Bargaining regimes, variable pay and financial participation: some survey evidence on pay determination

Bargaining regimes, variable pay and financial participation: somesurvey evidence on pay determination

Panu Kalmia, Andrew Pendletonb and Erik Poutsmac*

aDepartment of Economics, University of Vaasa, Vaasa, Finland; bYork Management School,University of York, York, UK; cInstitute for Management Research, Radboud University, Nijmegen,

The Netherlands

This exploratory paper provides preliminary evidence on the distribution of various formsof variable pay-by-pay determination structure. Data is drawn from the CRANET surveyof company human resource practices, and is used for 13 countries. These countries aredivided into two regimes, those where pay determination is predominantly centralized andthose where it is generally decentralized. The use of variable pay is compared between thetwo. The results are consistent with both institutional and resource-based perspectives.

Keywords: collective bargaining; financial participation; pay determination; profit-sharing; variable pay

Introduction

This special issue focuses on the extent to which institutional factors imply competitive and

institutional isomorphism (homogenization) in the use of financial participation as a specific

human resource practice in organizations. Firms may mimic their rivals in the use of practices,

react to coercive pressures to conform to legislation and informal rules, or choose to uphold

and follow certain norms in employment practices. Alternatively, firms may break with

prevailing norms to innovate in their human resource practices so as to secure competitive and

resource-based advantages over other companies. In the case of pay determination, national

or sectoral collective bargaining encourages conformity and homogenization by institutional

and normative regulations. Use of variable pay systems at company level may enhance their

flexibility in product and labor markets and enable them to secure higher quality human

capital via a myriad of means such as efficiency wages, employee commitment, etc.

This paper considers the use of several forms of variable pay in relation to the specific

institutional environment of pay determination systems. The issue arises as to how forms of

variable pay, such as share ownership plans, profit-sharing and performance pay, fit with

prevailing patterns of pay determination, given that they are nearly always implemented at

company or establishment rather than at multi-employer level. Are they mainly adopted

where companies have greater latitude to determine core pay (i.e. where pay determination

is decentralized), or are they more likely to be used where pay determination is centralized

(i.e. to compensate for constraints on flexibility)? Are they mainly found in hybrid systems,

possibly as a component of attempts to decentralize and diverge from prevailing norms in

the national or sectoral bargaining regime? A further question is whether all forms of

variable pay are associated with the level of pay determination in the same way.

ISSN 0958-5192 print/ISSN 1466-4399 online

q 2012 Taylor & Francis

http://dx.doi.org/10.1080/09585192.2012.661993

http://www.tandfonline.com

*Corresponding author. Email: [email protected]

The International Journal of Human Resource Management,

Vol. 23, No. 8, April 2012, 1643–1659

http://dx.doi.org/10.1080/09585192.2012.661993

http://www.tandfonline.com

In this exploratory paper we explore associations between pay determination structure

and the use of various forms of variable pay – share ownership plans, profit-sharing,

team-based bonuses and individual performance pay. We contribute to the limited amount

of literature on the relationship between collective bargaining and variable pay by

investigating this relationship in several countries. Company-level data is drawn from

13 countries participating in the CRANET survey of human resource management

practices. The countries are selected from the larger group of countries participating in the

survey to provide two groups of centralized and decentralized bargaining regime

countries. We separate countries in this way because the nature and role of particular

levels of bargaining as a source of institutional norms and pressures seem likely to differ

between the two. We then investigate the relationship between the use of variable pay and

the actual pay-setting level that organizations experience within these regimes.

The results provide a complex picture of the interplay between pay determination

systems and the use of variable pays. Where decentralization is the norm, companies

whose pay is determined at sector level have a higher incidence of some forms of variable

pay (team-based pay and individual performance pay) than companies with decentralized

pay-setting. Our interpretation is that these companies use variable pay to secure a degree

of pay flexibility comparable to that experienced by firms with decentralized pay-setting.

In centralized bargaining regimes, variable pay is more common in companies that are

either less exposed to prevailing institutional norms (those with decentralized and

individual pay-setting) or those that appear to be attempting to move away from them (i.e.

those with hybrid pay-setting).

Background

Many economies in Europe and beyond have witnessed decentralization of pay determination

and growing use of variable pay schemes in recent years. Decentralization of pay-setting has

been underway for some time (Katz 1993; Keune 2008; Traxler, Arrowsmith, Nergaard and

Mollins Lopez-Rodo 2008), though the extent varies between countries. Variable pay of

various sorts has also been growing in incidence overall, though in some countries there has

been a shift from individual, output-based systems to group- and process-based arrangements

(see Pendleton, Whitfield and Bryson 2009 for the UK). Growing use of variable pay and

decentralization of pay determination are often supposed to be closely linked, and in a

relatively straightforward manner. Since variable pay is usually linked to some measure of

intra-company performance, either company, establishment,group or individual, it tends tobe

associated with localized or single employer rather than multi-employer pay determination.

By contrast, national, regional or sector-wide systems of pay determination seem

incompatible with variable pay systems that link remuneration to company, group or

individual performance.

However, as Nergaard, Dolvik, Marginson, Arasanz Diaz and Bechter (2009) have

pointed out, variable pay and centralized bargaining are distinct and, whilst often

connected in practice, are not necessarily so. Whilst viewed from some perspectives (the

UK for instance), decentralized pay-setting systems appear to facilitate the use of pay

systems that link remuneration to some measure of performance, other national systems

are identified (Norway for instance; see Byrkjeflot 2001) where mainly centralized pay-

setting coexists with variable pay at the company level, and where this is accepted by trade

union representatives. It is arguable that variable pay might be more necessary in

centralized regimes to provide flexibility at company level, even though centralized

regulation might inhibit the use of company-level variable pay. By contrast, it could be

P. Kalmi et al.1644

contended that variable pay is less necessary where there is decentralized pay

determination even though the level of pay-setting is likely to be more conducive to its use.

So far, a small number of studies have considered the relationship between pay

determination systems and the use of variable pay systems (Heery 2000). By and large, a key

finding from this literature is that the relationship between the level of pay determination

and the use of variable pay is indeterminate. A recent cross-national study of financial

participation found no clear relationship between the presence of collective bargaining and

the use of share ownership, stock option or profit-sharing plans by companies (Croucher,

Brookes, Wood and Brewster 2010). Research by Del Boca, Kruse and Pendleton (1999)

comparing the use of profit-sharing in Italy, the US and the UK concluded that flexible

sharing schemes can be common in centralized as well as decentralized regimes, and that it

can add an element of flexibility to nationally determined rates of pay.

Case study evidence suggests that a simple polarity between centralized and

decentralized pay determination may be too simplistic. Drawing on company case studies

from a number of European countries, Traxler et al. (2008) suggest that single employer

bargaining (decentralized) and unarticulated multi-employer bargaining (centralized) are

less able to ‘govern’ variable pay than articulated multi-employer bargaining (i.e. where

there is an institutional connection between centralized and localized bargaining). In a

similar vein, Nergaard et al. (2009, p. 128) argue that multi-employer bargaining can

‘frame a space’ for local wage formation, whereas employee representatives may be more

wary of variable pay systems in single employer systems because there is more at stake

and more depends on the strength of local union representation (see also Marginson,

Sisson and Arrowsmith 2003). The implication of these case studies is that hybrid systems

of pay-setting (i.e. where there is both national/industry and local pay-setting) may be

most propitious for the implementation of variable pay. Indeed, variable pay may form the

primary element of the pay that is locally determined.

Another insight from this literature is that there may be different relationships between

collective pay-setting and variable pay depending on the type of variable pay. It seems likely

that there will be a difference between forms of variable pay that make a regular and integral

part of wages and salaries, and those that are pay-out to employees less frequently and are

viewed as less integral to ‘core’ remuneration. The use of individual performance pay, for

instance, may be closely linked to pay determination level for the reasons mentioned above.

Unions may attempt to discourage its use where decentralized bargaining is the primary

form of pay determination. Other forms of variable remuneration, such as employee share

ownership plans, may more likely be observed where there is decentralized bargaining or

unilateral pay determination within companies because companies reliant on centralized

pay determination may lack the reward expertise to implement such schemes. Employee

share ownership plans also do not tend to form part of bargaining with unions, and unions do

not seek to include it; in this case, union objections that can inhibit the use of individual

performance pay in decentralized systems may not arise. This may explain why in the UK

unionization has a positive relationship with the use of employee share ownership plans but

a negative relationship with individual performance-based pay (Pendleton et al. 2009).

A complicating factor is that there is diversity of pay determination arrangements

within national regimes, and that it can be unduly simplistic to expect a straightforward

relationship between pay determination level and use of variable pay schemes. Recent

case study evidence illustrates the diversity of pay-setting arrangements and use of pay

schemes even within single sectors (see Marginson, Arrowsmith and Gray 2008; Nergaard

et al. 2009). Arrowsmith and Marginson found in UK retail banking that the relationship

between collective bargaining and variable pay is a ‘complete study of hybridization’

The International Journal of Human Resource Management 1645

https://www.researchgate.net/publication/247750461_Variable_Pay_and_Collective_Bargaining_A_Cross-National_Comparison_of_the_Banking_Sector?el=1_x_8&enrichId=rgreq-a57a46be-bc15-4ba4-a21b-88594058125a&enrichSource=Y292ZXJQYWdlOzI1NDMwMDg1NTtBUzoyMDY0MzMyNzU2NTAwNTVAMTQyNjIyODkzNjM0Mg==

https://www.researchgate.net/publication/247736141_Engaging_with_Variable_Pay_A_Comparative_Study_of_the_Metal_Industry?el=1_x_8&enrichId=rgreq-a57a46be-bc15-4ba4-a21b-88594058125a&enrichSource=Y292ZXJQYWdlOzI1NDMwMDg1NTtBUzoyMDY0MzMyNzU2NTAwNTVAMTQyNjIyODkzNjM0Mg==

https://www.researchgate.net/publication/46477113_The_Changing_Use_of_Contingent_Pay_at_the_Modern_British_Workplace?el=1_x_8&enrichId=rgreq-a57a46be-bc15-4ba4-a21b-88594058125a&enrichSource=Y292ZXJQYWdlOzI1NDMwMDg1NTtBUzoyMDY0MzMyNzU2NTAwNTVAMTQyNjIyODkzNjM0Mg==

(2011, p. 74). Assuming diversity in pay-setting arrangements, a company’s use of

variable pay schemes may be influenced by the prevailing national pattern of pay

determination as well as the specific form of pay determination used by the company. For

instance, in regimes that are generally characterized by decentralized pay determination,

companies whose pay is determined at sector level may be more likely than other

companies to use individual performance pay as a means of achieving flexibility (and

possibly matching prevailing pay levels) that other companies achieve via decentralized or

unilateral pay-setting.

On the basis of this, our contention is that variable pay will be associated with the level

of pay-setting but that this relationship will differ between countries where the norm is

decentralized, single-employer bargaining and where multi-employer centralized

bargaining is predominant. The prevailing system provides a set of norms which

companies are either constrained by, have to find ways to circumvent, or which provide a

space for action. Variable pay may provide a means for securing pay flexibility but its

capacity to do so is likely to be influenced by the nature of the broader bargaining regime

and how the particular company sets pay within this system. Furthermore, there are likely

to be differences between forms of variable pay for the reasons outlined above: share

ownership and profit-sharing may well exhibit different associations with pay

determination structures than team and individual performance pay.

This is the starting point for this paper. Drawing on survey data from countries in

Europe and beyond, the paper explores associations between the use of different forms of

variable pay and pay determination structure. The approach is to divide the countries into

two groups: one where national- or sector-level pay determination plays an important role

(referred to here as ‘centralized bargaining regimes’), and other where decentralized pay

determination is viewed as the predominant norm (‘decentralized bargaining regimes’).

The association between pay-setting level at the organizational level and the use of

variable pay schemes in organizations is then investigated for each regime. This approach

assumes that not all companies follow the prevailing national norm of pay determination

in each country, and that the relationship between their own form of pay-setting and the

prevailing norm may have some impact on the use of variable pay. Four levels and forms

of pay-setting are identified from a company perspective: those where organizations

follow national pay-setting in collective bargaining, those where organizations do the pay-

setting on their own, a hybrid form where organization have some enterprise pay-setting

within the context of national pay-setting, and those where there is no collective

bargaining, with pay set on an individual basis.

Although this is an exploratory paper we tentatively make several predictions. One, in

countries with decentralized bargaining regimes, companies that are subject to the norms

of centralized or sectoral pay-setting will use team and individual performance pay to

overcome their comparative disadvantage in terms of pay flexibility. This does not,

however, lead to hybrid forms of pay-setting because of the weaknesses of union

representation within the firm that tend to characterize decentralized bargaining countries.

Two, in companies with decentralized pay-setting performance pay will be less prevalent,

either because unilateral pay-setting by management means that flexibility and resource

advantage can be achieved without formal performance pay schemes or because locally

based unions are keen to inhibit performance pay because they view it as a threat to local

collective bargaining. Three, in countries with predominantly centralized bargaining

regimes, share plans and profit-sharing are found more in firms with decentralized pay-

setting than in decentralized bargaining regimes because they are less constrained by the

prevailing institutional norms. Flexibility is achieved via these plans rather than team and

P. Kalmi et al.1646

individual performance pay because the latter are more threatening to centralized regimes

(unless they are accommodated within the bargaining system via hybrid pay-setting). Four,

those companies that adhere to the norms of centralized pay-setting (i.e. pay is determined

by multi-employer bargaining) are significantly less likely than other companies to use

forms of variable pay that are seen by key actors (e.g. unions) to violate institutional norms.

Data and methods

The data source is the CRANET survey of industrial relations and human resource

management conducted in 41 countries in 2004. It is an organization-level survey, in both

public and private sectors, with the respondent in each case being a senior HR professional

responsible for the unit for which the questionnaire gathers information. The survey is

restricted to organizations with more than 100 employees (Brewster, Tregaskis, Hegewisch

and Mayne 2000). It is a broadly representative survey in terms of industrial sector and size.

We refine the sample in a number of ways. Public-sector organizations are excluded

because profit-sharing and employee share ownership are rarely found in them. In addition,

public sector pay is determined directly by government in some countries rather than by

managers or collective bargaining. There is little or no organizational choice in the selection

of pay determination level or forms of pay, whereas the assumption in our analysis is that

both will be the outcome of actors’ choices, albeit within constraints set by national

bargaining regimes. The analysis is also restricted to a small range of countries, where the

national bargaining regime is clearly known and can, on balance, be characterized as either

centralized or decentralized. We have also excluded countries where we are less certain of

the representativeness of the data. This leaves us with the UK, the USA, Switzerland,

Canada and New Zealand (decentralized); and Germany, Austria, Belgium, Sweden,

Denmark, the Netherlands, Finland and Australia (centralized).

Our classification into two groups of systems is based on two criteria. One is prevailing

view in the literature (see Hoffmann, Kirton-Darling and Rampeltshammer 2002; OECD

[Organisation for Economic Co-operation and Development] 2006, p. 81; Philips and Eamets

2007; Batt and Nohara 2009). The other is the distribution of pay determination levels in the

sample. Those countries where more than 50% of companies indicate that pay is set centrally,

either wholly or in part, are classified as centralized systems, with the other countries being

classified as decentralized. The two criteria generate the same membership of each system,

with the exception of Australia. Our survey data places Australia in the centralized category

but many would view this country as now having a decentralized system. Australia has

traditionally had national-level bargaining via the award system, coupled with industry-level

bargaining, but a series of government reforms since the 1970s gradually decentralized

bargaining, even to the individual employee level (see Cooper and Ellem 2008). A recent

OECD paper argues that the principal level of collective bargaining is company level (Venn

2009) but high collective bargaining coverage (60%) relative to union density (just over 20%

in 2004) suggests that pay determination above the level of the firm remains important.

Coupled with the distribution of bargaining levels within the sample, this latter evidence

suggests it is reasonable to classify Australia in our centralized group of countries.

Four forms of variable pay are considered in the paper: share ownership plans (including

stock options), profit-sharing, team or group-based pay and individual performance pay.

The survey asks whether each of these forms of variable pay are available to management,

professional/technical, clerical/administrative and manual employees (see Appendix A for

relevant survey questions). We combine the responses to questions 2A and 2C as share

plans, and responses to question 2B and 3C as indications of profit-sharing. We excluded


https://www.researchgate.net/publication/4738055_The_Neoliberal_State_Trade_Unions_and_Collective_Bargaining_in_Australia?el=1_x_8&enrichId=rgreq-a57a46be-bc15-4ba4-a21b-88594058125a&enrichSource=Y292ZXJQYWdlOzI1NDMwMDg1NTtBUzoyMDY0MzMyNzU2NTAwNTVAMTQyNjIyODkzNjM0Mg==

variable pay for management since in many cases management pay is not a subject of

collective bargaining. In each case we code a dummy variable for each payment type to 1 if it

is used for either professional/technical, clerical/administrative or manual employees.

A limitation of these derived variables is that they do not provide any information on the

amount of variable pay, and hence it is not possible to evaluate the importance of variable

pay relative to core salaries. They also do not indicate how many employees within each of

these occupational categories actually benefit from variable pay. This, however, is not

critical to the analysis pursued here: the primary objective is to evaluate any use of variable

pay relative to the various bargaining and pay-setting levels.

The survey asks questions about the level of pay determination for the four groups of

staff mentioned above (see Appendix B). As above, dummies are coded to 1 if either

professional/technical, clerical/administrative or manual staff have their pay set at the

specified level. From the various levels identified in the survey, three levels are derived:

national/industry/regional, company or establishment, and individual level. The levels

above individual are recoded to create multi-employer only, company only and a hybrid

involving multi-employer and company-level pay determination. The categorization was

done as follows: first it was checked if there was any form of collective pay-setting with

any of the employee groups: if not, then the observation was classified as individual level

pay determination. If there was any bargaining with any of the three employee groups, and

the level of pay-setting was the same, the observation was classified to the relevant level of

pay determination. However, if there was both centralized and decentralized pay-setting –

either for the same employee group or for different employee groups – the observation

was classified as hybrid pay-determination.

The primary analytical approach is to consider the frequencies of each form of each

variable pay at each level of pay-setting for each of the two national bargaining regimes.

To check the robustness of these, we also use a probit regression framework to control for

other factors, such as size of the company and its stock market status.

Results

We start the result section by providing cross-tabulations between pay determination

levels and forms of variable pay, and provide t-tests of statistical significance. Tables 1–3

provide cross-tabulated frequencies of pay determination levels and forms of variable pay

for the whole sample, decentralized and centralized pay determination regimes,

respectively. In the ensuing analysis we consider the patterns in each regime, and draw

broad comparisons between the two.

Table 1 provides the frequencies for each type of variable pay scheme for each level of

pay determination. Leaving aside unilateral pay-setting, employee share ownership plans

are most common in decentralized bargaining companies, whereas the other three forms of

variable pay are most common in the hybrid category where there is both centralized and

decentralized bargaining. This resonates with the findings of case studies reported earlier

(see Traxler et al. 2008). Share ownership and profit-sharing are most common where pay-

setting is determined at individual level.

The prevailing structures of pay-setting fit with the classifications of bargaining

regime: in the decentralized group 69% of companies have decentralized (company or

establishment) or individual pay-setting (Table 2, rightmost column) whereas in the

centralized group just 23% use these forms of pay-setting (Table 3). As for forms of

variable pay, employee share ownership plans are more prevalent in decentralized

regimes. Comparing Tables 2 and 3, we see that the incidence of share-based plan is 27.7%

P. Kalmi et al.1648


in decentralized regimes and 22.9% in centralized regimes. The difference in means is

almost five percentage points, and it is statistically significant in a two-tailed t-test at 5%

level (t ¼ 2.38). There are no statistically significant differences between the two groups

of countries in the incidence of profit-sharing plans and individual-based pay. Team and

group-based pay is more common in centralized pay determination regimes; the difference

is statistically significant at the 1% level (t ¼ 2.79).

Turning to specific types of variable pay, in decentralized regimes (Table 2) the

incidence of share ownership plans does not differ much between centralized, hybrid and

decentralized pay-setting companies but those relying on individual pay-setting tend to

make more use of share plans. By contrast, in centralized regimes (Table 3), the incidence of

share ownership plans increases substantially as pay-setting is decentralized (though this is

reversed somewhat for cases of individual pay-setting). Comparing regime types, it is

noticeable that share ownership plans are substantially more widespread amongst

decentralized pay-setters in centralized regimes than in their counterparts in decentralized

countries. We cannot determine why this is so but a feasible explanation is that decentralized

pay-setters in centralized countries tend to be HR innovators and hence are more inclined to

use innovative instruments such as employee share plans. In addition, these decentralized

pay setters appear to be able to resist institutional normative pressures from centralized

regimes, thereby potentially enabling them to optimize strategic resource decisions (Oliver

Table 1. Pay determination structure and variable pay: frequencies (all countries).

Shareownership

(%)

Profit-sharing(%)

Team-based pay

(%)

Individual-based pay

(%)

Bargaining level,frequency

(%)

Centralized bargaining(N ¼ 514)

20.0 47.71 30.5 42.8 27.0

Hybrid bargaining(N ¼ 565)

24.2 53.6 34.2 45.3 29.7

Decentralized bargaining(N ¼ 282)

27.7 51.8 24.1 37.6 14.8

Individual (N ¼ 539) 29.1 57.5 25.8 43.8 28.3All (N ¼ 1900) 25.0 52.8 29.3 43.1 100

Note: Base – private sector companies with 100 þ employees.

Table 2. Pay determination structure and variable pay: frequencies (decentralized paydetermination regimes: UK, Switzerland, New Zealand, USA and Canada).

Shareownership

(%)

Profit-sharing(%)

Team-based pay

(%)


(%)

Bargaininglevel, frequency

(%)


24.4 56.1 35.0 54.5 14.9


27.7 48.5 28.5 39.2 15.7


24.8 46.6 23.0 32.9 19.5




1991, 1997). In a centralized regime these companies may achieve greater economic

benefits from these schemes than firms adhering to regime norms. By contrast, decentralized

pay-setters and other companies in decentralized regimes already have a high ability to

optimize their resource capital decisions and may not perceive competitive advantages from

these schemes because competitors are immediately able to imitate.

The distribution of profit-sharing differs between the two types of regime despite a

similarity in incidence overall. In decentralized regimes profit-sharing is most common in

those companies with centralized setting of basic pay, with the incidence declining with

decentralization (though rising again in companies that set pay at the individual level). By

contrast, the use of profit-sharing grows with decentralization of pay-setting in centralized

bargaining regimes. In the latter, our interpretation is similar to that for share ownership:

firms with decentralized pay-setting are more likely to use innovative pay instruments.

They are likely to have more latitude to do so though clearly centralized pay determination

does not prohibit profit-sharing (45% of such firms use profit-sharing). It is noteworthy

that companies with centralized pay-setting in decentralized regimes are more likely to use

profit-sharing than hybrid or decentralized pay-setters. Our interpretation is that

centralized pay-setters use profit-sharing to provide a degree of pay flexibility that will

enable them to compete with firms that have greater flexibility in their setting of basic pay.

A similar interpretation is advanced for the distribution of group and individual

performance pay in companies in decentralized regimes: both forms of variable pay are

more common in centralized than hybrid or decentralized pay-setters. Centralized setting

of basic pay is likely to provide insufficient flexibility especially as most other companies

are able to take advantage of decentralized or individually set pay. Individual or group

variable pay may provide this flexibility within the confines of centralized pay-setting. It is

also notable that group and individual variable pay are more common amongst centralized

pay-setters in decentralized regimes than in centralized ones. It is possible that firms in

centralized regimes that need pay flexibility attempt to decentralize their basic pay-setting,

and that variable pay schemes form part of a hybrid pay-setting (the most common users of

group and individual performance pay have a mix of centralized and company/establ-

ishment level pay-setting). An obvious case here would be that of German companies

whose basic pay is bargained at sector level but have some supplementary pay-setting,

including performance pay, at Works Council level.

We now turn to discuss the results of regression analysis. In so doing it must be noted

that the results of regressions where the dependent variable is categorical will be shaped by

Table 3. Pay determination and variable pay: frequencies (centralized pay determination regimes:Germany, Sweden, Denmark, the Netherlands, Finland, Austria, Belgium and Australia).

Shareownership

(%)

Profit-sharing(%)

Team-based pay

(%)


(%)

Bargaininglevel, frequency

(%)


18.7 45.0 29.2 39.1 36.4


23.2 55.2 35.9 47.1 40.5


31.4 58.7 25.6 43.8 11.3



P. Kalmi et al.1650

the choice of omitted category. Since it is difficult to select one omitted category of pay-

setting structure in preference to any other, we test each category one at a time against the

other three categories; that is, for both decentralized and centralized bargaining countries,

we run four regressions, to include all combinations of the four pay-setting structures for

each type of variable pay. This gives an indication of the sign and significance (of the

coefficient) for each combination. However, because we do not have a common base for

comparison (i.e. a consistent omitted category), the quantitative coefficients generated by

the models are difficult to interpret. For this reason, we only summarize the results in

Tables 4 and 5, by indicating the signs and statistical significance of the coefficients. Full

results of all 32 regressions are reported in Appendix C. The regressions include a series of

control variables for logged employment (typically positively related to the incidence of

variable pay), stock market status (typically positive) and the proportion of manual

workers (typically a negative relationship). The coefficients of these variables are reported

in Appendix C. Fourteen industry dummies are also included (but not reported) and these

tend to be jointly significant. The summary statistics for all dependent and independent

variables (except for industry frequencies) can be found in Appendix B.

These results from the regression analysis reported in Tables 4 and 5 are consistent

with the results of the frequency analysis reported in Tables 1 and 2. This indicates that the

descriptive statistics do not seem to suffer from omitted variable bias. For countries with

decentralized regimes (Table 4), decentralized pay-setters do not have higher incidence of

either financial participation or variable pay. For group- and individual-based pay, we

actually find the opposite: the centralized pay-setters are most likely to use these schemes,

and the firms that do not use any form of collective pay-setting the least likely. This is

consistent with our earlier claim that centralized pay-setters use these forms of flexible pay

to compensate for their relative lack of flexibility in determination of basic pay (compared

with decentralized pay-setters). Meanwhile, where pay is determined individually, formal

variable pay schemes may be unnecessary because pay flexibility can be achieved through

determination of basic pay.

In centralized regimes (Table 5) the situation is slightly different, as financial

participation is clearly less widespread amongst centralized pay-setters and is more

common in those companies where pay-setting takes place at company level only or at the

individual level. Thus, financial participation in centralized bargaining regimes appears to

be associated with decentralized pay-setting. Again, we follow our earlier interpretation

that these ‘deviant’ companies tend to be innovators, and that this gives rise to various ‘non-

standard’ forms of pay-setting and pay schemes. Unions may also be less likely to resist

Table 4. Pay determination and variable pay: probit regression results (decentralized regimecountries).

Shareownership

Profit-sharing

Team-based pay


Centralized bargaining (N ¼ 123) 0 0 þþ þþþHybrid bargaining (N ¼ 130) 0 0 0 0Decentralized bargaining (N ¼ 161) 0 0 0 -Individual (N ¼ 413) 0 0 — –

Notes: Code for the signs: —negative association at 1% level of statistical significance; –negative association at5%; -negative association at 10%; 0 no statistically significant association; þ positive association at 10% level;þþ positive association at 5%; þþþ positive association at 1% level. The regressions control for the log ofemployment, listed status, proportion of manual workers and industry (15 classes). Standard errors areheteroskedasticity-robust.


share plans if they have already accepted a move to company-level bargaining and these

plans usually pose less risks on employees. However, these results do not carry over to other

forms of variable pay, as there are no significant differences in the use of group-based pay,

whilst for individual performance pay there is a positive association with hybrid pay-

setting. The latter is difficult to explain but it is possible that individual performance pay

may be agreed in the company as a flexible element of pay determination: by contrast, those

companies with completely decentralized or individual pay-setting may have less need of

individual performance pay because basic pay can more readily incorporate flexibility.

Conclusions

Summarizing and interpreting our results is not easy because of their complexity.

Nevertheless, there are several headline findings arising from the analysis. Looking at the

incidence of the various forms of variable pay across the sample, employee share

ownership is least common whilst profit-sharing is the most common. Comparing the two

types of pay determination regime, employee share ownership plans are significantly more

common in decentralized pay-determination regimes whilst team-based variable pay is

more common in centralized regimes.

Separation of countries by institutional context in terms of pay determination further

illuminates the relationship between variable pay and level of pay determination, and

provides support for recent research that suggests this is not simple or straightforward

(Nergaard et al. 2009). The following results stand out when we examine variations by

bargaining level within regime types. First, in decentralized regimes, both team- and

individual-based performance pay is most common in companies that have base pay

determined in national or sectoral institutions, whilst there is a significant negative

association between these forms of variable pay and decentralized or individual pay-

setting. We interpret the use of variable pay by companies subject to centralized pay-

setting as a means of maintaining adherence to regulatory norms of the bargaining system

for the sector whilst securing a degree of pay flexibility to compete with firms that are not

subject to these institutional constraints. Those companies that already have the relative

freedom to set pay at company or individual level do not need to use variable pay to

achieve flexibility.

Second, when we turn to centralized regimes, centralized pay determination is

associated with a lower probability of the use of employee share ownership and profit-

sharing schemes, whilst individual pay-setting (and decentralized bargaining in the case of

Table 5. Pay determination and variable pay: probit regression results (centralized regimecountries).

Shareownership

Profit-sharing

Team-based pay


Centralized bargaining (N ¼ 391) - — 0 0Hybrid bargaining (N ¼ 435) 0 0 0 þDecentralizedbargaining (N ¼ 121)

þþ 0 0 0

Individual (N ¼ 126) þ þþ 0 0

Notes: Code for the signs: —negative association at 1% level of statistical significance; –negative association at5%; -negative association at 10%; 0 no statistically significant association; þ positive association at 10% level;þþ positive association at 5%; þþþ positive association at 1% level. The regression control for the log ofemployment, listed status, proportion of manual workers and industry (15 classes). Standard errors areheteroskedasticity-robust.

P. Kalmi et al.1652


share ownership) is associated with a greater probability of the use of these schemes. Our

interpretation is that the institutional norms and regulatory features of the prevailing

systems of centralized bargaining inhibit the use of these variable pay schemes by

companies, whilst those companies that have already departed from system norms by

using decentralized bargaining feel freer to use these schemes. A further interesting feature

of these regimes arises from the comparison of centralized and hybrid bargainers: the latter

have made a partial break from the centralized system with the result that there is greater

propensity to use variable pay. In fact, team- and individual-based pay are more common

in the hybrids than any other pay-setting category. In these instances, variable pay may be

a means of breaking with the norms of centralized bargaining, as a ‘half-way’ house to

moving into fully decentralized pay-determination.

This research is an exploratory study making use of secondary data. As such it clearly

has several limitations. An important one is the limited information available on the

character of variable pay schemes. The use of dummies for the existence of types of

variable pay does not provide any information on the amount of variable pay. Hence it is

not possible to evaluate the importance of variable pay relative to core salaries. Also we do

not know the coverage of the various variable schemes within companies. Furthermore, we

have no information on the extent to which various variable pay schemes are actually part

of bargaining, though we can assume that they are not bargained in the case of those

companies who indicate that there is no company-level bargaining. There is also limited

information on the character of collective bargaining more generally or indeed on other

factors that may influence the use of variable pay. Even with these limitations, however,

the results provide some interesting insights into the distribution of variable pay schemes,

and their relationship with levels of pay determination.

Further investigation of these issues could make use of mixed methods approaches to

better understand the complexity of the relationship between regulatory norms, bargaining

practices and variable pay. Most of the research to date in this area has taken a case study

form (e.g. Traxler et al. 2008; Nergaard et al. 2009) and this has provided a rich picture of

the diversity of developments in pay determination. As ever with case studies, however, an

important issue concerns the generalizability of findings. Survey data of course can

overcome this problem but at the expense of simplifying or obscuring the complexity of

institutional relationships. Ideally, some of the insights from recent case study research

can be incorporated in future cross-national surveys.

Acknowledgments

We thank the partners of the CRANET network for providing the data and Cranfield University,School of Management for coordinating the network. This paper has been presented at theInternational Industrial Relations Association Regional Congress in Manchester, UK, and at theInternational Association for the Economics of Participation conference held at Hamilton College,USA. We thank the participants for their comments and criticisms.

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P. Kalmi et al.1654

http://www.oecd-ilibrary.org/social-issues-migration-health/legislation-collective-bargaining-and-enforcement_223334316804;jsessionid=2hbr6plgnu1t1.delta



Appendix A: Survey questions (Cranet Survey)

1. At what level(s) is basic pay determined? (Please tick as many as are applicable for each categoryof staff)

Management Professional/Clerical/ManualTechnical Administrative

A. National/industry-wide collective bargaining A1 A1 A1 A1B. Regional collective bargaining A1 A1 A1 A1C. Company/division, etc. A1 A1 A1 A1D. Establishment/site A1 A1 A1 A1E. Individual A1 A1 A1 A1F. Other, please specify —

2. Do you offer any of the following: (Please tick as many as are applicable for each category of staff)Management Professional Clerical/Manual

Technical AdministrativeA. Employee share schemes A1 A1 A1 A1B. Profit-sharing A1 A1 A1 A1C. Stock options A1 A1 A1 A1

3. Do you offer variable pay (pay that varies at intervals, e.g. annually/monthly/weekly) based on thefollowing (please tick all that apply)

Management Professional Clerical/ManualTechnical Administrative

A. Team/department performance A1 A1 A1 A1B. Individual performance A1 A1 A1 A1B. Company-wide performance A1 A1 A1 A1

Appendix B: Summary statistics: mean and standard deviation (in parentheses)

VariableDecentralized(N ¼ 827)

Centralized(N ¼ 1073)

All(N ¼ 1900)

Share plan 0.28 (0.45) 0.23 (0.42) 0.25 (0.43)Profit-sharing 0.54 (0.50) 0.52 (0.50) 0.53 (0.50)Team-based pay 0.26 (0.44) 0.32 (0.47) 0.29 (0.46)Individual-based performance pay 0.42 (0.49) 0.44 (0.50) 0.43 (0.50)Centralized bargaining 0.15 (0.36) 0.36 (0.48) 0.27 (0.44)Hybrid bargaining 0.16 (0.36) 0.41 (0.49) 0.30 (0.46)Decentralized bargaining 0.20 (0.40) 0.11 (0.32) 0.15 (0.36)Individual bargaining 0.69 (0.46) 0.23 (0.42) 0.43 (0.50)Log of employees 6.14 (1.36) 6.13 (1.17) 6.13 (1.25)Listed 0.35 (0.48) 0.34 (0.47) 0.34 (0.47)Proportion manual workers 0.45 (0.29) 0.49 (0.28) 0.47 (0.29)


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