translated from Spanish: Share in the profit or participate in the decision?

Parliament, on the initiative of Deputy Tucapel Jiménez, is debating a reform of the law on legal collective rewards, that is to say the participation of workers in business profit. This is to be welcomed, as the current system has deviated from the original spirit of the law. However, an essential dimension seems to be missing from the current debates: the participation of workers in decision-making for a good performance of the company.
The term ‘participation’ has a double potential: on the one hand, an alignment of the economic interests of capital and labour, and therefore a salary remuneration that depends in part on the results of the company; on the other hand, a form of dialogue that goes as far as codecision in certain areas, in a sense a political rather than economic participation in the management of the company. The first part, profit sharing, goes in sometimes opposite directions: a) making the collective of workers interested in the profitability of the company, so that it is more motivated by its fate and, therefore, shares the fruits; b) make it share the risks, since in bad times, employees see their salary income decrease. Motivation on the one hand, flexibility for the company on the other.
A long look at social law, especially in post-war Europe where the idea of participation was born, shows that some countries have opted for the first aspect of participation, the link between pay and utility, while others have developed the second, co-decision, as it is called in Germany. France clearly belongs to the first group, since it is the country in the world that has taken the mechanisms for collective distribution of profits the most far, with significant tax advantages; Germany, the Netherlands, Sweden and Austria tend to follow the other pattern. On roughly a scale, the most advanced countries up to co-decision are those with the lowest benefit share, as if both types were substitutable. Entrepreneurs often accept profit sharing only to avoid sharing the decision as much as possible.
What is the situation in Chile?
Today, there is no participation in decision-making in Chile, only monetary participation. The company, on its own initiative, chooses each year between two modalities of annual distribution: an amount of 30% of its profit, or a fixed bonus of 25% of the average monthly salary with a cap. However, 30% of the profit can represent a very large sum, as if the employees held 30% of the capital. Therefore, it is not surprising that almost all companies opt for the fixed bond.
But in doing so, both flexibility and the supposed incentive element are completely lost. In short, with their quarter of the monthly salary, employees receive 2% more throughout the year, which often means a base salary 2% lower over time, because it is the balance between supply and demand that essentially determines the salary, including its ancillary burdens. What a great deal!
The reform bill wants to rebalance things by prioritizing the option of gratification tied to profit, essentially making its amount more acceptable to businesses. The amount that can be distributed to employees is reduced (8%, 10% or 15% depending on the size of the company) and a cap is introduced for what is received individually. It is worth noting the introduction of a very progressive measure for the remuneration paid by the company: the amount that is distributed will no longer be prorated according to salaries, but will be the same for everyone.
But, strangely, a clause already existing in the law (article 48) and very useful that deducted from the profit 10% of the own capital is deleted, representing this 10% in a way a “normal” remuneration of the capital. It is true that 10% was too high in relation to stock market performance (5% would be better), but without this correction unfair distortions are introduced for employees from different sectors. A company that is very capital intensive but has few employees (e.g. Enel) will distribute, with the project under discussion, a considerably higher amount per person than a company with little capital but many employees (e.g. Falabella).
This demonstrates the difficulties of finding a formula that is both simple and universal. One solution is to leave the choice of mechanism to the company and its internal actors, but this presupposes a strong tax incentive forfor the company to accept it, and therefore an additional exemption.
But is this really the solution?
Why do we remain dissatisfied with a reform that is, in any case, heading in the right direction? There are three reasons:
1- Empirical studies have difficulty in demonstrating that this type of reform has positive effects on the total salary (fixed + variable) of employees. The best performing companies show higher participation, but where is the causality? What is the end effect? This depends on the bargaining power of the workers and the proportion of those who earn the minimum wage. For example, the share of gross wages in oecd countries’ national income has been steadily declining, whether or not there is participation. In fact, an increase in total remuneration would be necessary on the contrary to compensate for the capitalist risk again assumed by the employee with a variable bonus.
In reality, utility sharing is simply a part of the salary in the broad sense. Human resources departments know very well how to present the “package” that the company offers when negotiating the initial salary of an employee.
2- On the other hand, the studies seem to agree on a (small) positive effect of financial participation on productivity. But they also show that this effect is much stronger when employees are well informed and involved in the company’s project, that is, when there is a certain first degree of co-decision. It is easy to understand the reason: for the worker, the bonus, fixed or variable, is part of the things that usually happen, without it being convenient for him to establish a link between collective effort and financial performance. This contrasts with individual bonuses, which are often discussed between the employee and his or her hierarchy.
3- Finally, isn’t the motivating effect counterproductive? As a responsible employee who enjoys my job, would I work less well and less with others because the year’s profit has gone down, and better if it’s gone up? It’s almost the opposite incentive I’d like to see: pay more when things go wrong and we want to motivate, which is exactly what happens with dividends, whose share of the profit goes up when it goes down. Why is there a different motivational logic of the shareholder and the employee when it comes to associating both more?
Employees need to have more of a voice in the company
It is plausible that the effects of productivity and motivation come more from a takeover of responsibility in the company (which in no way means diminishing the hierarchical relationship) than from an income linked to profits. This is where the legislative effort must be focused.
Why is there not a workers’ council in Chile, that is, a place where staff representatives meet, are informed and consulted? Why this union fragmentation and these rigid rules that play to set the categories of staff against each other? Gabriel Boric has caused a stir in some circles by proposing a German-style system for large companies in which employees have half the votes on the boards. It’s probably more of a direction than an immediate jump, but it’s the right direction. It is the right lever to improve the social climate and make social relations in companies less formal, less staky, more reliable. By giving more responsibility, people become more responsible. It has a name, democracy, and it’s hard to see why it should stop at the company’s doors. Legal gratuities cannot replace this necessary debate.

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Original source in Spanish