Workers could receive a bigger share of their companies’ profits under a series of measures adopted by the German government on Wednesday aimed at raising the low rate of equity ownership among employees to the level of that in other large European economies.
Peer Steinbrück, finance minister, presented the measures as a contribution to “social justice” and “equity” against a backdrop of rapid divergence between fast-rising corporate profits and stagnating wages.
“This is a significant update of Germany’s so-far rudimentary instruments of employee participation,” he said, adding that the public purse would contribute up to €230m ($338m, £184m) a year in new tax incentives to encourage employee share ownership.
Olaf Scholz, labour minister, said: “Germany has been lagging behind in this area. With these steps, we will ensure workers get their fair share of the success of their companies.”
Incomes from labour and capital have been diverging in recent years. Corporate profits rose by 37 per cent between 2003 and 2007 while wages grew by only 4.3 per cent. Yet German workers have had little opportunity to share in the profits of their employers, largely because more than 80 per cent of German businesses are private or family owned and do not have freely traded shares – a higher proportion than in the UK or neighbouring France.
Small business and trade unions have traditionally been sceptical of profit-sharing schemes, the former because of a reluctance to dilute their capital, the latter because of fears that workers could make their private savings hostage to the fortunes of their employers.
Mr Steinbrück said the government was now in talks with several banks with a view to creating a series of sector-specific funds in which non-listed companies could pool capital on a voluntary basis for their employees to invest in.
The funds would provide an avenue for private businesses to tap the savings of their workers without diluting their ownership while ensuring employees’ investments are protected against a possible insolvency, Mr Steinbrück said. “If several hundred companies participate in the fund and one of them goes bust, there is a very low risk of workers losing both their jobs and savings,” he said.
Underlining the social dimension of the draft, he said that tax incentives would only be available for profit-sharing schemes that are voluntary and available to a company’s entire staff as opposed to just management.
The plan, which will now go through parliament for approval, elicited a lukewarm reaction from business. Martin Wansleben, chairman of the German federation of chambers of commerce, said the initiative was “superfluous”, pointing at existing profit-sharing schemes in large companies and the fact that banks already offer a large number of equity funds for Germans to invest in if they choose.
Others warned that the funds could crowd out other forms of corporate benefits, such as pension schemes.
● With its initiative to encourage profit-sharing schemes, the government is seeking to address concerns about rising inequalities and defuse what could become the defining debate ahead of next year’s general election.
In addition to the widening gap between corporate profits and salaries, research published this week by an economic institute close to the trade union movement showed low and high wages were also growing apart. Real wages among the quarter of workers with the lowest pay had dropped by 14 per cent since 1995, the report said, while top earners saw their income rise by 3.5 per cent. These figures, together with similar studies, have sparked a lively discussion in a country that has long prided itself on having among the lowest pay differentials between shop floor and boardroom.
But separate figures from the Federal Statistical Office showed mounting tax inequality. It said 25 per cent of workers accounted for 80 per cent of total income tax, while 10m low earners paid no taxes at all.
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