Europe : the growth of bonuses exacerbates wage inequalities

Bonuses are becoming more and more widespread in Europe and augmenting already existing inequalities. This is what a study carried out by the European Trade Union Institute (ETUI) has highlighted. Although significant disparities exist between EU countries, variable compensation elements have risen, on average, from one-fifth in 2000 to more than one-third today and “tend to be more important than the differences in basic salaries,” notes Wouter Zwysen, a researcher at the ETUI and author of the work. Generally speaking they are greater in central and northern Europe (e.g., Czech Republic, Slovakia, Estonia, Poland, Finland and Denmark) and somewhat lower in southern countries (Cyprus, Portugal, Greece). Using data from mainly three sources (the European Working Conditions Survey (EWCS), the Structure of Earnings Survey (SES) and the OECD Employment Protection Legislation Index for workers on regular contracts), Wouter Zwysen estimates that total wage inequality would have been more than 6% lower without the use of performance-related pay. The study finds that these bonuses are primarily given to the most qualified workers and those on standard employment contracts rather than to those who work shorter hours or are on temporary employment contracts. Indeed, their total compensation amount can be as much as 7 to 9 percent higher than that of their colleagues in similar positions. The study also found that women receive bonuses that are on average 10% lower than those of men. The study nevertheless indicates that stronger employee representation contributes to a 3.5% decrease in this inequality in performance-related pay. The ETUI thus highlights the fact that it is “possible to set earnings in a way that rewards effort or shares rents at firm level without increasing inequality.”