European integration and the pay policies of ... - Wiley Online Library

Industrial Relations Journal 2h:Z ISSN 0019-8692

European integration and the pay policies of British multinationals Janet Walsh, Gianni Zappala’ and William Brown European economic integration has generated intense interest in the prospect of a European labour market. This article brings new evidence to bear on the issue of employer responses to European integration and concludes that British owned multinational companies have, as yet, only made partial moves towards the Europeanisation of their pay determination arrangements.

The arrival of the Single European Market has stimulated interest in the prospect of a European labour market. A number of commentators have pointed to the potentially important role of employers, particularly multinational corporations, and trade unions in facilitating the integration of labour markets across Europe[l]. Thus far, however, much of the literature on the impact of the Single Market on employers’ labour market and industrial relations policies, including pay determination, has been of a speculative nature. The objective of this article is to bring new evidence to bear on the issue of employer responses to the impact of European integration. In particular, the main focus of ~~~

~~

0 Janet Walsh is a Lecturer in Industrial Relations in the School of Business and Economic Studies, University of Leeds. Gianni Zappala‘ is a Research Fellow in the Judge Institute of Management Studies, University of Cambridge. William Brown is Professor of Industrial lielations in the Faculty of Economics and Politics, University of Cambridge.

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discussion is a study undertaken in 1993 of the pay policies and strategies of thirteen British owned multinationals with European operations. British multinationals are at the centre of the investigation for three main reasons. First, Britain is the member state with the largest number of holding group companies with subsidiaries in at least two European Union (EU) member states[Z]. Second, the move towards enterprise bargaining has progressed furthest in Britain compared with other European countries and, therefore, British multinationals may be the most likely to pursue a company wide pay policy across national borders[3]. Third, the British focus eliminates any variations in multinational strategy and policy that may be due to country of origin effects. The study addressed 3 key questions. To what extent were employers standardising their pay structures and job classification systems (and thereby extending their internal labour markets) across Europe? Had European integration led to greater co-ordination of wage settlements and pay bar-

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gaining across a firm’s European operations? Were employers experiencing new pay and bargaining pressures as a result of closer European integration? The article is organised as follows. The following section draws out the main themes of the literature on pay and the Europeanisation of labour markets, and examines existing evidence on the response of Britishbased employers towards the Single Market. Section three discusses the sample and methods of investigation used in the study. Section four presents new company level data on the issues of pay standardisation, co-ordination and bargaining. This is supplemented by analayis of the second company level industrial relations survey (CLIRS2)from which the the thirteen companies were drawn. The final section evaluates the findings for the analysis of the European labour market.

Pay and the Europeanisation of labour markets There is a widely held view that the extensive presence of multinational companies in Europe and the wide coverage of collective bargaining arrangements in EU member states are likely to facilitate the Europeanisation of labour markets.[4] In the arena of pay determination, employers and trade unions associated with the manufacture of traded goods and services may have incentives to co-ordinate and integrate pay structures and wage levels across national frontiers[5]. There is a tendency, for example, for trade unions to seek to eliminate interregional and intra-company pay differentials and thus promote the convergence of pay levels across national frontiers. Uniform pay rates weaken the incentive for employers to relocate production towards lower waged plants, and are often viewed by unions as equitable bargaining objectives. Furthermore, a number of commentators have argued that economic and monetary union will facilitate direct comparability across borders and within companies, with the possible emergence of European pattern bargaining[6]. It is also envisaged that European works councils would enable unions to introduce comparisons of remuneration and employment conditions at the bargaining table[7]. A form of ’arms length’ bargaining may evolve whereby management and unions do

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not negotiate directly with one another, but the unions have a significant degree of influence on pay outcomes. In this context, there has been speculation that the provision of information at a European level might be used by trade unions to try to secure similar employment conditions in different firms across Europe[8]. Management may also attempt to secure similar working arrangements throughout European operations[9]. Multinational corporations play a significant role in the integration of labour markets, particularly in their capacity to reshape wage structures, pay levels and bargaining arrangements across national borders. Such enterprises may wish to level pay for particular occupations across countries in the EU, in order to promote the mobility of their employees between countries. Managerial, professional, technical and even craft employees may be required in overseas operations, particularly when new establishments are acquired or established. Thus, the growth of intra-company labour mobility may lead to the emergence of systematic company based international pay structures with horizontal parity across countries for the relevant occupations. Marsden identifies two key pressures on occupational wage structures stemming from the impact of European integration[lO]. First, the greater scope for the mobility of qualified labour, including young workers with language training, specialists in new technology related activities, and senior executives in European firms. Second, the impact of European capital integration on the internal labour markets of large and medium-sized firms. The Europeanisation of occupational labour markets outlined by Marsden may, however, only be a distinct possibility for specific technical and managerial skills, and for particular categories of highly mobile labour, notably managers, construction workers, labourers and young people. In addition to the higher costs of transport and relocation involved in cross-national mobility, there are language barriers and problems of eligibility for social security and employment in different member states. The barriers to skilled mobility, even for qualified employees, may be acute because of variations in national training and vocational qualification systems and joint union-employer regulation of skilled work. Such national differences may erode only slowly in the course of European

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integration. European capital integration may have important effects on the internal labour markets, and consequently the wage structures and pay policies of large and medium-sized firms. The scope of enterprise internal labour markets can be extended by merger activity, particularly when companies seek to link their new acquisitions by integrating the management function. Consequently, the increase in cross-border mergers within the EU could provide a basis for the extension of internal labour markets across national borders, especially for managerial and highly qualified staff. Such a development, however, will depend on how firms seek to organise their workforces. I t is probable that companies which have a unified management structure at European level and which organise production on a European scale will constitute the strongest source of pressure for the establishment of European-wide enterprise internal labour markets[ll]. There has been speculation that European capital integration will increase collaboration on technical and marketing problems between establishments in different member states. Such collaboration will require more frequent contacts, and a larger proportion of a firm’s employees to be familiar with the working methods and customs characteristic of other European countries[l2]. Moreover, if European collaboration and integration is extended to wider categories of workers, it may well generate changes in employment conditions and job classification systems. As firms extend the amount of contact between their different locations, they are likely to seek less costly methods of persuading employees to move, for example by way of mobility requirements in employment contracts. Increasing capital integration may, therefore ’. . . place heavy pressure on existing systems of negotiation, and on existing systems of pay and work rules’[l3]. Accordingly, the establishment of European management teams would require the introduction of career development programmes drawing on young managers across a company’s European operations. Such career arrangements may also be introduced for technical staff, especially in research and development intensive industries. Thus, one important consequence of the increased integration of European firms is that internal labour markets (eg. the set of career flows

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within firms) are likely to span national borders, and that enterprise wide pay scales will be introduced to stem pay comparability pressures. Both factors (ie. greater mobility of qualified labour and the extension of enterprise internal labour markets across national borders) may reduce the dispersion of earnings across the EU within such occupations[141. On the other hand, the international equalisation of p a y structures may represent a costly strategy for some large multinationals, especially if occupational pay levels are raised to best practice standards. Although companies may wish to reduce differentials for particular employees to promote internal mobility, extending such a policy to the workforce as a whole would be expensive and destroy the rationale for locating and producing in lower waged economies[l5]. However, when international pay levelling is limited to key occupations or personnel it can provoke resentment in lower waged economies, especially amongst local employees doing similar or related work at lower national pay levels. In the light of these ambiguous and often contradictory imperatives, Ryan[lG] has argued that ‘more needs to be known about employer responses to (the) conflicting requirements (of European integration)’.

Past evidence on the impact of European integration on pay Three studies have focused on the responses of British-based employers to the advent of the Single Market. Atkinson’s study, based on 1988189 data, analysed the approach of thirty five major multinational employers towards the prospect of a Europe-wide labour market and found that the establishment of the Single Market was not widely seen as ’marking either a change of direction or a significant change of pace for these firms’[l7]. Employer demand for international labour mobility (though growing) was restricted to a small minority of employees, and the harmonisation of employment conditions across national boundaries only involved those sections of the workforce for whom cross border mobility was an important consideration (ie. senior managers, younger managers on a career development programme, scientific and technical staff, and graduate recruits). The international integration of pay sys-

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tems was limited to the establishment of compatible grade structures, with paylconditions determined almost entirely in the light of local conditions. The overall conclusion was that multinationals continued to operate within separate national external labour markets and were characterised by internal labour markets segmented along national, regional and local contours. As the bulk of employees were recruited and deployed within national boundaries, pay and employment conditions were generally underpinned by national, rather than international, considerations. Wood and Peccei’s survey of 171 Britishbased organisations conducted in 1989 (of which 72% were British owned) focused on the issue of personnel planning for the Single Market. The study found that employers’ recruitment policies did not, in general, appear to have much of a European dimension and there seemed to be no particular concern about pay relativities (or commonality of conditions) across Europe. Only 9% of organisations ensured that their British pay and benefits for professional and managerial staff were comparable with those offered in other countries, although a higher proportion (28%) monitored the pay and benefits of professional and managerial staff in other EU countries. The overall conclusion was that ’there seems little fear of having to follow standardised practices, with the prospect of European-wide standardisation of terms and conditions appearing remote’[l8]. Byre’s study based on interviews conducted with managers, personnel specialists and trade union officials in around twenty six British organisations during 1989-90 did find some evidence that the Single Market was having a distinctive impact on employers’ strategies[l9]. For instance, employers were ’Europeanising’ their graduate recruitment procedures in anticipation of the new Single Market environment and measures to remove labour mobility barriers within the Community. Although the content of collective negotiations appeared to be largely unaffected by EU-level initiatives, employers were expecting trade unions to include European related issues in future bargaining demands. Some employers were reviewing pay and work conditions in order to be able to respond to British trade union claims for comparability with other parts of the EU. At the same time, British trade unions


were strengthening their links with European unions in order to gain more information about conditions in other countries on which to base future comparability claims. In particular, they were examining the practicalities of securing joint arrangements with continental unions in specific companies, as a possible step towards European collective bargaining. British trade unions were also making direct use of the EU’s new social agenda, by citing the basic principles in the EU’s Social Charter (eg. principles regarding workers‘ rights to receive an equitable wage, and to enjoy information and consultation provision) as a backdrop for current bargaining demands. These studies give some indication of the preparations and planning of British-based employers in anticipation of the Single Market in the late 1980s. The next section presents new data on thirteen British multinationals with European operations derived from interviews conducted in 1993. The evidence provides a more detailed analysis of developments in employers’ pay policies at a time of accelerating European integration.

Sample and methods of investigation The 13 British owned multinational companies were drawn from the second company level industrial relations survey, hereafter referred to as CLIRS2, undertaken at the University of Warwick[20]. Initially, a list was obtained of 58 British owned respondents that had overseas subsidiaries. Twenty six organisations were excluded because their operations were overwhelmingly based in Britain, such as large retail chains. In total, interviews were conducted with 13 British owned multinationals during the first half of 1993. The respondent in 11 cases was the personnel director of the group head office and in 2 cases the personnel manager at divisional head office level. The results of the CLIRS2 data were subsequently made available and comparisons can therefore be made between the survey and interview findings on several key dimensions of company pay policy.* * The interviews were conducted in 2 stages. First, 21 firms with headquarters in London were contacted by letter and follow up phone calls, of which 7 agreed to participate in the study. Of the 14 London based firms which refused to participate 10 stated either lack of time or simply declined to be involved.

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Table I : Company characteristics (N = 13) Company

Industry mix ~

A

B C (division) D E F G (division) H I

J

K L M

~

British employment

European employment (excluding Britain)

1755 72000 2500 4000 2800 2500 2000 16000 51200 2200 5000 1250 3200

200 7200 1200 varies 1000 3500 1800 10000 18000 250 2500 500 (1)

~~~

Pharmaceuticals Brewinglhotels Pharmaceuticals Construction Chemicals/ paints Printing Chemicals/pharmaceuticals Brewingldrinks Chemicals Engineering General Manuf. Business Services Engineering

(1) Exact European employment data could not be provided at the time of interview (nor from CLIRS2) due to recent joint venture negotiations and restructuring. Nevertheless it was said to be relatively small compared to the company's North American operations. Source: CLlRS2, Interview and Annual Report Data

As Table 1 demonstrates, 12 of the 13 companies had manufacturing operations, although 2 companies (B and H) straddled both manufacturing and service activities. Only 1 company (L) can be categorised exclusively as a service multinational. The sample in the CLIRS2 study was biased towards smaller firms and consequently the 13 multinationals were also relatively small in terms of the number of employees in continental Europe. Table 2 categorises the enterprises according to the diversification of business activity and shows that they tend to be single, related or conglomerate businesses. It has been argued that as multinationals expand their activities, they will shift from an organisational structure which emphasises territorial differences, based around the national subsidiary, to one which is based around the contours of different businesses, such as international product or service divisions[21]. As far as the organisational structure of these British owned multinationals were concerned, three companies considered that national subsidiaries were In the second stage 11 firms were contacted in the midlands and northern region of England. Of these 6 participated in the study. Two declined because they had a small European presence, and the remaining 3 because of lack of time or refusal to participate.

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Table 2 : Diversification of business activity (N = 13) ~

~~

Bri tish-based multinationals Single Dominant* Related** Conglomerate***

4 -

5 4

*Dominant = 70% of sales from one business **Related = no one business contributes 70% or more sales but businesses are in related fields *+*Conglomerate = many unrelated businesses Source: CLlRS2

the most important line of organisation, whilst 2 companies (the largest in European employment terms) were primarily structured along the lines of international businesses or product divisions. Five companies were structured along both multi-domestic (national subsidiaries) and global lines (international businesses). @ Basil Blackwell Ltd. 1995.

Results of the present study Towards the standardisation of pay structures? The evidence indicates that aspects of company pay and employment structures were being standardised, and in a number of cases, along European lines. But as Marsden has suggested, the pursuit of standardisation in wage and salary structures appeared to be restricted largely to qualified labour, especially senior managerial employees, and did not encompass lower level white collar or production staff[22]. There were thus clear connections between standardisation of salary structures across Europe for senior management and the imperative of crossnational labour mobility flows. A clear example of this was the pharmaceuticals division (company G) which wished to achieve a degree of standardisation, or common benchmarks, in the pay structure for senior management and mobile employees. It was envisaged that there would be a convergence in employment conditions across Europe for senior managerial employees. At the large chemicals company (G) and the brewing/drinks company (H), there had also been a degree of standardisation of the terms and conditions of employment for highly mobile workers across Europe, which meant that core employment conditions were similar although there was still variation in salaries.* The general manufacturing company in the sample (K) was enthusiastic about recruiting and developing a mobile group of middle and senior managers capable of working in a number of different locations. As far as pay was concerned, however, the personnel function had experienced difficulties in selecting a suitable benchmark country which would serve as a notional salary point for such employees. Other employers (eg. company B) were generally reluctant to standardise pay structures or wage rates, although other aspects of the reward package for management and supervisory staff were characterised by some standard features (eg. pensions). There were thus clear limitations on the extent to which salary structures and wage rates were being standardised even in the * This encompassed two hundred employees at company G, and five hundred and fifty employees at company H.


case of mobile senior managers. The survey data indicate that for 8 of the 13 companies, the pay levels of senior managers in overseas subsidiaries tended to reflect local conditions, although subject to head office agreement. Only 6 companies (8, D, F, G, H and M) rewarded their overseas managers through the mechanism of a standard package and in 4 cases this was varied to meet local conditions. One organisation (company L) had introduced a highly standardised payment system for its international employees, although this development was not linked specifically to the emergence of the Single Market. A consistent international salary scale for its 3 categories of employees had been introduced in all overseas subsidiaries. This was the sole case of a payment structure and policy that was truly internationally consistent. The central head office had an important role in defining the overall pay structure and assessment systems, particularly on fringe benefits. According to the respondent, the organisation’s overall aim was to deliver a consistent, uniform product on an international basis and it was therefore considered important to standardise reward structures. However, despite the link that was made between the uniformity of service provision and standardised reward structures, it is probable that the small, homogeneous and mobile nature of the international labour force, notably partners, consultants and administrators, and the fact that it was a single business, were important factors influencing the company’s pay policy. The other service firm in the sample (company B) which is ostensibly geared to delivering a consistent product, had the opposite policy, that is complete devolution of pay determination arrangements to its overseas operating units, within certain broad guidelines. The company’s overseas establishments operated under franchise arrangements, with the result that the company’s head office had minimal involvement in the actual operational running of the businesses and, therefore, did not seek to impose a standard pay policy across individual businesses. What, then, were the obstacles to standardisation of payment systems and salary structures across Europe? For some companies, standardisation was considered an unacceptable development given the diversified nature of their businesses. The chemicals/


paints conglomerate (company E) argued that standardisation would be difficult to introduce because of the existence of different terms and conditions of employment in overseas businesses and establishments. For those companies which were more enthusiastic about the achievement of common benchmarks in pay structures for senior and mobile employees, the existence of different social security arrangements, taxation laws and pension entitlements across different European countries posed severe constraints on any significant or widespread move to standard pay and employment conditions for any group of workers. If such obstacles could be overcome then the introduction of a common European employment contract for senior white collar employees would be a feasible development. However, common European employment contracts were not judged appropriate for lower level white collar employees, or production workers, because cross-national mobility was not an important prerequisite of their employment. Indeed, company K (general manufacturing) argued that it had no plans to move towards an integrated European payment system because of the existence of different inflation rates in European countries. Several firms were attempting to extend their internal labour markets across their European operations. Companies C (pharmaceuticals division) and I (chemicals) had, or were in the process of, extending their job evaluation structures for white collar employees across their European operations so as to facilitate comparisons between jobs. Thus, company C wanted a common measure of job size to ensure consistency of promotional patterns, although a move to common salary scales was not yet envisaged. This was not a distinctively ’European’ phenomenon, however, as the aim was to have a common measure of job size in all its global operations and not just across its European operations. The chemicals company had the same pay evaluation system across Europe so the jobs of white collar employees could be compared, whilst the chemicals/pharmaceuticals division (company G) and the pharmaceuticals company (A) had also introduced uniform occupational and job classification systems across continental Europe. Notwithstanding the clear extension of these companies’ internal labour markets across Europe, the imperative was not the 90

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generation of convergent or standard salary scales/rates, but the development of uniform occupational classification systems. It was apparent, moreover, that the requirement of European labour mobility had only affected the pay and employment conditions of senior white collar and managerial employees. Nevertheless, the achievement of consistency across job structures and occupational classification systems for such employees was a clear objective of several companies. Until there was full convergence of social security, tax law and pension provision across EU member states, however, complete standardisation of pay structures and non-wage conditions of employment was a remote possibility. European integration and intracompany pay co-ordination There has been speculation that European integration may have created stronger incentives for multinationals to co-ordinate their pay determination arrangements across different member states. Thus, Shonfield has argued that the Single Market will impose new requirements on multinationals to exert ‘greater central authority over some elements of pay determination’[23]. The presumption is that the integration and extension to the scope of product markets that is occurring with the creation of the Single Market may facilitate a common (co-ordinated) European-wide approach to labour relations matters, including pay. Such an approach is said to be more likely in companies characterised by a unified management structure at European level and where production is organised on a European scale, notably when production activities are integrated across borders and where the same activity is carried out in different locations[24]. Alternatively, where companies have expanded their access to European markets through licensing or franchising arrangements with local producers, or through joint ventures, common management approaches towards industrial relations across European borders are considered to be less likely. Moreover, where companies remain primarily organised territorially/geographically, around national subsidiaries, different management approaches in each national business are likely to preclude European-wide initiatives in industrial relations. In order to examine these themes, this


section investigates the relationship between the 13 multinational companies and their European subsidiaries/operations over arrangements for pay determination. Of particular significance is the degree to which decision-making over pay is becoming more or less centralised/co-ordinated as a consequence of the requirements of the Single Market. Comparisons are made between the CLIRS2 and interview data where relevant. The majority of firms in the sample appeared to monitor pay settlements in their overseas subsidiaries rather than intervene in a direct or coercive manner and had thus adopted quasi-decentralised patterns of decision making. Table 3 provides a snapshot picture of the firms based on the CLlRS2 responses to a question on arrangements between the worldwide head office and overseas subsidiaries with respect to pay determination. Only one company explicitly determined the percentage pay increase in each overseas operation. The evidence indicates, therefore, that overseas subsidiaries had a degree of autonomy over their pay determination arrangements, subject to higher level controls.

Table 3: Statements which best describe arrangements f o r pay determination in ouerseas subsidiaries (N = 13) Control mechanism HQ decides the OO/ pay increase in each overseas operation HQ sets a payroll figure in budget within which subsidiaries have discretion HQ lays down a range for pay increases with the exact figure determined locally HQ sets no precise figures but monitors settlements and can veto increases Pay is set at establishment level with guidelines from HQ No HQ guidelines for pay determination for overseas subsidiaries

Source: CLlRS2


Company

1 (J)

1 (G)

1 (I)

6 (A, C, F, H, L, M) 1 (K)

3 (B, D, E)

As far as the 13 companies are concerned, Table 3 suggests that there is little direct connection between the character of corporate organisation and patterns of decision making over pay determination. For instance, four companies (J, B, D, E) gave their overseas subsidiaries either high or low degrees of autonomy over pay determination (eg. HQ decides the percentage pay increase in each overseas operation and no HQ guidelines for pay determination for overseas subsidiaries). These companies, however, were all characterised by 'arms length' operations in Europe, notably, franchising, subcontracting, or sales/marketing/distribution outlets. The one exception-company E(chemicals/paints) had manufacturing operations in Europe but did not have a European personnel management infrastructure. As a consequence, the British corporate head office did not impose centralised controls over pay negotiations or bargaining procedures in its European operations. In contrast to the above indicators, however, the firms divide relatively evenly on the question whether the worldwide head office instructed, advised, guided or gave total autonomy to their overseas subsidiaries with respect to pay determination. Table 4 indicates that 6 companies instructed their overseas subsidiaries about the determination of pay settlements, compared to only one company in Table 3. There is thus a degree of inconsistency between the pattern of responses in the survey data. Moreover, Table 4 indicates that company D instructs its subsidiaries about pay settlements. Whilst such a response contradicts Table 3, it is consistent with the interview data which revealed that no salary increase could be given without approval from the corporate head office. The extent to which decisions over pay settlements, or any other issue, are centralised or decentralised within companies cannot be judged exclusively by an examination of formal structures. As Marginson et al. note, such a focus tends to conceal covert co-ordination of pay settlements, and informal modes of intervention by corporate head offices[25]. According to the CLlRS2 data, 11 companies had no system for co-ordinating pay increases. In contrast, the interview data revealed that the majority of firms (8) did have systems for coordinating pay increases between different establishments in overseas countries. The difference in response may be


Table 4: Relations between the British head office and overseas subsidiarieslestablishments (N = 13) Instruct

Advise

Guide

Autonomy

6

1

1

5

5

2

3

3

Determination of pay settlement Design of pay systems

Source: CLlRS2

explained by the fact that many employers regarded head office co-ordination of business budgets and the imposition of financial controls for European subsidiaries as synonymous with the co-ordination of pay settlements. Company K (general manufacturing) had specifically responded to the Single Market by introducing a European management team in order to achieve greater production integration. At the same time, a formal policy of decentralised plantlevel bargaining co-existed with a co-ordinated pattern of decision making over pay in which the head office set a broad budget for pay settlements in all businesses. The degree of informal co-ordination of pay and human resource policies had also been enhanced in recent years. Such coordination often occurred through the mechanisms of regular meetings between personnel managers from different countries. Thus, a number of firms characterised by a 'hands off' stance with respect to their subsidaries had strong informal systems of co-ordination, including extensive monitoring and information gathering roles for their head offices. The interview data suggest that meetings between personnel managers from different countries took place at 8 companies on a regular basis, and at 3 companies on ad hoc occasions or to deal with specific problems. Such activity was a recent phenomenon in several companies and was associated with a desire to be consistent across European operations. Overall, the survey and interview data suggest that the majority of firms monitored pay settlements across their European operations, and could veto settlements. Many firms had both formal and informal systems for co-ordinating pay increases between different establishments, even though many organisations espoused decentralised bargaining policies for their British and Euro92

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pean operations. There thus appears to be 3 broad dimensions to corporate pay policy amongst the 13 multinationals. First, those companies with 'arms length' European operations (eg. franchisingisubcontracting and saleddistribution outlets) were characterised by both high and low degrees of involvement in the pay determination arrangements of their subsidiaries. There was no evidence of a clear link between particular patterns of corporate organisation and levels of decision making autonomy over pay. Second, the companies were responding to the imperatives of European integration in different ways. As indicated, company K (general manufacturing) was the only organisation which had specifically responded to the Single Market by introducing a European management team in order to achieve greater production integration. However, it was not envisaged that increased production integration between plants across Europe would generate a convergence of labour relations or enhanced co-ordinationicentralisation of pay policy. The personnel function was unenthusiastic about such integration and perceived that it was under very little pressure from trade unions to move in this direction. Third, the character of head office involvement in pay determination was changing, and in some cases this had a European dimension. However, the direction of change was not unilinear even amongst firms within the same industry. There was evidence of corporate head offices becoming both more and less interventionist over the determination of pay with respect to their European subsidiaries. The chemicals/pharmaceuticals firms illustrate the uneven direction of change in the relationship between head offices and overseas/European subsidiaries. Company @ Basii Blackwell Ltd. 1995.

C (pharmaceuticals division) had hitherto formulated its annual strategy paper on pay for British establishments, and not its international companies. In this way it followed the example of other divisions in the group whose employees were mainly located in Britain. In light of the fact that the division currently had 18 overseas subsidiaries and 75% of its employees based overseas, the personnel director now wished to include in the strategy document information about pay policy in European countries (as well as other international operations). In short, the pharmaceuticals division was emerging as a global player in the industry and this necessitated a more intensive monitoring role for the central personnel function with respect to the pay policies of overseas subsidiaries. This had not been accompanied, however, by any attempt to co-ordinate pay settlement outcomes between establishments in different countries. The head office of company G (pharmaceuticals division) had become less interventionist with respect to the pay strategies of its subsidiaries, and had shifted away from the specification of percentage figures for their overseas operations. Instead the subsidiary managers reported final pay settlement outcomes to the centre, with the head office co-ordinating settlements according to the mutually agreed strategic plan. Such changes were not due to any specific effect of European integration, but to an overall shift in management style in the company. A highly centralised pattern of decision making was now considered outdated, given that the company wished to increase investment in its subsidiaries and expand its international operations. The large chemicals company (I) had closed its European division in 1992 as part of a shift away from a geographical/territorial structure to one that was based on product divisions spanning national borders. This was partly in response to uncertainty over the future shape and development of European integration. Greater autonomy to the international product divisions over business policy and financial targets was said to imply a devolution of responsibility for the determination of wagedsalaries, and a dilution of central/corporate control. Nevertheless, systems for co-ordinating pay settlements across Europe were in place. For example, a new European Personnel Management Group, composed of the personnel


managers of the European businesses, discussed plans and exchanged information 'to make sure they would not do anything silly, and take into account what is going on in each country'. In sum, multinational companies operating in similar product marketdindustries were changing the structures and processes of decision making over pay in markedly different ways, with diverse implications for their European subsidiaries/ operations. Pay policies were not being reshaped in response to a clearly defined determinant, such as the specific demands of European integration. Rather, when reorganising their management structures and pay arrangements, firms were reacting to a mdltiplicity of factors, including the internationalisation/expansion of production activities, general shifts in management style/philosophy, greater emphasis on product, as opposed to geographical, divisions, as well as uncertainty regarding the outcomes of European integration. New bargaining and comparability pressures An important issue raised by the research on European integration and industrial relations is the extent to which trade unions will co-ordinate their bargaining strategies on pay across Europe and, relatedly, whether they will seek to introduce European wage and conditions comparisons in the formulation of their collective bargaining demands[26]. The evidence suggests that trade unions have not been particularly effective in generating a powerful impetus for companies to co-ordinate their pay bargaining across their European operations. Many employers are reluctant to provide a European platform from which well organised trade unions might be able to press their own comparisons[27]. Employers in this study were acutely aware of the threat of pay comparability in the context of their British and European operations. Indeed, the brewing/hotels company (B) had pursued a policy of decentralised pay bargaining in Britain to reduce the possibility of comparability claims and the negative effects of national industrial action from British trade unions. Many employers also expected to see a growing trade union interest in developments elsewhere in Europe and an increase in


claims for comparability with employment conditions in other parts of Europe. Unions were preparing comparability claims with European reference norms, with the long term goal being one of European wide collective bargaining. The findings suggest that trade unions were using European pay comparisons and statistics in the course of British wage negotiations. At the pharmaceuticals division (company B), the full time trade union official regularly cited European statistics, such as the common decency threshold, in the course of pay negotiations, and had expressed interest in organising and communicating with unions in the European subsidiaries of the enterprise. The employer response had been uncompromisingly hostile to such initiatives however. The chemicals/paints company (E) had also experienced attempts by British trade unions to use European-based pay comparisons but the fact that employees worked in different industries and were located in different geographical locations was used by management to refute the validity of such comparisons. On the other hand, there was surprise that trade union representatives had not pushed pay comparisons more vigorously in the context of European integration. At the engineering company (J), for example, it was observed that British trade union representatives had not even co-ordinated pay bargaining strategy between the company’s two British manufacturing plants. Even when trade unions had strong links with their European counterparts, as in the construction industry, this had not necessarily translated itself into effective Europeanbased pay comparisons or tangible bargaining demands, partly because of high unemployment levels in the industry. Whilst there was evidence of the deployment of European-based pay and bargaining comparisons by trade union representatives, there was very little indication of the formation of pan-European consultation mechanisms or any kind of shift to co-ordinated European bargaining by the 13 companies. By contrast, a number of companies appeared relatively unconcerned about the fact that their British-based unions had made references to the working time, holidays, etc. of their European employees. Such a negotiating strategy was considered easy to rebut because European employees operated in a variety of different national and local 94

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labour markets, and in this context intradivisional or plant level European bargaining would not be a feasible development from an employer perspective. According to the chemicals company (I), ‘the economies are so different, you cannot really compare Germany and Portugal, it is not a serious issue at the moment’. The prospect of European works councils was viewed negatively because it was believed that they would be used by trade unions as a mechanism to pursue co-ordinated bargaining in both Britain and Europe. An important additional dimension of employer hostility towards pan-European union meetings and European works councils was the notion that such consultative forums were irrelevant and inappropriate given current corporate organisational structures. The brewing/drinks company (H) had works councils in its German business unit but had not participated in pan-European meetings with the relevant trade unions because they drew ’artificial rings around a particular part of (the) company’ and failed to reflect the international scope of the business. Again, the large chemicals company (I) had experienced some pressure from trade unions to establish a European works council but had refused to participate in such a venture. The trade unions therefore held meetings on an annual basis without the presence of management. This employer, in common with company H, believed that European works councils, as well as coordinated bargaining across Europe, was inappropriate given the geographical spread of the business. Indeed, the chemicaldpaints company (E) argued that if they did employ enough European workers to be affected by European legislation, then the business would be restructured so as to evade the requirement to establish such a forum. Employer opposition to European works councils was also attributable to the belief that they would buttress the power of trade unions at (national) enterprise level and enable union representatives to make effective crossnational pay comparisons. Indeed,’ it was commonly assumed that the pan-Europeanisation of trade union organisation would fuel European pay comparability claims through the process of information exchange. Employers, then, were aware of the possibility of new bargaining and comparability


pressures as a result of European integration. There was also evidence that British trade unions were introducing relevant Europeanbased comparisons into their current bargaining demands. However, most employers were reluctant to provide a European forum from which trade unions would be able to introduce such comparisons onto the bargaining agenda, and in this context, viewed European works councils as inappropriate given the international (as opposed to exclusively European) scope of business organisation.

Conclusion This study suggests that the Single Market was having a tangible, if indirect, impact on company pay policies. There was evidence of the extension of companies’ internal labour markets across Europe so as to facilitate comparisons between jobs, and to develop uniform occupational and job classification systems. The standardisation of salary structures across Europe for senior management was clearly connected to the imperative of cross-national labour mobility flows in the context of the Single Market. It was also possible to detect moves towards the Europeanisation of trade union bargaining claims, although there was considerable employer hostility to European-based pay and bargaining comparisons and a generalised reluctance to grant unions a European forum. However, it was not evident from this study that the Single Market had imposed new requirements on multinationals to exert greater central authority over pay determination, as suggested by Shonfield[28]. The majority of firms monitored pay settlements across their European operations and could veto settlements. In addition, there existed formal and informal systems for co-ordinating pay settlements between different European establishments, even though many organisations espoused decentralised bargaining policies for their British and European operations. Notwithstanding these coordination mechanisms, there had not been a uniform move towards tighter central controls over the pay determination arrangements of European subsidiaries in recent years as a direct consequence of the Single Market. It is open to speculation, however, whether the Europeanisation of management structure in a number of companies


will generate long term changes in pay policy in the future. The general manufacturing company was the only organisation which had specifically responded to the Single Market by introducing a European management team to achieve greater production integration. However, it was not envisaged that such integration would generate pressures for convergence of labour relations arrangements or enhanced co-ordination1 centralisation of pay determination arrangements across European operations. Again, there was evidence of corporate head offices, often part of companies operating in the same or closely related industries, becoming both more and less interventionist with respect to the pay policies of their European subsidiaries[29]. It is therefore important not to overplay the linkages between forms of corporate organisation and structure, and pay determination arrangements. At least as far as this study is concerned, multinational employer policies do not seem to be conducive to any radical Europeanisation of labour markets. Indeed, employers were reluctant to integrate fully or co-ordinate their pay structures and bargaining systems across Europe, except for highly mobile senior managerial employees and higher level white collar staff. The lack of convergence of social security, taxation laws and pension provision clearly pose severe constraints on any concerted shift towards the Europeanisation of labour markets. Thus, the prospect of devising a coherent European strategy on pay was considered an improbable development by many employers because of the existence of substantial variations in conditions between European countries. However, there was also a tangible reluctance to give pay determination arrangements a European dimension because of the fear that this was likely to generate new comparability pressures and bargaining claims from the relevant trade unions. In sum, then, the study suggests that British owned multinational companies have, as yet, only made partial and uneven moves towards the Europeanisation of their pay determination arrangements.

Acknowledgements This research was funded by the Leverhulme Trust. Thanks are due to David Spilsbury from IFF Research and Paul Marginson, University of Warwick for making available

P a y policies of British multinationals 95

the sample and survey data on the firms involved. We are also grateful t o S t e p h e n Deery and Peter Nolan for helpful c o m m e n t s on an earlier draft.

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