President′s Idea of Profit-Sharing Finds Takers | Business| Economy and finance news from a German perspective | DW | 29.12.2005
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President's Idea of Profit-Sharing Finds Takers

German President Köhler has proposed allowing employees a direct share in company profits. The suggestion has resonated among policy makers and certain sections of the labor unions.


The idea comes at a time when companies like Deutsche Telekom are cutting jobs

Stakeholder culture and stock options are a part of mainstream corporate culture in Britain and the United States, but not in Germany. The fact that the country's president feels the need to draw attention to the topic is a sign of how far Germany has yet to go along this road.

After all, Horst Köhler is not only Germany's president, he is also a former head of the International Monetary Fund and, as such, is well-versed in the rules of the marketplace.

Horst Köhler in der Knesset

Köhler's comments have triggered debate in Germany

While Germans have high gross wages, their net pay turns out to be below the level in a large number of other OECD member states, which has a negative impact on domestic consumer spending, according to Köhler. He favors letting employees have a slice of company profits by paying them partly in company shares, the president told newsmagazine Stern this week.

He said he deplored the widening gap between rich and poor and suggested that employees be offered access to equity in their company at favorable conditions so they, too, would get a share of the profits.

"The time has come for once again debating profit-sharing for employees or their involvement in the company's productivity," Köhler said. In an era of globalization, employers and employees had to realize "that within the company, in light of global competition, they are in the same boat," he added.

Köhler also urged employees to offer more traineeships and came out in favor of subsidizing low-wage jobs and providing unemployed people with a minimum income.

"Worth thinking about"

Köhler's comments have taken many by surprise since German presidents are traditionally expected to be above the rough and tumble of day to day politics.

Social Democratic party Secretary General Hubertus Heil said he didn't object to Köhler voicing his proposals about labor policy.

"It's necessary and important that the president provides some creative input for controversial public debates," Heil said. "This is how we understand his remarks, and we'll certainly discuss them in great detail.”

The Christian Democrats' finance spokesman, Michael Meister, said his party has been in favor of copying aspects of Anglo-Saxon share culture for a long time. It could take the sting out of the often very embittered wage negotiations between labor unions and employers, he posited.

"We certainly want employees to have a direct share in company profits," Meister said. "Capital gains made from holding equity would be part of a pension plans. Normally, possessing such shares is much more profitable than just putting your money on a savings account. So, it's really an idea worth thinking about."

Misgivings too

But the president's proposal has also sparked skepticism. The head of the powerful IG Metall trade union, Jürgen Peters, said the idea is too risky to be taken seriously, unless there is proper protection against losses.

Warnstreik VW Wolfsburg

Volkswagen employees and IG Metall members during a warning strike in Wolfsburg

"If part of your earnings are paid out in the form of company shares, you don't really gain greater influence on strategic in-house decisions," Peters said. "However, if management takes a string of wrong decisions, employees will be forced to live with the consequences. They would not only lose their jobs, but also the money they had invested in shares," Peters added. "That's not a good idea at all."

However, other labor leaders aren't so pessimistic. Many back Köhler's vision of providing everyone with a minimum income and subsidizing low-wage jobs so that those who are working in them, are actually able to live on what they earn. Such subsidies, the president argued, make perfect sense economically, because they would mean the state would have to pay out less in unemployment benefits.

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