Employees are entitled to wages for the work they perform in the service of the employer, usually in the form of a gross monthly salary. Possibly, the collective labour agreement contains regulations from which the level of the salary follows (salary scales). The employer may also choose to award the employee a variable remuneration:
The bonus is perhaps the best known variation of variable remuneration. In a bonus scheme, the employer may set conditions under which the employee is entitled to a bonus. Often personal targets are set, for example an individual turnover to be achieved or a certain number of new customers per year to be attracted. A bonus can also be linked to the total turnover or profit of the company.
In the case of profit-sharing, the employee shares in the profits made by the company. The conditions for a profit distribution are often included in a profit-sharing scheme. The payment is not dependent on the personal performance of the employee, but on the results of the company. Often a profit-sharing payment is expressed as a percentage of the monthly salary. The employer may choose to allow the entire workforce to share in the profits or only certain job groups.
In this form of remuneration, the employee participates in the company, by acquiring shares or certificates of shares. Several variations of participation are possible, with the main differences being in the degree to which the employee can actually influence the company. Think of:
Shares: If the employee acquires shares in the company, the employee is entitled to dividends and any profits from the sale of the shares. In addition, employee will have access to company-sensitive information and control through his vote in the shareholders' meeting. Some employers grant the shares without making any payment in return ("free shares"). More often, the employer requests employees to buy the shares at market value or with a discount ("share purchase plan"). It is also possible to make an arrangement whereby the shares are acquired by the employee after a certain period of time or by fulfilling certain conditions ("restricted shares" or "performance shares"). The arrangements concerning the shares must be laid down in a shareholders' agreement.
Voting shares: This variation is similar to the granting of "normal" shares. The difference is that the employee is not allowed to vote at the shareholders' meeting. However, he may attend and speak at the meeting. For this reason, the employee also has access to company-sensitive information.
Certificates: Certificates of shares are used to limit employee interference. The shares in the employer's company are transferred to a Trust Office (STAK). The STAK then issues certificates of these shares to the employee. As a result, the employee has the profit rights on these shares, but not the voting rights in the shareholders' meeting. It can also be decided that the meeting rights will not accrue to the certificate holders (employees).
Stock Appreciation Rights (SARs): In the case of SARs, the employee is not granted shares, but receives a claim to the change in value of a share in the company. Thus, the employee does not own shares in the company, but benefits from increases in the value of a share. When SARs are granted, employees are not given rights from which interference or control arises. They are merely contractual arrangements made with the employee. Formally, therefore, there is no employee participation. Given the nature of the arrangement, SARs are often referred to in this category anyway.
In all cases, it is important to properly record the terms and conditions of the agreement, particularly with regard to termination of employment.
A variable remuneration is an employment condition of the employee. This also means that in most cases the employer cannot unilaterally amend this.
When introducing, changing or terminating a variable remuneration, the consent of the Works Council will often be required as well.
In case you have questions regarding remuneration or in case you require assistance with drawing up a remuneration scheme, please contact the employment attorneys of Blenheim here.