Multinationals and the Rise of Variable Pay in Germany

Abstract

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