employee
representatives were interviewed as key stakeholders, using common guidelines. Interviews lasted
about two hours, on average. All the groups, i.e. HR management, line management and employee
representatives, were asked to describe company strategy, wage systems and work organisation, to
explain why things are done the way they are done, how they work, what consequences they have,
and what should or will be changed in the future. In particular, the interviews sought to explore
whether and how collective bargaining conditions further or hinder the strategic alignment of wage

51

Wages&Working05106    23/6/05    3.07pm    Page  52

Wages and working conditions in the European Union 

systems  and  work  organisations.  The  focus  was  on  wage  systems  for  operational,  i.e.  non-
managerial, employees who were subject to collective bargaining.

In particular, the following topics were covered:

strategy – characteristics of company, HR and pay strategy, reasons for the existence of different
pay  schemes,  links  between  compensation  strategy,  general  HR  strategy,  and  company
philosophy, objectives and strategy;

■ work organisation – for instance, description of tasks and task interdependence, individual and

group consultation and delegation;

■ wage systems and practice – characteristics of base pay, as well as variable pay (each existing
system described separately), in terms of structure, rules and processes in systems and practice;

alignment  of  pay  systems  to  strategy  and  work  organisation,  and  the  effects  on  company
performance  (e.g.  costs,  quality,  output),  employee  behaviour  (e.g.  turnover,  absenteeism,
innovative action), and attitudes (e.g. work climate, commitment);

vision of wage systems, strategy, work organisation and their alignment;

collective bargaining – influences on current pay systems and future developments.

Case study: Belgium

This  case  study  is  based  on  an  analysis  of  documentary  material  on  current  pay  systems  and
respective practices, as well as on two interviews with a HR manager and a union representative
and  one  focus  group  interview  with  line  managers.  These  represent  the  key  stakeholders  of  pay
systems in a Belgian bank. 

The representative of the human resources department, at corporate level, was interviewed in order
to gain an understanding of the company’s philosophy and strategy in general, and, in particular,
of its HR and pay strategy, as well as of other factors affecting its pay systems. These pay systems
were described in detail and evaluated during the interview with the HR representative. The line
managers and one union representative were interviewed to assess the different dimensions and
effects of the pay systems and to consider future developments that should take place to improve
the pay systems.

The  financial  institution  in  question  employed  almost  14,000  employees  in  2003,  about  half  of
which belong in the category of operational employees. Some 45% are managerial employees and
1% form part of the top management. Three out of four (76%) hold a higher education degree, and
about a quarter work on a part-time contract. Although attention is also paid to the pay systems
for  the  bank’s  lower  and  middle  management,  the  study  mainly  focuses  on  the  operational
employees and, more specifically, on those working in the retail division as client advisors, with
about  three  to  four  per  office.  These  employees  have  to  handle  80%  of  the  financial  service
products on offer. 

52

■
■
■
■
Wages&Working05106    23/6/05    3.07pm    Page  53

Case studies

Strategy

The financial institution was formed as the result of a large merger between Belgian banks some
years ago. After the merger, the organisation’s focus was mainly internal, as it sought for synergies
and economies of scale. Recently, the bank appointed a new CEO, who has changed the strategic
focus from an internal to external (customer) orientation, aiming that it should become a ‘friendly
bank’.  The  different  stakeholders  are  well  aware  of  this  new  direction.  The  financial  institution
provides banking and insurance products, and aims to be a universal bank assurance provider. Its
most important products are loans, insurance, savings accounts and investments. The main client
focus  includes  private  persons,  self-employed  people,  and  small  and  medium-sized  enterprises
(SMEs).

The  values  of  this  financial  institution  are  professionalism,  service,  honesty,  openness,  and
enthusiasm.  Another  very  important  element,  which  could  be  added  to  these  values,  is
independence, i.e. it is not interested in becoming part of a large international group. Its business
model is based around strong customer relationships, although cost considerations also play an
important role. This means that its strategy is somewhat mixed.

Within  the  HR  strategy,  the  internal  cost  focus  is  still  predominant.  The  second  strategic  HR
element is the long-term relationship between the company and the employee. At first glance, these
priorities  may  seem  contradictory.  However,  encouraging  part-time  work  can  facilitate  both
strategies. Two examples of this long-term relationship are the pension plan (with defined benefits),
and the fact that employees who perform poorly in one area are offered a chance to stay, by means
of  job  rotation.  The  third  strategic  HR  element  is  openness  of  communication.  Competence
management is the fourth strategic HR element. This is linked with career management, i.e. there
are  assessment  centres  for  different  career  phases.  In  practice,  line  management,  the  HR
department  and  the  union  representative  are  satisfied  with  performance  management  and  the
assessment  process.  The  only  comment  in  this  regard  was  that  line  management  needs  more
coaching in giving feedback to employees and in assessing them. However, there have been some
recent  developments  in  tackling  this  issue.  The  fifth  strategic  HR  element  is  the  need  for
differentiation, followed by a flexible work organisation (e.g. flexible working hours).

There  is  no  formal  or  clearly  defined  pay  or  reward  strategy.  The  most  important  characteristics
underlying the reward systems are cost, employee performance and long-term employability. There
is a clearly defined positioning of wage rates, determined by total (financial) compensation. The
bank  believes  in  paying  market  rates  on  average.  For  high  performers,  there  is  a  75  percentile
positioning for the best performers.

Work organisation

The operational employees always use the same set of instruments and software, which makes the
work quite repetitive. Roles and functions are clearly defined and, as a consequence, there is little
task diversity. On the other hand, there is frequent contact with customers, which brings some task
variety. The work requires a rather high level of qualification, as many purely clerical tasks have
disappeared  in  today’s  computerised  work  environment.  Job  rotation  is  an  issue  with  respect  to
older employees, bearing in mind the strategic element of long-term employability. However, the
financial institution is not yet sure which direction to take in this respect.

53

Wages&Working05106    23/6/05    3.07pm    Page  54

Wages and working conditions in the European Union 

In addition, work in this type of retail bank office is more team-based than an individual activity,
and the company is also trying to flatten hierarchical levels.

There is work consultation at an individual level, in addition to annual attitude surveys focusing
on satisfaction and involvement. Employees are also encouraged to make suggestions, and this can
even  be  linked  to  a  bonus.  In  terms  of  individual  consultation,  customer  relations  is  the  most
common issue. This is an example of the strategic alignment of the work organisation. Goal setting,
and  training  and  development  are  also  popular  consultation  issues.  Delegation  is  a  much  more
difficult  issue  due  to  risk  management.  In  the  financial  services  sector,  procedures  are  very
important for security reasons.

To summarise, the financial institution is trying to reduce the number of hierarchical levels. The
work of employees in the retail division is characterised by a small degree of variety and autonomy,
but teams play an important role and there is consultation. However, delegation is limited. It can
be concluded that some elements of high performance work organisation are present, but certainly
not all characteristics.

Wage systems 

The financial institution’s reward system is rather conservative. There is more focus on financial
rewards, with limited employee choice in determining the reward package, and limited risk sharing
between employer and employee. However, the HR representative perceived that reward is strongly
linked  to  performance,  i.e.  financial  as  well  as  non-financial  results,  and  competencies.
Furthermore, both individual and team performance play a role.

Administrative  employees  are  entitled  to  a  salary,  overtime  pay,  bonus,  profit-sharing,  stock
options and stock. Table 4 gives a general overview of the pay systems that are applicable to the
operational and managerial employees.

Table 4 Overview of pay systems: Case study 1

Operational employees

Managerial employees

Base pay: grading

Job-related

Competency-related

Base pay increases: within grade

Age-related

Performance-based (merit matrix)

Base pay increases: to another grade

Mainly based on competencies

Based on job, as well as competencies

and performance

Variable pay: individual

Not applicable

Individual bonus

However, there is a bonus for 

Bonus for extraordinary 

extraordinary performance

performance

Variable pay: team

Cluster bonus

Cluster bonus

Variable pay: profit-sharing

Growth in earnings per share

Growth in earnings per share

There  is  a  base  salary  concept  for  operational  employees,  which  is  mainly  driven  by  collective
agreements, at sector and company level. The sector plays the most important role and has defined
four  grades.  In  the  meantime,  the  organisation  had  already  added  two  categories  in  order  to
recognise different levels. 

54

Wages&Working05106    23/6/05    3.07pm    Page  55

Case studies

Within the grades, age is the determining factor for the incoming base salary and for the annual
raise.  Promotion  to  another  (higher)  category  is  mainly  competence  based.  Accordingly,  seven
competencies have been defined: skills and knowledge, customer relations, commercial attitude,
self-management, output drive, working in teams, and entrepreneurship. Employees can only move
to  another  grade  when  their  overall  competency  profile  has  increased.  Performance  appraisal
results, years of experience and last promotion also play a role in moving to another grade. There
is a limited overlap between the different grades. The HR manager is dissatisfied with the method
of setting base pay increases within grades for operational employees, because the system is based
solely on age, with no room for differentiation. Also, the line managers claim that it does not matter
whether operational employees perform well or badly, because efforts are not rewarded. However,
the  union  representative  was  satisfied  with  the  system  as  it  guarantees  complete  objectivity.
Nonetheless, the union representative also feels that the employees often perceive the system of
‘same pay for the same job/age’ as unfair. 

According to the HR department, promotions, i.e. movements to another grade, are granted in a
transparent manner. The problem with the formerly vague zone of transition, between operational
and managerial employees, has been resolved, and the financial rewards surrounding promotional
steps are clear. The only disadvantage the HR department (and the union representative) cites is
that  the  criteria  for  promotion  (on  the  basis  of  competencies)  and  their  assessment  are  not
sufficiently  transparent  and  –  according  to  the  union  representative  –  not  objective.  Line
management also claims that the potential for subjectivity in granting promotions is a significant
weakness in the system. The general feeling of the line is that ‘the one who asks most will receive
most’.

Variable pay systems for operational employees are mainly profit-based and team-based. There is
profit-sharing,  depending  on  the  earnings  per  share.  The  amount  is  fixed  per  grade,  i.e.  every
employee within the same grade receives the same amount. It is difficult to give firm data but, in
general, profit-sharing for operational employees amounts to between €2,000 and €3,000.

Team pay is based on the profitability of the cluster to which the employee belongs. A number of
retail bank offices form a cluster. Their bonus is distributed based on the profitability ranking of the
cluster, compared with the overall profitability of all clusters. The budget for the cluster bonus is
calculated in relation to the total profit-sharing budget; on average, 15% is allocated to the cluster
bonus.

Operational  employees  are  not  entitled  to  an  individual  bonus.  However,  10%  of  these  workers
may be entitled to an exceptional bonus. The base amount is €500, but it can be doubled. This
bonus can only be granted to employees who have performed exceptionally, i.e. employees who
have performed above their job requirements. Line management has almost complete discretion in
granting  these  bonuses,  as  there  are  no  predefined  criteria  or  distribution.  Overall,  operational
employees’ variable pay is rather limited; the profit share can be considered as semi-fixed pay, as
it  is  distributed  on  a  monthly  basis  and  has  always  been  paid  out.  Even  if  profitability  actually
dropped, there would still be profit-sharing. This means that the real variable pay, on top of fixed
pay, may amount to only 4% of base pay. In managerial levels, this is 12%. The reason for such a
difference lies in the basic amounts that can be allocated to variable pay, which are decided by the
management. 

55

Wages&Working05106    23/6/05    3.07pm    Page  56

Wages and working conditions in the European Union 

There are five job levels for managerial employees, designed as clustered categories, based on job
evaluation  and  classification.  Experience  also  plays  a  role  in  determining  the  starting  salary.  A
company-specific job classification scheme exists, which is not subject to collective bargaining. Job
levels  range  from  A  (lowest)  to  E  (highest  top  management);  legal  advisors  and  private  banking
consultants, for example, are part of level C. The job classification system that frames this structure
is aligned with the competency model. The following competencies play a role in determining to
which  job  level  the  individual  belongs:  operational  management,  skills  and  knowledge,
communication and contacts, self-management, management and coaching.

A  predefined  bonus  budget  exists,  depending  on  the  level  of  the  department.  The  maximum
amount per employee is €7,000 a year. Managerial employees are also granted a cluster bonus and
profit  share.  These  systems  are  comparable  to  those  for  the  operational  employees.  However,
negotiability  on  the  level  of  the  operational  employees’  pay  systems  is  almost  non-existent,
whereas  managerial  employees  are  allowed  some  room  for  negotiation  with  regard  to  grade
assessment. 

Through means of sounding boards and consultation platforms, the workforce can be involved in
the design and operation of their pay system. In any case, none of the above mentioned variable
pay components was the subject of a collective labour agreement. A conversation takes place each
year  between  line  management  and  the  individual  employee,  on  the  performance  evaluation
outcomes. Promotion to another grade is also communicated in writing. Each individual receives
a personalised overview of his or her total remuneration package each year. According to the line
managers,  the  reward  system  is  transparent  and  clear.  However,  as  noted  above,  the  union
representatives were less satisfied. They claim, for example, that the criteria for promotion and the
granting of bonuses are opaque and at the discretion of the line manager. The financial institution
wants to counter this feeling of subjectivity, and is currently trying to insert more objective aspects
into the assessment procedures. The unions themselves see no obvious solution to the problem of
subjectivity. 

An important general remark from line managers and the union representative is that the difference
in total cash, between operational and managerial employees, is too large. They attribute this to
the  limited  amount  of  variable  pay  for  operational  employees.  As  will  be  shown,  the  budget  for
bonuses for operational employees is very low, compared with the budget provided for managerial
employees. Nonetheless, both the HR department and union representatives are satisfied with the
settlement of variable pay, albeit for different reasons. The HR department says that the variable
pay  system  covers  three  important  aspects  (individual,  team  and  company)  and  has  a  strong
strategic  link  with  the  organisation.  The  union  representatives  realise  that  the  system  behind
variable  pay  is  essentially  solid,  but  lacks  the  necessary  transparency  and  objective  criteria  for
assessment. Line management is dissatisfied with the system, as it stands.

Alignment and effectiveness of wage systems

A direct link between managerial strategy and wage systems is difficult to discern. The variable part
of the wage aims at rewarding performance and results, as set out in the cluster goals (customer
satisfaction,  financial  results,  credit  risk  management,  operational  risk  management,  long-term
goals/actions).  Customer  satisfaction  is  to  be  measured  once  a  year  (April/May),  via  a  postal
inquiry.  There  is  an  attempt  to  encourage  teamwork  through  the  cluster  bonus.  However,  many

56

Wages&Working05106    23/6/05    3.07pm    Page  57

Case studies

employees see the cluster as a ‘bridge too far’ for the granting of bonuses, with individuals unable
to control the results of the cluster. 

The union representative evaluates the alignment of the pay system to the organisation’s strategy
as  satisfactory,  particularly  for  managerial  employees,  but  to  a  lesser  extent  for  operational
employees.  However,  line  management  believe  that  there  is  no  link  between  wage  systems  and
strategy. HR is neither satisfied nor dissatisfied with the strategic alignment.

According  to  the  HR  department,  the  current  pay  systems  have  a  negative  effect  on  motivating
operational employees, but a positive one on managerial employees. They also argue that pay only
motivates in the short term. Line management, however, states that pay has a clear positive effect
on the motivation of operational employees (e.g. stimulus by incentives). The union representative
believes that pay has no effect on the motivation of operational employees, because the variable
part is too low; but it has a slightly positive effect on motivating managerial employees.

The HR department and line managers share the opinion that pay does not have an influence on
recruitment;  line  management  even  argues  that  it  has  a  negative  effect  on  attracting  people.
Possibilities for self-development within the organisation, career planning and security are more
important aspects that recruits take into account. People choose a specific function or job, and take
the wage that comes with it. The union representative, on the other hand, thinks that pay has an
overall positive effect on recruitment. People also apply on the basis of the company’s image as a
good  payer.  HR  is  of  the  opinion  that  pay  does  not  affect  the  retention  of  staff,  but  the  line
managers  and  union  representatives  are  convinced  that  it  does,  both  in  terms  of  turnover  and
commitment. 

Line managers and union representatives report that pay affects the work climate and cooperation
in  a  negative  way,  while  the  HR  department  ascribes  a  positive  effect  to  pay.  It  states  that  pay
issues  never  trigger  social  conflicts,  and  this  is  confirmed  by  the  union  representative.  Most
conflicts  are  caused  as  a  result  of  discontentment  with  criteria  for  promotion.  It  is  worth  noting
though that the line managers believe that pay does cause social conflicts.

According to HR and the union representative, pay does not seem to have any influence on well-
being in general, i.e. on absenteeism, stress and job satisfaction. HR believes that there might be
an effect, only where there is a huge discrepancy between the wage and the job. However, the line
managers argue that pay has a strong effect on job satisfaction. The HR department attributes a
significant positive effect on skill and competence development to pay. The line managers agree on
this  positive  effect,  but  to  a  slightly  lesser  extent.  Union  representatives  state  that  pay  does  not
have a similar effect for operational employees, but that it does for managerial employees.

There is a link between wage systems and performance. The different stakeholders have varying
opinions on which aspects are influenced by pay. The HR department focuses on cost, production
and service quality, and on the total output increase. However, HR believes that wage systems are
positively related to performance, in the case of managerial employees, whereas there is no link for
operational employees. The line managers and union representatives agree on the positive effect
on production and service quality but, according to them, pay only has a minor negative effect on
the number of employees and management.

57

Wages&Working05106    23/6/05    3.07pm    Page  58

Wages and working conditions in the European Union 

A remarkable difference between the assumptions of the HR department and line management is
the effect of pay on customer orientation. According to HR, it has a highly positive effect, both with
regard to complaints and customer satisfaction. Line management states, however, that there is no
effect  at  all,  on  either  of  these  aspects.  Union  representatives  agree  that  pay  has  a  moderate
positive effect on customer orientation.

Vision/Future developments

The  HR  department  and  union  representative  are  neither  satisfied  nor  dissatisfied  with  the  pay
system in general. The system in itself is good, but some aspects could be changed for the better,
such as the criteria for promotion. The attitude of the line managers is more positive: they argue
that  the  organisation  is  well  aware  of  the  weaknesses  of  the  system,  and  that  actions  are  being
taken in this respect. The line management is much more in favour of the system for managerial
employees,  and  would  like  to  see  that  adapted  for  operational  employees.  The  relation  between
fixed  and  variable  pay  should  be  80–20,  which  is  far  from  the  present  96–4  for  operational
employees. Some 10% should be used for rewarding cluster performance, and 10% for individual
performance. Line management is against a system that is purely based on age, for pay increases. 

The  union  representatives  are  in  favour  of  a  strict  implementation  of  the  systems  in  collective
labour agreements. In the future, they are willing to show openness towards performance-related
pay for operational employees. The problem of subjectivity in assessing performance is crucial. The
unions also suggest introducing cafeteria plans.

Important strengths that must be maintained for the future include: openness in communication
and other practices; social responsibility of the financial institution towards its employees (special
rates on certain products, supplemental pension, luncheon vouchers, extra child benefits in June,
part-time retirement, extension of the investment period for options, education possibilities); and
experienced functioning of the HR department. 

Influence of collective bargaining conditions

Finally, the case study sought to determine whether collective bargaining has an influence on the
strategic  alignment  of  operational  employees’  wage  systems.  Although  it  is  almost  impossible  to
isolate collective bargaining from other influences, it has been found that operational employees’
pay systems are, according to the stakeholders, not linked to the organisation’s strategy, because
of  the  lack  of  differentiation,  and  because  salary  increases  are  based  on  age.  At  the  same  time,
operational employees’ pay systems are heavily influenced by collective bargaining, at a sectoral
level. This might mean that collective bargaining has a negative influence, where generic sectoral
influences  mean  that  company-specific  strategic  issues  are  not  taken  into  account.  However,  it
became  clear  in  the  study  that  union  members  are  realising  that  such  pay  systems  lead  to
dissatisfaction, in the case of the best-performing employees. On the other hand, the amount and
system of variable pay are not the subject of collective bargaining. These could be used for a more
strategic  alignment.  Although  the  systems  are  changing,  at  present,  top  management  does  not
allocate sufficient financial means, to have a motivating effect on operational employees.

58

Wages&Working05106    23/6/05    3.07pm    Page  59

Case studies

Case study: Finland

This second case study relates to a Finnish bank, which specialises in investments and savings.
The bank offers services to both retail customers and companies, although the particular branch
office  studied  serves  only  retail  customers.  The  compensation  and  benefits  (HR)  manager,  at
corporate level, was interviewed in order to gain an understanding of the company’s philosophy
and strategy in general, and, in particular, of its HR and pay strategy, as well as of general factors
affecting pay systems. The pay systems and their development trends were mapped and described.
The documentary material on current pay systems and the interview with the compensation and
benefits  manager  provided  an  insight  into  how  the  pay  systems  should  be;  the  principles
underlying  these  systems  are  studied  here.  One  branch  manager,  two  employees  and  the  shop
steward of the branch office were also interviewed, focusing on work and pay practices, as well as
on development trends. The study sought to identify how pay matters stand in practice, and how
they influence the company’s performance, and employee behaviour and attitudes.

Strategy

The banking sector in Finland has a more or less common business strategy concerning financial
products. It is envisaged that, in the future, there will be more emphasis on long-term investment
products,  since  growth  expectations  lie  in  this  area.  Basic  banking  products  are  accessed
increasingly through the Internet or other self-service media. In this study, the bank’s strategic goal
is to be the most customer oriented and competent financial services banking group in Finland. It
aims  to  offer  customers  any  financial  service  they  need,  drawing  on  strategic  partners  when
necessary.  Efficiency,  expertise  and  good  service  are  the  key  elements  to  success.  This  strategy
includes offering reliable advice to private customers, in managing their accounts. The HR strategy
supports the business strategy, for example, by identifying and developing competencies, and by
providing a business school for career development. 

Pay  policy  is  embedded  in  the  HR  strategy.  Regarding  the  base  pay  level,  the  company  aims  at
average sector rates (the financing sector is among the highest paying sectors in Finland), making
regular market comparisons. Measuring total compensation, including performance-based pay, the
estimation  is  that  the  company  has  paid  slightly  above  average,  due  to  extensive  variable  pay
systems in the last couple of years.

The bank’s strategy seems to be well aligned to its salary systems. Goals are checked each year and
adapted, if necessary, at management level. However, the overall HR strategy is not well known
and is transparent only at branch office level. Despite this, the pay strategy is clearly formulated
and closely related to what is considered significant.

Work organisation

Work  organisation  in  retail  banking  is  based  on  group  work,  although  work  tasks  are  executed
individually  when  meeting  customers.  However,  employees  are  organised  in  groups,  led  by  a
manager. Weekly meetings are held for all staff and for each group, dealing mostly with managerial
issues, such as achievement of goals and the quality of customer service. Managers also meet each
employee individually every week, to discuss work-related and personal matters. 

59

Wages&Working05106    23/6/05    3.07pm    Page  60

Wages and working conditions in the European Union 

Work  organisation  is  aligned  with  the  overall  strategy.  The  organisation  was  restructured  quite
recently  to  match  requirements.  Retail  customer  branches  were  organised  into  customer  service
groups  that  handle  daily  banking  transactions,  customer  relationship  groups  offering  services
related  to  the  management  of  customers’  finances,  and  customer  acquisition  groups  that  largely
operate  outside  branches  looking  for  new  customers.  The  new  service  organisation  makes  it
possible to take care of banking duties without delay, and to engage more efficiently in in-depth
financial advisory services.

In the branch office that was studied, there are three groups and 21 employees. One group consists
of  five  employees  in  customer  service.  Customers  would  meet  a  member  of  this  group  when
entering the office, in order to draw money from their account, pay a bill, etc. The two other groups
of  employees  –  each  consisting  of  seven  to  eight  staff  –  specialise  in  loans  and  investments.
Customers would meet these employees by appointment only, e.g. if considering buying a house or
shares  in  an  investment  fund.  The  two  specialised  groups  have  their  own  managers,  while  the
branch manager directs the customer service employees. Thus, in this branch, there are currently
three  different  employee  roles  or  jobs  (plus  the  role  of  manager):  employees  with  a  service
counselling role in customer service; and employees with a customer counselling role or financial
expert role in the two specialised groups.

In the specialised customer relationship roles, employees take care of their own clients and are set
individual targets. The first meeting with a customer may take one and a half hours, which implies
three to four customers per day. The teams are decided on the basis of facilitating customer service
flow and employee skills. Project groups and ad hoc groups are formed when needed. 

The company’s cooperation board holds several meetings during the year. Its purpose is to promote
and develop cooperation between the employer and employees, and among the staff. The board
has  15  members,  seven  of  which  represent  the  clerical  staff,  two  of  which  are  managers  and
specialists, and six representing the employer. Staff representatives also participate in the meetings
of the company’s board of directors, having the right to be present and to express their opinions.

Possibilities for participation are quite uniform in different branch offices. The participation system
is set up and implemented in each office by management. The weekly meetings at branch, group
and  individual  levels  have  been  noted  above.  Quality  of  products  and  customer  relations  are
examples of items on the agenda. However, employees remarked that ‘maybe there are too many
meetings, considering that we have our own targets’. There is also a regular practice of work climate
surveys in the bank and a suggestion scheme. It is possible to influence decision-making and there
is a certain level of autonomy concerning work scheduling, quality of work and client deals. When
employees have ideas about improving work processes, ‘they can always suggest and try out new
ideas’. Groups are able to apportion work targets to each individual, according to competence or
efficiency. 

Wage systems

The systems are different for the different professional groups. The basic salary system forms the
most  significant  part  of  employees’  incomes.  Individual  performance  is  evaluated  and  this
influences the salary. There are two basic pay systems: one for management, and one for clerical
employees  (Table  5).  In  the  branch  office  studied,  three  managers  are  outside  of  the  clerical

60

Wages&Working05106    23/6/05    3.07pm    Page  61

Case studies

employees’ pay system. In addition, there are two types of clearly defined variable pay systems: a
bonus system and a personnel fund.

Table 5 Wage systems used in different staff groups: Case study 2

Base pay

Variable pay

Job based

Person based

Short-term

Long-term

Top management

Applied system 

Individual increases

Bonus system

Long-term bonus system

at company level

Pension plan

Line management 

Applied system 

Merit pay increases

Bonus system

Personnel fund 

at company level

(collective)

Specialists

Applied system 

Merit pay increases

Bonus system

Personnel fund 

at company level

(collective)

Clerical employees

Pay grades 30–80

Pay allowances by 

Bonus system 

Personnel fund 

experience, 

years and merit 

(group and 

individual)

(collective)

All staff groups in the bank are covered by a performance bonus system. Unit or team results and
personal performance are the criteria for a bonus payment. Long-term collective rewards are given
through  a  personnel  fund.  Profit-sharing  bonuses  are  paid  annually  to  the  personnel  fund,
according to a system agreed on in advance, and based on the company’s operating profit.

The salaries of clerical bank staff are determined according to a company classification, based on
a comprehensive evaluation of job demands, i.e. the complexity of tasks. Although the system is
agreed  on  locally  within  the  bank,  it  resembles  the  collectively  bargained  system  used  in  other
banks. It consists of six pay grades (30, 40, 50, 60, 70 and 80), and jobs are assigned to a grade
according to job demands. For example, grade 60 is the most common group and consists of special
occupational  tasks  in  customer  service,  requiring  a  versatile  knowledge  of  professional  skills.
Grade 80 jobs have independent and responsible special tasks that include responsibility of some
function. Grades 30 and 40 are now practically obsolete. 

In addition to grades, different steps exist, depending on job seniority, i.e. the number of working
years on the job: three, six, nine and 12 years. Minimum monthly income varies by 22% from grade
50  (without  job  seniority  allowances)  to  grade  80  (without  job  seniority  allowances).  Within  a
grade,  the  monthly  income  varies  by  15%  from  no  job  seniority  allowances  to  all  job  seniority
allowances.  The  variation  within  a  grade  can  go  even  higher  –  up  to  25%  –  when  merit  pay
increases are used. These increases are not included in the collective agreement and are allocated
as  part  of  a  performance  management  process.  Employees  receive  an  evaluation  of  their
performance,  on  a  scale  from  one  to  five,  during  a  performance  review  with  a  superior.  Each
manager  takes  care  that  their  own  subordinates  are  fairly  evaluated,  compared  with  other
employees. Pay increases are subsequently allocated to those who receive the best evaluations in
each manager’s group.

In addition to the above, the variable pay system consists of two different components. First, there
is a collective bonus system, in the form of a personnel fund. The idea of the personnel fund is that
company staff can establish, own and regulate the fund, which is based on the profit share paid by
the company. All staff belong to the fund, except top management. Usually, shares are paid to the

61

Wages&Working05106    23/6/05    3.07pm    Page  62

Wages and working conditions in the European Union 

fund if a company’s annual profit exceeds a pre-fixed threshold and meets possible other criteria.
The duty of the fund’s board is to look after its members’ shares and to invest them profitably. The
first  personnel  funds  were  established  in  1990  after  legislation  (814/1989)  was  passed  in
parliament.  In  recent  years,  it  has  been  possible  for  each  employee  to  draw  money  from  the
personnel fund. 

The  second  part  of  the  variable  pay  system  is  a  group  or  individual-based  annual  bonus.  Each
person has performance goals, and the branch office has overall goals. To receive a bonus, targets
have to be surpassed, and at least five performance measures are selected for each employee. The
bonus  is,  however,  subject  to  management  consideration,  where  no  direct  link  to  performance
measures  is  established.  First  of  all,  when  the  annual  result  is  calculated,  the  company  board
decides the total amount that can be paid in bonuses overall. Then, the bonuses are allocated to
business areas, business units and, finally, to branch offices. The branch office manager can then
allocate  bonuses,  according  to  individual  performances.  This  practice  was  implemented  at  the
beginning of 2004. Prior to this, the bonus system was tightly linked to office-level and individual-
level performance measures. This change was implemented because management wishes to have
more control over the costs and to be free to award high performers. 

The salaries of branch managers and specialists are subject to the collective labour agreement and
are  therefore  entitled  to  general  increases.  They  also  have  a  merit  increase  system.  Top
management is not included in the collective labour agreement, and their salaries are eligible for
individual  increases.  The  variable  pay  system  for  management  and  specialists  varies  across
different groups. The general principle is that all groups have some long-term bonuses. A pension
plan is offered to management and to some middle management. The personnel fund is available
for middle management and specialists. Significant short-term bonuses are also used, as well as
individual targets.

Alignment and effectiveness of wage systems

The wage system is clearly aligned to the strategy of the company and to the work organisation.
The salary system has an effect on motivational aspects and performance, while the variable pay
system encourages performance and effort. The influence of the basic pay system is more indirect,
though it does appear to encourage employees to stay in the bank, in addition to work motivation,
flexibility in terms of time and tasks, and recruitment of new employees. It also has an effect on
competence  development.  Some  competencies,  such  as  investment  and  sales,  are  valued  in  the
grading  system,  which  may  have  increased  training  attendance  in  this  area.  However,  the
establishment of new grades may also have had a negative effect on work climate. 

The bonus system has an effect on performance, e.g. productivity and service quality, since the link
to performance goals is obvious. The bonus system used in previous years was a tool for managers
to  communicate  important  goals  and  motivate  their  personnel:  ‘It  is  a  nice  extra  sum  (bonus),
though uncertain.’ Employees may be advised, ‘now we are a bit behind our goals, so let’s see what
we can do to achieve them.’ Bonuses have at least a temporary motivating effect when they are
paid. However, there may be a weak negative effect on well-being, since they mean an increased
workload.  In  recent  times,  the  amount  of  sick  days  has  increased.  Individual  bonuses  may  also
have  some  negative  effects  on  work  climate  when,  for  example,  it  is  known  that  a  couple  of

62

Wages&Working05106    23/6/05    3.07pm    Page  63

Case studies

employees  received  maximum  bonuses,  while  others  received  less.  The  fairness  of  bonus
distribution may be a subjective and, therefore, possibly divisive issue.

The personnel fund is regarded as an equitable system, since it rewards all employees for company
success.  Otherwise,  it  is  not  so  easy  to  see  its  impact  on  quality  of  working  life  or  performance
indicators. Strategically, such reward systems are designed to be motivating for staff, and neutral
in  terms  of  cost  structure.  The  success  of  the  payment  systems,  e.g.  the  new  bonus  system,  is
evaluated in an annual personnel survey.

Vision/Future developments

It is likely that more emphasis on variable pay and performance pay will be the future trend in this
case, though this will probably happen gradually. A collective bargaining system will slow down
the  trend.  The  common  trend  for  some  time  has  been  to  determine  pay,  increasingly,  on  an
individual basis, partly because of labour shortages. According to some interviewees, the grading
system could also have more grades. That would permit pay increases more often. Changes in pay
would  also  be  welcomed,  in  the  form  of  smaller  and  perhaps  fixed-term  individual  rises.  Future
development seems to be in considering incremental and small steps. No mention was made of a
need for radical changes, although some complaints concerning the top-down definitions of targets
were expressed.

Influence of collective bargaining conditions

The bank in question has a 30-year history of local bargaining, and has had its own agreement ever
since.  However,  collective  bargaining  at  sector  and  national  levels  influences  the  overall  pay
increases, agreement period and general content of the agreement. The interviewees felt that the
agreement  has  benefited  company  employees  over  the  years,  and  does  not  hinder  pay  system
development. The bargaining relationship is good, and results depend greatly on the negotiators.
One of the benefits of local bargaining is that the negotiators are close to one another, and it is thus
easier  to  understand  mutual  benefits.  Unions  favour  a  collective  pay  setting  in  collective
bargaining. This moderates the trend to individualise pay, as it is difficult to introduce variable pay
components in collective agreements. 

Case study: Germany

This  case  study  relates  to  a  German  bank,  which  specialises  in  investment  funds  and  loan
products. The human resources (HR) manager, at corporate level, was interviewed to gain a better
understanding of the company’s philosophy and strategy in general, and, in particular, of HR and
pay strategy, as well as of general factors affecting the pay systems. The actual pay systems and
their  development  trends  are  mapped.  The  documentary  material  and  the  interview  with  the
corporate HR manager provide an insight into what the pay systems should be like; the principles
underlying the compensation systems are studied here. Two HR specialists, the head of the staff
council, three managers from different line functions and three small groups of employees (four to
six  people  per  group)  were  also  interviewed,  focusing  on  work  and  pay  practices,  as  well  as  on
development trends. The study sought to identify how payment matters stand in practice, and how
they influence company performance, and employee behaviour and attitudes. 

63

Wages&Working05106    23/6/05    3.07pm    Page  64

Wages and working conditions in the European Union 

Strategy

Due to a recent merger, a new company strategy has been developed in a participative manner,
defining  top  quality  and  increasing  market  share  as  the  primary  company  goals.  These  will  be
reached by focusing on: core competencies, achievement and innovation, leadership by delegation
and modelling, developing and challenging employees, and open communication. Core values are
trust,  achievement  and  responsibility.  Based  on  this  company  strategy,  the  HR  department  has
developed a strategy which states explicitly that compensation is based on performance, success
and market conditions, and which emphasises that performance will be rewarded. Furthermore, it
notes  that  transparent  and  fair  performance  evaluations  are  based  on  result-oriented  and
measurable goal agreements. The company has a common pay strategy for pay scale and non-pay
scale  employees,  including  base  pay  and  performance-based  pay  components  for  both  groups.
Only  the  relation  between  base  and  variable  pay  differs  between  the  groups,  as  non-pay  scale
employees have a higher percentage of variable pay. It is intended to pay market rates for both base
and variable pay.

Work organisation

Different  types  of  work  organisation  exist  in  the  bank:  there  are  interdependent  tasks  within
business  processes  requiring  cooperation  within  process  teams,  as  well  as  independent  tasks  of
individual employees. An ongoing change programme is identifying core business processes and
forming  teams  with  defined  performance  goals  for  feedback.  For  this  reason,  the  delegation  of
tasks, competencies and responsibilities to process teams are not yet common standard.

Wage systems

There  are  two  different  wage  systems:  one  for  pay  scale  and  one  for  non-pay  scale  employees.
About 60% of the 2,600 employees are subject to the pay scale, while the remaining 40% are non-
pay  scale  employees.  For  the  former,  base  pay  is  determined  by  the  pay  scale  agreement.  Nine
different  grades  are  defined  by  general  job  descriptions,  and  employees  are  assigned  to  grades
accordingly. Besides the general job descriptions in the pay scale agreement, which are sometimes
ambiguous and partly outdated, company specific examples exist, which relate jobs to grades. The
number of employees working in these different grades varies: only 15% of pay scale employees are
in  the  first  five  grades,  29%  in  grade  six  and  about  20%  each  in  grades  six,  eight  and  nine.
Minimum monthly income in a grade varies from €1,711 in grade one, step one, to €3,357 in grade
nine, step one. Maximum monthly income in a grade varies from €2,018 (grade one, step four) to
€3,777 (grade nine, step three). 

Within  grades,  seven  steps  are  defined,  depending  on  job  seniority,  i.e.  the  number  of  years
working on the job (one to two, three to four, five to six, seven to eight, nine, 10 or 11 years). In
the  bank,  only  steps  between  three  and  seven  are  actually  in  use.  Within  a  grade,  the  monthly
income varies by a minimum of 12% (grade nine) and a maximum of 33% (grade five), depending
on the number of job seniority allowances applied. Most of the employees are in the highest step
of each grade. In addition, every pay scale employee gets an extra thirteenth month of income, due
to the pay scale agreement. Further extra-pay components exist on an individual basis, which are
not part of the pay scale agreement, but which may or may not be tied to pay scale rises.

64

Wages&Working05106    23/6/05    3.07pm    Page  65

Case studies

Table 6 Pay systems for operational employees: Case study 3

Base pay: grading

Base pay increases: within grade

Germany

Job demands 

Seniority

Base pay increases: to another grade

Changing task demands/job

Variable pay: individual

Variable pay: team

Exceptional bonus – performance

None

Variable pay: profit-sharing

Flexible in theory, 14th month of income, in practice

A  variable  pay  component  in  the  wage  system  also  exists,  which  is  not  part  of  the  pay  scale
agreement.  Its  payment  depends  on  business  success.  Whether  individual  pay  scale  employees
receive  it  or  not  is  decided  by  the  respective  supervisor,  who  is  given  a  budget,  depending  on
business success, to distribute among the employees. Although this pay component is supposed to
be  variable,  it  has  always  been  paid  to  everybody  in  the  past,  independent  of  individual
performance, as a form of fourteenth month of income. Some people were even awarded more than
a fourteenth month, subject to management discretion.

Base  pay  of  non-pay  scale  employees  is  dependent  on  functional  assessment  and  standardised
career steps for different professional groups. It depends more on market conditions than for the
pay scale employees. Variable pay for non-pay scale employees is also decided by the respective
supervisor,  from  the  business-success  budget.  It  amounts  to  15%  to  20%  of  annual  income,
compared with the 7% for pay scale employees. Due to difficult market conditions in the last two
years, the bonus budget remained constant for the first time. As a consequence, bonus rises for
some people resulted in bonus decreases for others, due to the fixed bonus pool. 

Alignment and effectiveness of wage systems

As the company has embarked on a new strategy, quite recently, both work organisation and wage
systems are still undergoing a change process and are not yet aligned to strategy. However, the aim
is  to  achieve  alignment  with  the  company  and  HR  strategy.  With  respect  to  work  organisation,
business processes have been identified, and process teams formed, in order to delegate respective
tasks  and  to  set  result-oriented  and  measurable  goal  agreements,  which  can  be  combined  with
performance  bonuses,  depending  on  the  degree  of  goal  achievement.  Previous  variable  pay
components were variable, only in terms of different degrees of rises, as there was no strict total
bonus limit. This has been changed so that now there is a fixed bonus pool, depending on company
success, to be distributed according to individual and team performance.

With respect to the effects of the existing pay system, the employee representative is satisfied and
believes that it contributes to job satisfaction, particularly if one compares it with payments and
benefits of other companies. In contrast, HR management is dissatisfied and wants to change the
system, to make variable pay more dependent on performance, and thus consistent with company
and HR strategy. Line management and the employees fall between these positions, as they value
the advantages of the current system but also have certain criticisms.

The  employee  representative,  HR  and  line  management  believe  that  base  pay  grading  criteria
promote competence and skills development, as base pay is dependent on job demands; hence,

65

Wages&Working05106    23/6/05    3.07pm    Page  66

Wages and working conditions in the European Union 

more  competencies  and  skills  are  required  to  apply  for  better  paid  jobs.  The  employees  do  not
recognise  this  link,  as  competence  development  is  not  directly  linked  to  pay  increases.  Most
stakeholders  doubt  the  motivational  effects  of  the  current  pay  practice,  as  bonus  payments,  in
reality,  have  been  independent  from  performance,  but  this  will  be  changed  in  the  new  system.
However,  the  employee  representative  believes  that  a  focus  on  achievement  also  exists  without
variable pay. Employee recruitment and retention has never been a problem; company benefits,
culture and job security are believed to contribute to this, as well as pay. Most stakeholders do not
believe  that  the  current  pay  system  is  related  to  employee  well-being,  social  conflicts  or
performance. All stakeholders criticise current pay practices, particularly the granting of bonuses,
for lacking transparency and being inflexible.

Besides the need for strategic alignment, this lack of transparency and flexibility is a further reason
for  the  company  to  change  to  goal  agreements  and  bonuses,  based  on  the  degree  of  goal
attainment.  Goals  and  indicators  based  on  business  processes  will  allow  better  feedback  and
performance management, both for self-regulation and for supervisors. Nevertheless, in the new
system, supervisors will still assess individual contributions to team performance and determine
individual bonuses. To ensure informed bonus decisions, these will have to be discussed with the
HR department. Social conflicts have not been provoked by the current pay system and practice,
probably  because  everybody  received  bonus  payments.  Additional  extra  payments  were  not
supposed to be communicated between employees and, until recently, did not mean the reduction
of other bonus payments.

Vision/Future developments
Although co-determination also applies to non-pay scale employees, since they are not in a leading
managerial position, it seems easier to change wage systems among these employees, compared
with pay scale employees. Therefore, it is intended to introduce the bonuses, based on the degree
of goal attainment, for non-pay scale employees first, and then to move on to pay scale employees.

Influence of collective bargaining conditions
The influence of trade unions is regarded as weak; however, the staff council has a policy of its
own, based on the specific situation of the company. Recent changes in the staff council have made
it difficult to assess its policy towards the new performance-based pay strategy of the company. It
may be the case that, as some people lose their privileges – in the move from rewarding almost
everybody, irrespective of performance, towards more performance-based pay and other changes,
e.g. in pension plans – there might not be much support for these changes. As consent by the staff
council  is  needed,  due  to  federal  laws  of  co-determination,  the  new  pay  strategy,  with  bonuses
based on the degree of goal attainment, will be implemented for non-pay scale employees first. If
the system proves to be successful, management intends to introduce it for pay scale employees
too.

Summary and discussion

These three case studies sought to explore the perspectives of different stakeholders – whether and
how  their  companies  want  to  align  strategy,  wage  systems  and  work  organisation,  and  how
conditions of collective bargaining influence their ability to do so. With respect to wage systems,
the  focus  was  on  non-managerial  employees  subject  to  pay  scale  agreements.  For  this  purpose,

66

Wages&Working05106    23/6/05    3.07pm    Page  67

Case studies

employees  and  their  representatives,  as  well  as  HR  and  line  management,  were  asked  their
opinions  regarding  strategies,  wage  systems  and  work  organisation,  and  how  these  influence
company practices, outcomes and working life. Although these three different banks – in Belgium,
Finland and Germany – have company specific strategies, work organisations and wage systems,
they also have much in common.

In all cases, efficient performance, competence, and open communication play a role in company
strategy.  General  company,  HR  and  pay  strategy  are  well  aligned  in  Finland  and  Germany,
whereas, in the Belgian bank, pay strategy in particular seems to be less clear-cut and aligned than
in  the  two  other  cases.  The  competence  level  of  the  employees  is  rather  high  and  competence
development plays a major role in all banks. 

Work itself is mainly individually based in all cases, but employees are organised in teams. They
have  common  goals,  although  work  restructuring  is  still  in  process  in  the  German  case.  Task
delegation seems to be limited in the Belgian case, but consultation and open communication exist
there too. In the other two cases, individual and group goal setting seem to support delegation to
varying degrees, depending on leadership styles.

In the Belgian and Finnish banks, work organisation seems to be aligned with strategy, while, in
the German case, the work organisation is currently being reorganised to achieve a better degree
of alignment.

With  regard  to  wage  systems  for  operational  employees  and  base  pay,  in  particular,  grading
depends  on  job  demands  in  all  the  banks,  as  set  out  in  collective  labour  agreements.  Wage
increases within grades depend on age in Belgium and job seniority in Finland and Germany. In
the  Finnish  case,  wage  increases  within  grades  are  also  merit  based.  Changes  between  grades
require further competencies in the Belgian case, or changing task demands or jobs in the other
two cases. 

All the banks offer variable pay, which is currently not subject to collective labour agreements, but
paid  on  top  of  the  wage  levels  defined  by  collective  bargaining.  In  the  German  case,  recent
collective  labour  agreements  for  the  banking  sector  allow  for  some  variable  pay.  In  the  Belgian
case, one part of the profit-sharing for operational employees will be included in the pay scale from
2005. Different forms and combinations of variable pay are used: individual and/or team bonuses
and/or  profit-sharing.  Only  Belgium  has  no  individual  bonus  yet,  but  will  introduce  it  in  2005.
Team or cluster bonuses and profit-sharing exist as additional elements (Belgium and Finland), or
are  used  as  a  pool  for  individual  bonus  assignment  (Germany).  This  might  reflect  the  fact  that
people work mainly individually but that interdependencies, particularly regarding common goals,
exist. In Belgium, team and individual performance-based pay is, or will be, directly linked to the
attainment of performance goals. In Finland and Germany, performance is measured but bonuses
are subject to management discretion. 

67

Wages&Working05106    23/6/05    3.07pm    Page  68

Wages and working conditions in the European Union 

Table 7 Pay systems for operational employees in case studies 

Belgium

Finland

Germany

Base pay: grading

Job demands

Job demands

Job demands

Base pay increases: 

Age

within grade

Base pay increases: 

to another grade

Competencies

Seniority 

Merit

Changing task 

demands/job

Seniority

Changing task 

demands/job

Variable pay: individual

Exceptional bonus – 

Individual bonus

Exceptional bonus – 

Variable pay: team

performance

Cluster bonus – 

performance

Team bonus

None

performance

Variable pay: profit-sharing

Profit-sharing

Personnel fund

Flexible in theory,

14th month of income 

in practice

Management obviously tries to align strategy, work organisation and pay system in all banks, but
only in the Finnish case has full alignment already been achieved. Different stakeholders seem to
assess  the  effects  of  wage  systems  differently,  which  is  particularly  apparent  in  the  Belgian  and
German case studies, whereas the views seem to correspond more in Finland. Collective bargaining
at national or sectoral level seems to hinder, or at least slow down, the alignment of strategy, work
organisation and pay system in all cases. This is because it favours a collective pay setting, which
makes  it  difficult  to  include  regulations  allowing  companies  to  tailor  their  wage  systems,  and  to
implement  variable  pay  components,  particularly  at  the  expense  of  fixed  elements.  The  same  is
somewhat true, albeit to a lesser degree, at company level, where company specific issues can be
taken into account. For this reason, it is easier to align wage systems for managerial employees.
Consequently, they are either already better aligned or, as in the German case, wage systems are
changed  there  first.  As  collective  bargaining,  at  sectoral  level,  determines  wage  levels  and  pay
increases, this limits the financial resources for further variable pay elements, on top of collectively
agreed  wages;  as  a  result,  it  also  limits  the  ability  for  the  strategic  alignment  of  variable  wage
components or systems. 

What can be concluded from these results? The three cases indicate that management seems to
desire  the  strategic  alignment  of  work  organisation  and  wage  systems,  both  for  operational  and
managerial employees. Collective bargaining is perceived to slow down this process. Nevertheless,
there is a tendency for more emphasis on variable pay, such as pay for performance and/or profit-
sharing. In Germany, the pressure on unions to change parts of fixed wages to forms of variable
pay has increased in recent years. In the German banking sector, the latest collective bargaining
agreement included, for the first time, an option to bargain and introduce variable components at
company  level,  for  up  to  4%  of  annual  pay-scale  income.  However,  hardly  any  bank  has  yet
concluded local agreements or implemented them. This is partly due to the limited proportion of
variable pay that can be introduced, compared to what is already implemented. It seems difficult
to reach local agreements, as the local parties, particularly staff councils, might be hesitant to agree
to this option. 

68

Wages&Working05106    23/6/05    3.07pm    Page  69

Case studies

Table 8 Alignment of strategy, work organisation and wage systems in case studies

Company strategy

• Efficient performance

• Efficient performance

• Achievement

Belgium

Finland

Germany

• Competence

• Competence

• Innovation

• Open communication

• Good service

• Competence

• Long-term investment

• Open communication

Work organisation

• High employee competence

• High employee competence

• High employee 

level

level

competence level

• Competence development

• Competence development

• Competence development

• Individual-based work,

• Individual-based work,

• Individual-based work,

organised in teams

organised in teams

organised in teams

• Consultation

• Consultation and

• Consultation and

• Open communication

delegation

delegation

• Open communication

• Open communication

• Less clear cut pay strategy

• Very good

• Restructuring in process

• Less well aligned

Alignment 
HR – pay strategy

Company strategy 

• Well aligned

• Well aligned

• Restructuring in process

and work organisation

Company and pay strategy

• Work in progress

• Well aligned

• Work in progress

and work organisation

As  was  seen,  particularly  in  the  German  case,  company  strategies  are  changed  first,  then  work
organisation and finally wage systems, if consensus between management and the staff council can
be achieved. In terms of strategy, it makes sense to define goals first, before changing structures
and processes, according to the principle of organisation theory that structure supports function.
As wage systems are based on job demands with respect to base pay and process goals for variable
pay, it is logical to design and implement work structures and processes before the wage systems
are changed. Taking these arguments into consideration, it is to be expected that changes in wage
systems  usually  lag  behind  changes  in  strategy  and  work  organisation.  Furthermore,  wages  are
regulated  by  individual  contracts,  local,  sectoral  or  national  collective  labour  agreements  and
legislation, which have to be taken into account or changed before changes in wage systems can
be made. This can lead to further time delays, assuming that consensus can be achieved and that
changes can be implemented at all. 

One alternative to avoid changing existing wage agreements is to add other wage components to
existing systems. This ‘add on’ strategy has become quite common, particularly for implementing
variable pay components. However, increasing competition and cost pressures limit the use of this
alternative,  as  personnel  costs  become  so  high  that  more  and  more  companies  cannot  afford  to
continue that option. Nonetheless, changing complete wage systems, without increasing costs at
sectoral  level,  has  been  time  consuming.  For  example,  in  Germany,  it  took  almost  20  years  to
bargain  a  new  collective  wage  agreement  in  the  metal  and  electrics  industry.  It  will  take  several
more  years  to  implement  it,  in  order  to  minimise  personal  losses  in  terms  of  base  pay  income.
These  practical  considerations  might  explain  the  low  alignment  between  wage  systems,  work
organisation and company strategy.

69

Wages&Working05106    23/6/05    3.07pm    Page  70

Wages and working conditions in the European Union 

Another interesting aspect of the case studies is that the different stakeholders assess the effects of
wage systems so differently, especially in Belgium and Germany. These results bring into question
the reliability and validity of the results of studies based on similar expert effect ratings, such as
the  Foundation’s  EPOC  survey.  Low  reliability  and  validity  of  assessments  might  also  be  one
reason for the low correlations between reported effects of group delegation and other variables.
The effects of interventions should be rated by different stakeholders, to check for consistencies
and group biases, and should be substantiated by objective data where possible.

70

Wages&Working05106    23/6/05    3.07pm    Page  71

Conclusions

The  main  objective  of  this  project  was  to  analyse  the  relationships  between  wages  and  working
conditions, as a result of managerial policy and as an element of organisational performance, and
to identify indicators accordingly. Its outcomes support, by and large, the theoretical assumption
that  companies,  which  design  work  organisation  and  wage  systems  according  to  their  business
strategy, achieve positive effects both on performance and quality of working life, as implicit and
explicit  goals  and  steering  mechanisms  fit  together,  avoiding  or  reducing  goal  and  leadership
conflicts. These assumptions are derived from a theoretical model that was developed, based on
the  strategic  management  approach  (Tichy  et  al,  1982).  Cross-national  European  and  national
research was reviewed in six countries (Belgium, Finland, Germany, the Netherlands, Sweden and
the UK), with inconsistent results concerning the model assumptions. The next step was to analyse
the European working conditions survey (EWCS) 2000 (Paoli and Merllié, 2001) and the Employee
direct participation in organisational change (EPOC) survey (EPOC Research Group, 1997). This
showed some significant relationships between model variables, as expected, particularly at cross-
national level, as well as differences between countries. Finally, three qualitative case studies were
carried out to explore these relationships. These studies indicated that management seeks to align
strategy, work organisation and wage systems, but that several factors prevent, or at least delay, the
alignment of wages in particular.

Identification of indicators

The main indicators of wages and wage systems in these studies are: income level and the presence
or absence of different types of pay systems, such as basic fixed salary, piece rate and productivity
payment, payments based on the overall performance of the company (profit-sharing scheme) or
of a group, or income from shares. The interpretation of these wage indicators is not always clear.
As an aggregate indicator for analysing both surveys, this study defined modern forms of variable
pay as having team bonus and/or profit-sharing and/or income from shares. 

As indicators of work organisation, many studies have used different forms of participation, task
variety and task autonomy, as well as the presence or absence of teamwork or job rotation. The
common practice to aggregate these aspects into one single high performance work organisation
(HPWO)  variable  may  be  questioned,  as  it  does  not  necessarily  compare  like  with  like  (e.g.  the
effects of job rotation depend on the actual variety of the respective tasks). Therefore, HPWO was
defined in this analysis of the EWCS 2000, based on the following characteristics: time and task
autonomy,  task  variety,  responsibility,  and  effective  participation.  As  only  aspects  of  direct
participation were measured in the EPOC survey, this analysis focused on the intensity of group
delegation, which like team autonomy, is a key aspect of HPWO. 

Regarding  outcomes,  studies  concerned  with  workplaces,  such  as  the  EPOC  survey,  focus  on
indicators of organisational performance, with an emphasis on productivity and profitability, to the
relative neglect of employee-related outcomes. 

The case study findings show that the views of the different stakeholders, regarding the effects of
wage systems or other interventions, can vary considerably. This raises doubt as to the reliability
of  studies  like  the  EPOC  survey.  Employee-related  outcomes  are  the  focus  in  the  EWCS  but,
conversely, indicators regarding organisational performance are missing. 

71

Wages&Working05106    23/6/05    3.07pm    Page  72

Wages and working conditions in the European Union 

Managerial strategy is not addressed in most studies; where it is, the few indicators reported appear
questionable.  In  the  analysis  of  the  EPOC  data,  the  question  concerning  product  innovation
initiatives by management was used as an indicator for an innovation strategy.

Prevalence of forms of wage systems, work organisation and strategy
Basic  or  fixed  pay  is,  by  far,  the  most  dominant  wage  system  reported  in  the  EWCS  2000,  with
modern forms of variable pay being very much the exception, at only 6%. In contrast, about every
third workplace in the EPOC study reports the use of modern forms of variable pay for the largest
occupational  group.  Considerable  differences  exist  between  countries.  Unfortunately,  research
focusing  on  age  and  gender  aspects  in  terms  of  wage  systems  is  limited.  In  terms  of  gender,  the
emphasis  has  been  mainly  on  examining  discrimination,  which  can  still  be  evidenced  in  lower
wages for women doing the same job as men. Age is studied almost exclusively in respect of how
seniority relates to higher wages. 

With regard to the relationship between wage systems and employment conditions, there are few
results, indicating that modern forms of variable pay seem to be more popular with full-time than
with  temporary  or  part-time  workers  (e.g.  Baeten  and  Van  den  Berghe,  2002).  Modern  forms  of
variable pay are more prominent than other pay systems, where flexible working times are offered.
Organisational or institutional factors and their relation to wage systems have rarely been studied.
One of the few consistent findings is that modern forms of variable pay are more often found in the
private  sector  than  in  the  public  sector  and  in  larger  companies;  the  results  concerning  union
density, on the other hand, seem inconsistent (Godard, 2004; Pendleton et al, 2001).

System alignment and effectiveness 
Existing research relating to work organisation and wage systems suffers from a lack of consistent
definitions and measures of variables, such as HPWO or high performance work systems (Godard,
2004). One common result of existing studies, and of the secondary analyses of the EWCS 2000
and EPOC survey, is that aspects of HPWO are found more often with modern forms of variable
pay,  although  correlations  are  rather  low  (e.g.  Lay  and  Rainfurth,  1999;  Pendleton  et  al,  2001;
Poutsma,  2001).  However,  the  strength  of  the  relationship  between  work  organisation  and  wage
systems  increases  considerably  for  companies  with  innovation  strategies.  This  indicates  the
important role of strategy for the design of wage systems and work organisation.

Relations between wage systems, work organisation and managerial strategies have seldom been
studied, and results do not show consistent relationships. This may be partly due to the fact that
there  is  often  a  degree  of  time  lag  between  changes  in  strategy  and  congruent  changes  in  wage
systems. Another reason might be restrictions of collective bargaining, which may delay or even
restrict the alignment of the pay system. The analysis of the EPOC data showed that modern forms
of variable pay are found more often in companies with an innovation strategy. For UK companies,
this link is well above average. This may be due to the fact that they operate in a liberal market
economy, compared with, for example, the Netherlands. 

The  results  concerning  the  relationship  between  wage  systems,  work  organisation  and
organisational  performance  are  very  different  between  European  countries,  as  well  as  between
different studies within one country (e.g. Nilsson, 1990 or Eriksson, 2002). The same is true for the
relation between wage systems and work satisfaction (e.g. Holman, 2002; Eriksson and Leander,

72

Wages&Working05106    23/6/05    3.07pm    Page  73

Conclusions

1995). In the EPOC survey, modern forms of variable pay, high intensity of group delegation and
innovation  strategy  show  positive  links  for  two  or  three  out  of  eight  outcome  variables,  such  as
output increase due to group delegation. 

Regarding employee-related outcomes, the EWCS 2000 data show that HPWO has much stronger
positive  relationships,  than  wage  systems  have,  to  indicators  of  quality  of  working  life  (e.g.  job
satisfaction).  Combining  HPWO  and  modern  forms  of  variable  pay  does  not  always  further
improve  quality  of  working  life  indicators,  such  as  job  satisfaction,  but  seems  to  have  positive
additional  effects  regarding  health-related  indicators,  such  as  reducing  excessive  demands.
However, more research is needed to corroborate these findings.

The findings concerning the EPOC data show that alignment effects exist, and that analyses should
not be restricted to links between two variables: interaction effects between group delegation and
modern forms of variable pay were found for at least three out of eight analysed outcomes. This
means that, when companies have a high rather than low intensity of group delegation and have
modern systems of variable pay, they are more likely to report reductions in costs, throughput times
and  management  personnel,  as  a  result  of  group  delegation.  As  other  studies  regarding  high
performance  work  systems  show  inconsistent  results  at  best  (Godard,  2004),  the  analysis  of
moderating variables could help to explain these inconsistencies.

Company strategy seems to be one important moderator of the relationship between wage systems
and work organisation and organisational performance. Results based on the EPOC data show that
the effects of wage systems depend on strategy.

If a company has an innovation strategy and high intensity of group delegation, the type of wage
system does not matter for group delegation effects.

If an innovation strategy is combined with low intensity of group delegation, three out of eight
outcomes  of  group  delegation  are  dependent  on  having  modern  forms  of  variable  pay:  these
companies report management and employee reductions less often and absenteeism decreases
more often.

If a company has no innovation strategy, effects of group delegation differ for both low and high
group delegation, where modern forms of variable pay are present: 

Companies with low group delegation report less group delegation effects concerning five out
of  eight  outcomes,  i.e.  less  throughput  time  and  employee  reductions,  less  output  and
quality increases, and less absenteeism decreases; 

Companies with high group delegation report more group delegation effects regarding four
out of eight reported outcomes, i.e. more cost, throughput time and management reductions,
as well as more output increases. 

Assessing the results

Comparing the effects of work organisation and wage systems, the data indicate that characteristics
of  work  organisation  have  a  much  stronger  impact  on  quality  of  working  life,  such  as  job
satisfaction and stress. Regarding performance, data were not available to measure performance
outcomes directly. In the EPOC survey, only effects of direct participation were measured. Within
these  limits,  the  analyses  indicate  that  the  intensity  of  group  delegation  seems  to  be  more

73

■
■
■
■
■
Wages&Working05106    23/6/05    3.07pm    Page  74

Wages and working conditions in the European Union 

important than the wage system, in achieving outcomes. This supports the notion that aspects of
work organisation have stronger effects than wages systems have, both on quality of working life
and on performance outcomes. 

The data also support the alignment effects assumed in the theoretical model: interaction effects
exist between strategy, work organisation and wage system. This means that, if these variables are
aligned, they have stronger effects than when considered independently. Consequently, one should
not only consider isolated variables to improve quality of working life and performance outcomes,
but  should  align  these  variables  based  on  their  explicit  and/or  implicit  steering  mechanisms  for
employee  behaviour.  Examples  of  this  could  include  combining  work  organisation,  based  on
participation and self-regulation, with modern forms of variable pay, which reward goal attainment
of the respective organisational unit. 

If strategy, work organisation and wage systems imply different goals and directions for employee
behaviour (e.g. combining innovation strategy, hierarchical control and modern forms of variable
pay),  this  may  result  in  a  deterioration  of  performance  and  quality  of  working  life.  These
counteracting effects can be considered as one reason for the observed low bivariate correlations
between  work  organisation  and  wage  systems,  on  the  one  hand,  and  between  performance  and
quality of working life on the other. The relationships become much stronger when counteracting
effects are controlled, and an analysis is made of the effects of work organisation with high degrees
of direct participation and autonomy, combined with modern forms of wage systems, such as team
bonuses and/or profit-sharing. 

In summary, there is reasonably consistent evidence that the effects of wage systems on company
performance and on quality of working life depend on company strategy and on characteristics of
the work organisation, in particular. Thus, in order to improve efficiency, wage systems and work
organisations should be aligned, e.g. by combining participative work organisations and modern
forms of variable pay, while taking company strategy into account.

Consequences and perspectives for future research

In light of these results, the theory-driven approach of this study – in its secondary analysis of the
EWCS 2000 and EPOC survey – seems fruitful and should be developed further in future studies.
However, in interpreting these results, one should bear in mind that they rely on single source and
self-reported  data,  which  as  a  result  leaves  them  open  to  mono-method  and  subjective  biases.
Future studies, at company level at least, should use multi-source and multi-method measurement,
by  including  management  and  employees,  using  questionnaires  and  interviews,  as  well  as
analysing  documentary  data.  They  should  also  request  objective  evidence  for  reported
interventions  and  pay  practice,  in  addition  to  intended  effects,  and  unintended  side-effects,  on
performance and quality of working life. Response rates must be improved and the results should
be made more representative, e.g. by telephone interviews and random sampling methods. 

With respect to wage indicators, future studies should separate more clearly base pay (i.e. grading
structure), from variable pay (i.e. bonus payments and financial participation). They should also
specify criteria for grading, as well as components and criteria of variable pay. Furthermore, most
of the studies reviewed are cross-sectional, and causal relations cannot be identified. Panel studies
at  company  level  would  allow  an  analysis  of  developments  to  provide  better  clues  for  causal

74

Wages&Working05106    23/6/05    3.07pm    Page  75

Conclusions

relations. Last but not least, the EPOC data, in particular, are quite old. If relevant knowledge is
required – concerning managerial strategies, pay systems and practice, work organisation and their
relationships to performance and to quality of working life – then more updated information should
be collected. Based on the results of this project, such research would indeed be promising.

75

Wages&Working05106    23/6/05    3.07pm    Page  76

Wages&Working05106    23/6/05    3.07pm    Page  77

Bibliography

Almodovar, A., Zimmermann, M., Maqueda, J., Tejedor, M., Orden, V. de la, Fraile, A., Nogareda,
C., Arévalo, A. and Laguarta, A., Working conditions surveys: Comparative analysis related to data
sources, data availability and findings emanating from EU national surveys on working conditions,
Luxembourg: Office for Official Publications of the European Communities, 2005.

Antoni,  C.H.,  Qualitätszirkel  als  Modell  partizipativer  Gruppenarbeit  –  Analyse  der  Möglichkeiten
und  Grenzen  aus  der  Sicht  betroffener  Mitarbeiter [Quality  circles  as  a  model  of  participative  team
work], Bern: Huber, 1990.

Antoni,  C.H.,  Teilautonome  Arbeitsgruppen.  Ein  Königsweg  zu  mehr  Produktivität  und  einer
menschengerechten  Arbeit? [Semi-autonomous  work  groups.  The  silver  bullet  to  higher  productivity
and humane work?], Weinheim: Psychologie Verlags Union, 1996.

Antoni, C.H., Teamarbeit gestalten. Grundlagen, Analysen, Lösungen [Designing team work. Basic
principles, analyses, solutions], Beltz: Weinheim, 2000.

Antoni, C.H. and Bungard, W., ‘Arbeitsgruppen’ [Work teams], in Schuler, H. (ed.), Enzyklopädie
der  Psychologie,  Organisationspsychologie  II  –  Gruppe  und  Organisation [Encyclopaedia  of
psychology,  Organisational  psychology  II  –  Group  and  Organisation],  Göttingen:  Verlag  für
angewandte Psychologie, 2004, pp. 129–191.

Antoni, C.H. and Eyer, E., ‘Fertigungsinseln und Entgelt. Gestaltung, Erfahrungen, Perspektiven’
[Manufacturing cells and compensation. Design, experiences and perspectives], Personal, 3, 1993,
pp. 108–114.

Appelbaum,  E.,  Bailey,  T.,  Berg,  P.  and  Kalleberg,  A.L.,  Manufacturing  advantage:  Why  high-
performance work systems pay off, Ithaca, NY: ILR Press, 2000.

Baeten, X. and Van den Berghe, L., ‘Participatie van medewerkers: houdingen en feiten op het vlak
van  financiële  en  organisatorische  participatie’  [Employee  participation:  attitudes  and  facts  with
regard to financial and organisational participation], in: Peeters, L., Mathyssens, P. and Vereeck,
L.  (eds.),  Stakeholder  Synergie.  Referatenboek [Conference  book],  Vijfentwintigste  Vlaams-
Wetenschappelijk  Economisch  Congres  (Hasselt,  14  March  2002),  Faculteit  Toegepaste
Economische Wetenschappen, Limburgs Universitair Centrum, Diepenbeek, Garant, 2002.

Bahnmüller, R., Stabilität und Wandel der Entlohnungsformen: Entgeltsysteme und Entgeltpolitik in
der  Metallindustrie,  in  der  Textil-  und  Bekleidungsindustrie  und  im  Bankgewerbe [Stability  and
change in wage systems: Wage systems and wage policy in the metal industry, clothing industry and
banking sector], Munich, Mering: Hampp, 2001. 

Bauer, T.K. and Bender, S., Flexible work systems and the structure of wages: Evidence from matched
employer-employee data, IZA (Forschungsinstitut zur Zukunft der Arbeit/Institute for the Study of
Labor), Discussion Paper No. 353, 2001.

Belgium Federal Government, 2004, http://meta.fgov.be/pc/pce/pceg/ nlceg02.htm.

Bergman, A. and Höglund, U., Lönesystem och arbetsmiljöfaktorer – kan man finna några samband?
[Wage  system  and  work  environment  factors  –  are  there  any  relationships?],  Luleå  University  of
Technology, 2003.

77

Wages&Working05106    23/6/05    3.07pm    Page  78

Wages and working conditions in the European Union 

Boyd, B.K. and Salamin, A., ‘Strategic reward systems: A contingency model of pay system design’,
in Strategic Management Journal, 22, 2001, pp. 777–792.

Carroll,  S.J.,  ‘Business  strategies  and  compensation  systems’,  in  Balkin,  D.B.  and  Gomez-Mejia,
L.R. (eds.), New perspectives on compensation, Prentice-Hall Inc, 1987.

Cohen, J., ‘A power primer’, in Psychological Bulletin, 112, 1992, pp. 155–159. 

Dolmat-Connell, J., ‘Developing a reward strategy that delivers shareholder and employee value’,
Compensation and Benefits Review, Vol. 31 (2), 1999, pp. 46–53.

Emans, B.J.M., Antoni, C.H., Baeten, X., Kakonen, N., Kira, M. and Neu, E., ‘Pay-for-performance
in Europe: Prevalence and national differences’, Paper presented at the 11th European Congress
on work and organisational psychology, Lisbon, 2003.

EPOC Research Group, New forms of work organisation: Can Europe realise its potential? Results of
a survey of direct employee participation in Europe, Luxembourg: Office for Official Publications of
the European Communities, 1997.

Eriksson, G. and Leander, E., Konsekvenser av individuell lönesättning – en enkätundersökning inom
högskolan [Consequences of individual pay – a survey within the university and college], Linköping
University, 1995.

Eriksson,  M.,  Lönesystem,  produktivitet  och  kunskapsstimulans [Pay  system,  productivity  and
knowledge encouragement], Chalmers University of Technology, 2002.

Frick,  B.,  ‘“High  performance  work  practices”  und  betriebliche  Mitbestimmung’,  Industrielle
Beziehungen, 9 (1), 2002, pp. 81–102.

Godard, J., ‘A critical assessment of the high-performance paradigm’, in British Journal of Industrial
Relations, 42:2, 2004, pp. 349–378.

Gomez-Mejia,  L.R.,  ‘Structure  and  process  of  diversification,  compensation  strategy  and  firm
performance’, Strategic Management Journal, Vol. 13, 1992, pp. 381–397.

Gupta, K. and Govindarajan, V., ‘Build, hold, harvest: Converting strategic intentions into reality’,
in Journal of Business Strategy, Vol. 4, 1984, pp. 34–47.

Hackman,  J.R.  and  Oldham,  G.R.,  ‘Motivation  through  the  design  of  work:  Test  of  a  theory’,
Organisational behaviour and human performance, 16, 1976, pp. 250–279.

Heneman,  R.L.,  Business-driven  compensation  policies:  Integrating  compensation  systems  with
corporate business strategies, AMACOM, 2001.

Heneman, R.L., Fisher, M.M. and Dixon, K.E., ‘Reward and organisational systems alignment: An
expert system’, Compensation and Benefits Review, Vol. 33 (6), 2001, pp. 18–29.

Holman,  D.,  ‘Employee  well-being  in  call  centres’,  Human  Resource  Management  Journal,  12:4,
2002, pp. 35–50.

Horgan, J., High performance human resource management in Ireland and the Netherlands, Thesis,
University of Groningen, 2003.

78

Wages&Working05106    23/6/05    3.07pm    Page  79

References

Ilmakunnas, P. and Maliranta, M., Technology, labour characteristics and wage-productivity gaps,
Helsinki: ETLA, 2003.

Lawler, E., High involvement management, San Francisco: Jossey-Bass, 1986.

Lawler, E.E., Strategic pay, San Francisco: Jossey-Bass, 1990.

Lawler, E.E., ‘The new pay: A strategic approach’, Compensation and Benefits Review, 27, 1995, pp.
5–14,.

Lay,  G.  and  Rainfurth,  C.,  Königsweg  Prämie? [Bonus  systems  –  a  silver  bullet?],  Report  from  the
innovation  in  production  survey,  No.  13,  Fraunhofer  Institut  für  Systemtechnik  und
Innovationsforschung (ISI), 1999.

Milkovich, G.T. and Newman, J.M., Compensation, Irwin/McGraw-Hill, 1999.

Montemayor,  E.F.,  Congruence  between  pay  policy  and  competitive  strategy  in  high-performing
firms, Journal of Management, Vol. 22 (6), 1996, pp. 889–908.

Nilsson. T., Bonus för industritjänstemän – lönar det sig? [Bonus for industry white collar workers –
does  it  pay?],  SIF  [Swedish  union  of  technical  and  clerical  employees  in  industry],  Stockholm,
1990. 

Paoli, P. and Merllié, D., Third European survey on working conditions 2000, Luxembourg: Office
for Official Publications of the European Communities, 2001.

Paoli,  P.  and  Parent-Thirion,  A.,  Working  conditions  in  the  acceding  and  candidate  countries,
Luxembourg: Office for Official Publications of the European Communities, 2003.

Pendleton,  A.,  Poutsma,  E.,  Brewster,  C.  and  van  Ommeren,  J.,  Employee  share  ownership  and
profit-sharing in the European Union, Dublin: European Foundation for the Improvement of Living
and Working Conditions, 2001.

Poutsma,  E.,  Recent  trends  in  employee  financial  participation  in  the  European  Union,  Dublin:
European Foundation for the Improvement of Living and Working Conditions, 2001.

Semmer, N. and Udris, I., ‘Bedeutung und Wirkung von Arbeit’ [The meaning and impact of work],
in Schuler, H. (ed.), Lehrbuch Organisationspsychologie, Bern: Huber, 2003.

Sisson, K., Direct participation and the modernisation of work organisation, Luxembourg: Office for
Official Publications of the European Communities, 2002.

Steyaert, S., Gewikt en Gewogen, Evalueren en waarderen in organisaties [Evaluating and valuing in
organisations],SERV/STV-Innovatie en Arbeid, Brussels, 2000.

Thompson, A.A. and Strickland III, A.J., Strategic management: Concepts and cases, Irwin, 1992.

Thompson, M., Pay and performance in the UK aerospace, DTI/SBAC, 2002a.

Thompson, M., High performance work in UK aerospace, Audit 2002, DTI/SBAC, 2002b.

Tichy,  N.M.,  Fombrun,  C.J.  and  Devanna,  M.A.,  ‘Strategic  human  resource  management’,  Sloan
Management Review, 23 (2), 1982, pp. 47–60.

79

Wages&Working05106    23/6/05    3.07pm    Page  80

Wages and working conditions in the European Union 

Van het Kaar, R. and Grünell, M., Comparative study on variable pay in Europe, Dublin: European
Improvement  of  Living  and  Working  Conditions,  2001,
Foundation 
http://www.eiro.eurofound.eu.int/2001/Study/TN0104201S.html.

the 

for 

Wood,  S.,  ‘High  commitment  management  and  payment  systems’,  in  Journal  of  Management
Studies, 33:1, 1996, pp. 55–77.

Ylöstalo, P., Working life barometer 2003, Helsinki: Ministry of Labour, 2003.

80

Wages&Working05106    23/6/05    3.07pm    Page  81

European Foundation for the Improvement of Living and Working Conditions

Wages and working conditions in the European Union 

Luxembourg: Office for Official Publications of the European Communities 

2005 – VIII, 80 pp. – 21 x 29.7 cm

ISBN 92-897-0912-X

Wages&WorkingCvEN    23/6/05    3.18pm    Page  2

SALES AND SUBSCRIPTIONS

Publications  for  sale  produced  by  the  Office  for  Official  Publications  of  the  European
Communities are available from our sales agents throughout the world.

How do I set about obtaining a publication?

Once you have obtained the list of sales agents, contact the sales agent of your choice and
place your order. 

How do I obtain the list of sales agents?

• Go to the Publications Office website http://publications.eu.int/

• Or apply for a paper copy by fax (352) 2929 42758

EF/05/106/EN

Wages&WorkingCvEN    23/6/05    3.18pm    Page  1

4

5

T
J
-
5
5
-
0
5
-
8
3
0
-
-
E
N
-
C

Income and wages are an essential component of employment and quality

of  work.  They  also  have  implications  for  company  strategy  and

performance. 

The  main  objective  of  this  report,  Wages  and  working  conditions  in  the

European  Union, is  to  analyse  the  relationships  between  wages,  work

organisation and working conditions, as a result of managerial policy, and

as  an  element  of  organisational  performance  and  quality  of  working  life,

and to produce indicators accordingly.

The  research  model  examines  the  influence  of  various  environmental

factors, and produces qualitative information concerning the relationships

between the pay system, union density, employee representation, working

time flexibility and contract type.

The European Foundation for the Improvement of Living and Working Conditions is a
tripartite  EU  body,  whose  role  is  to  provide  key  actors  in  social  policymaking  with
findings,  knowledge  and  advice  drawn  from  comparative  research.  The  Foundation
was established in 1975 by Council Regulation EEC No. 1365/75 of 26 May 1975.

W
a
g
e
s

a
n
d
w
o
r
k
n
g

i

c
o
n
d
i
t
i
o
n
s

i

n

t
h
e

E
u
r
o
p
e
a
n
U
n
o
n

i

ISBN 92-897-0912-X

9 789289 709125

Wages and working conditions 
in the European Union