The Labour Market In Germany
With 83.1 million inhabitants, Germany has the fourth-largest national economy and industrial base in the world, and is the third largest export nation. Germany is renowned for its major companies in the automotive, chemicals and electronics sectors. Among these, Volkswagen, Daimler, BMW (Automotive), BASF (Chemicals) and Siemens (Electronics) are the main global players.
What is less well known is that 61 % of the total workforce in Germany works in Small and Medium-Sized Enterprises (SMEs). SMEs in particular, such as in the mechanical engineering sector, are willing to recruit and are actively looking for staff.
As of July 2022, roughly 45.4 million people were in employment, giving Germany one of the lowest unemployment rates within the EU.
Collective Labour Agreements In Germany
According to data from the Federal Ministry of Economics and Labour, there are about 80,000 industry or company agreements in force. These regulate both general working conditions – such as working hours, bonuses and holiday entitlement – in the form of collective labour agreements (known as "Tarifvertrag”) and the level of wages and salaries in the form of wage agreements.
About 50% of employees are employed under sector-wide collective labour agreements. This share has decreased significantly since the late 90s, when it was closer to two-thirds of employees. Besides these industry-wide labour agreements, there are numerous company-specific pay agreements. These apply to another 7%-8% of employees within Germany.
Wage Setting In Germany
In Germany, wage setting is predominantly decentralised, meaning that it is mainly determined by negotiations between employers and employees, rather than through central legislation. This is achieved through the collective bargaining process between trade unions and employer associations at the industry level. These agreements set minimum wages, working hours, and other terms of employment for the employees covered by the agreement. The system is known as the "tariff autonomy" and it ensures that wage increases are linked to productivity and economic growth, resulting in low unemployment and relatively stable wages. However, in certain sectors without a strong union presence, minimum wage legislation introduced in 2015 provides a minimum wage floor.
The continuing central importance of collective agreements in shaping wage formation in the German economy suggests that negotiated pay rates make an excellent indicator of wage trends and are often used to set salary review budgets for the exempt-population in many firms.
Additional information on budgets - especially for exempt jobs such as subject matter experts, middle and top management levels - can be found in surveys such as Culpepper’s Global Salary Budget & Compensation Planning Survey or Lurse’s Trends in Compensation & HR Report.
Compensation Surveys In Germany
Compensation survey results in Germany provide insights into jobs and salaries. Pay market data helps employers determine and design their compensation strategy.
Finding fair and competitive compensation for employees in Germany does not necessarily have to rely on compensation survey market data, but may also be derived from labour agreements, which will provide employers with insights into quantifiable aspects of compensation such as base salaries, job tenure based increase percentages, starting salaries, allowances and benefits, holiday entitlements and working hours.
The market for compensation surveys in Germany is relatively mature. There are the Anglo-American vendors, as well as some locals (like Kienbaum and Lurse) with employer sourced data, where the strongest report on about 500,000 incumbents.
Stepstone’s brand Compensation Partner on the other hand uses predominantly employee sourced data through portals such as gehalt.de and gehaltsvergleich.com, which are comparable to the business model and data sourcing strategy of salary.com.
Some labour agreements, such as the one for the metal and electronics industry in North-Rhine-Westphalia, are applicable for some 700,000 employees.
The gradar Solution
For companies looking to gain more clarity over their compensation, combining information from labour agreements and market data - supplemented by an internal analysis - makes a lot of sense. gradar is the tool by which to do it.
With our foundation in point-factor based job evaluation, alongside our comprehensive compensation benchmarking functionality, we allow you to establish fair, transparent pay structures under one roof in one consolidated system.
Market data from third-party compensation survey providers can be uploaded to your gradar account - or even purchased as an out-of-the-box feature. Just purchase your gradar licence and pick the data sets you want - it’s that simple!
Data for Base Pay and Target Total Compensation is then displayed on your job profiles and as a detailed report. The system uses the benchmark job code from our job matching module to display job specific benchmark data.
This is the most affordable way to perform a salary comparison against market rates worldwide - and structure effective remuneration systems that set salaries at the most appropriate level.