The Sense and Nonsense of Collective Agreements

And yet, for as long as I can remember in my professional life, I have heard managers voice the same complaint: the system is too rigid.

Employees ask for higher pay. Managers might like to reward exceptional performance financially – but can only do so to a limited extent. And this is where a tension begins that runs through many organisations bound by collective agreements.

Where collective pay systems reach their limits

In practice, the pain points are often similar:

• Individual salary negotiations are possible only to a very limited extent.
• Exceptional performance can often only be rewarded financially within narrowly defined limits.
• Depending on the collective agreement and co-determination framework, performance bonuses are tied to requirements, procedures and approvals.
• Allowances can effectively lose significance or be “absorbed” by later collective pay increases.
• Individual incentives are limited or of a magnitude that employees do not necessarily perceive as genuine recognition of exceptional performance.
• Managers find themselves in the uncomfortable position of acknowledging performance without always being able to attach a corresponding financial consequence to it.

This can be frustrating – on both sides.

It becomes particularly difficult when employees initially experience additional financial recognition as appreciation of their performance, and this advantage then shrinks over time. After all, these employees are affected by rising living costs, too.

Anyone who gains the lasting impression that additional effort makes little or no financial difference will at some point ask themselves:

Why should I keep going the extra mile?

Without a collective agreement is not automatically better

Employers not bound by collective agreements have considerably more room to manoeuvre. They can design salaries more individually, respond faster to market changes and reward exceptional performance in a more differentiated way.

But this freedom has a downside.

Because where individual salaries emerge, differences quickly emerge too – and with them, questions:

With growing requirements for pay transparency, this very question is becoming even more important.

Companies without collective agreements therefore need something no collective agreement will provide for them: a comprehensible, robust and consistent pay system.

Otherwise, flexibility quickly turns into perceived arbitrariness.

So: which is better?

Perhaps that is the wrong question.

Because neither collective bargaining nor its absence automatically solves the actual problem.

First of all, the pay has to be right.

But what does “right” actually mean?

People – consciously or unconsciously – run a kind of cost-benefit analysis of their employment:

What do I put in – and what do I get in return?

On one side are life energy, time, commute, responsibility, stress, physical or psychological strain, flexibility and performance.

On the other side are salary, security, working conditions, development opportunities, recognition, scope for shaping one's work, collaboration and leadership.

From the employee's perspective, both sides must be in reasonable proportion.

If this match is fundamentally missing, the fruit basket, the team event, the health programme and the next motivation initiative will not create lasting enthusiasm either.

Drawing on Herzberg's two-factor theory, pay can be seen as a hygiene factor: it does not automatically create motivation – but pay perceived as inadequate can cause considerable dissatisfaction.

And that is exactly why we should not pretend that money doesn't matter.

First the foundation. Then motivation.

Especially in organisations bound by collective agreements, this means first of all:

Handling recruitment professionally and clarifying expectations early on.

If it already becomes clear during the application process that a person's financial expectations and what the position can offer will remain permanently apart, we should take that seriously.

It’s not a match – don’t hire.

Because a structural mismatch is hard to repair later through good leadership.

It is equally important to assign pay grades correctly and fairly, and to review positions continuously.

Tasks change. Responsibilities grow. Organisations evolve. That is why job descriptions should also be reviewed regularly and – where objectively necessary – adjusted and re-evaluated.

And when an employee aims for a higher pay grade or a development step that requires certain qualifications or prerequisites, clarity is needed:

What exactly is required to take the next step?

Which qualification is required? What time investment does it involve? What can the employer make possible – and which part does the person need to take on themselves?

For me, this too is part of fair people management.

And then comes leadership

Once pay and conditions are fundamentally right, the area begins in which organisations have considerably more room to shape things.

Because people do not work for money alone.

They want to experience that their work is meaningful. That their performance is seen. That they can have influence. That expectations are clear. That decisions are made transparently. That development is possible. That collaboration works. And that their manager recognises their contribution.

This is where one of the greatest levers of our working world lies: leadership behaviour that fosters motivation.

Good leadership cannot permanently compensate for inadequate pay.

But when the foundation is right, leadership plays a major part in determining whether people actually want to bring in their abilities, take on responsibility, develop and remain loyal to an employer.

Employers who have understood this therefore invest systematically in developing their managers.

Not because leadership training is “nice to have”.

But because poor leadership comes at a price.

Turnover costs. Loss of performance costs. Absenteeism costs. Vacant positions cost. Quiet quitting costs.

And especially in economically challenging times, organisations can hardly afford to lose existing potential through avoidable leadership deficits.

Collective agreement or not?

Both have strengths. Both have limits.

For me, the more decisive question is therefore:

Have we designed the conditions so that people want to contribute their performance in the first place – and do we then lead them in a way that allows motivation, commitment and performance to emerge?