Variable attitudes towards variable pay in Europe

Performance-related pay and employee reward systems in Europe are often unevenly distributed among different groups of workers; particularly benefitting men, highly-skilled and highly ranked workers. Without robust monitoring and transparency, supplementary employee reward systems could potentially exacerbate pre-existing pay inequalities. This is according to Eurofound's new report Changes in remuneration and rewards systems, published today.

The use of supplementary employee reward systems has become a well-established practice in Europe. These are schemes used by companies to reward performance and motivate employees both as individuals and as a group. They are normally separate from basic salary and can be monetary or in-kind payments. The employees that benefit from these schemes often welcome them as a means to boost their income and as recognition of their performance. According to the European Company Survey, almost two-thirds of European establishments use at least one form of variable pay. The most common system, implemented by close to half of companies, is linked to individual performance according to management appraisal. Individual results-based pay and profit sharing is used in around one third of establishments, and pay based on team performance is also common. Share-ownership is not commonly used by European establishments.

These reward systems are more prevalent in the private sector than in the public sector, particularly in information and communications technology, finance and insurance, and consultancies. Larger companies are more likely to use reward systems than small and medium-sized enterprises, particularly multinational companies and companies located in economically advanced regions. There is also a higher presence of some form of supplementary employee reward systems in companies that foster employee involvement and autonomy, pay higher salaries and have a larger number of permanent and full-time staff.

Employer organisations in Europe are generally in favour of reward systems as they are seen to be powerful tools to increase employees’ motivation and to link salaries to a company’s performance. The approach of trade unions is more nuanced: they acknowledge the advantages for workers, but warn that that if these systems are not properly designed they can lead to inequalities as well as income instability. In some instances variable pay systems can be used as a way to assert managerial control in labour markets defined by lower fixed wages and high unemployment.

Supplementary employee reward systems are more or less a fixed characteristic of the European labour market, particularly in the private sector. Employers have a growing need for more flexibility, together with a desire to attract highly qualified personnel and financially motivate their workforce against a background of an ageing population, shortages of professionals, and a requirement for higher skills. Among employees, there is also increasing interest in supplementary pay systems on top of wages, especially among highly skilled and highly qualified workers. The use of these schemes is likely to increase in the future, particularly during a climate of economic recovery. In order for rewards and benefits systems to be more widely available and beneficial to the broader workforce, further work needs to be done by policymakers, employers and trade union organisations. 

Download the report in full here.