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International Human Resource Management and International Labour PDF
International Human Resource Management and International Labour PDF
by
Prof. Dr. habil. Wilhelm Schmeisser,
Univ.-Prof. Dr. Dieter Krimphove
and
Dipl.Kffr. (Univ.) Rebecca Popp
with the collaboration of
Kristin Kirchhoff, Martin Schuster, Edith Teschner,
Susan Burghardt, Lydia Clausen, Alexa Hellweg,
Daniela Liersch, David Luwisch, Bettina Pape,
Cornelia Pape, Karin Peters, Katja Schneider,
Anja Seifert, Daniela Woitok
Das Werk einschlielich aller Abbildungen ist urheberrechtlich geschtzt. Jede Verwertung
auerhalb der Grenzen des Urheberrechtsgesetzes ist ohne Zustimmung des Verlages unzulssig
und strafbar. Das gilt insbesondere fr Vervielfltigungen, bersetzungen, Mikroverfilmungen
und die Einspeicherung und Bearbeitung in elektronischen Systemen.
ISBN 978-3-486-71649-8
eISBN 978-3-486-72119-5
Authors list
Wilhelm Schmeisser, Prof. Dr. habil., holds the chair of
business administration. He is a director and speaker of the
Kompetenzzentrum Internationale Innovations- und Mittelstands-
forschung (Competence Centre for Innovation and SME Re-
search), Berlin, as well as of the Forschungsstelle Europisches
Personalmanagement und Arbeitsrecht (Research Centre for
European HR Management and Industrial Law, EPAR) at the
University of Paderborn.
OUR PRODUCTS
Controlling and Berliner Balanced Scorecard Approach
Berliner Human Resources Evaluation Model
Innovation Performance Accounting
Financing Decisions and Risk Assessment of Innovation Processes
Technology Management
OUR SERVICES
Evaluations of strategies
Calculations and approaches to innovation evaluation
Managing Human Resources: Financial Approach
Email: [email protected]
www.mittelstandsforschung-berlin.de
Preface
On International Management and also on International Human Resource Managements
there is from the point of view of behavioral science an almost unmanageable amount of
literature. Common topics are personnel recruitment, staff selection, personnel development,
international assessment centers and reintegration issues for delegated persons. It is almost
impossible to develop and write a fundamentally innovative textbook in this genre. Looking
at the daily business of business managers and lawyers who work in the field of international
personnel management and international labor law of a company makes clear that their
activities are not only coined by classical personnel functions, but also by international
design of contract, international remuneration systems with stock-option programs, social,
pension and other insurance issues for delegated persons, international human resource
controlling and international human resource information systems, diversity management in
Europe and world-wide as well as European Labor Law, if applicable supported by first
country studies.
One will try in vain to find all those contents in one textbook on International Personnel
Management. This is mainly due to formation problems of Human Resource staff that have
not learned their competence field from a classical business managerial, especially finance-
oriented and including legal point of view. In order to close this research and educational gap
and to support students but also practitioners in this field with a textbook, this textbook was
created.
The authors
Contents
Authors list V
Preface IX
1 Introduction 1
6 Conclusion 12
Literature 13
XII Contents
Literature 25
Annex 28
Literature 119
IV Delegations and their consequences for labor, tax and social security law
aspects 127
18 Conclusion 151
Literature 152
Literature 158
Literature 191
30 Basics 196
30.1 Architectonic basics ............................................................................................... 196
30.1.1 Architecture............................................................................................................ 196
30.1.2 System architecture ................................................................................................ 197
30.1.3 Layer model ........................................................................................................... 197
30.1.4 Implementation ...................................................................................................... 198
30.2 Organizational basics ............................................................................................. 199
30.3 Legal basics............................................................................................................ 200
30.3.1 Data protection....................................................................................................... 200
30.3.2 Co-determination ................................................................................................... 200
30.3.3 Equal treatment ...................................................................................................... 200
30.3.4 Data transfer........................................................................................................... 201
30.3.5 Remuneration accounting....................................................................................... 201
32 Conclusion 208
32.1 Opportunities..........................................................................................................208
32.2 Risks.......................................................................................................................208
Literature 209
35 Scouting 222
35.1 Scouting through university presence ....................................................................222
35.1.1 Concentration on selected disciplines and universities ..........................................222
35.1.2 Personalization and differentiation of offers ..........................................................222
35.1.3 Use of multi-step programs ....................................................................................223
35.2 Scouting via graduate-oriented measures ...............................................................224
35.2.1 Graduate fairs .........................................................................................................224
35.2.2 Graduate Workshops ..............................................................................................225
35.2.3 On-Campus-Recruiting ..........................................................................................225
35.3 Future perspectives of Scouting .............................................................................226
Literature 239
Literature 254
45 Arrival of the Europeans and development of the partitioning of the land 256
47 Religion 260
48 Culture 261
Literature 277
Literature 308
59 Conclusion 369
Literature 375
Art. article
comp. compare
DP data processing
EC European Community
EC Employee Capacity
ECHR European Convention on Human Rights
etc. etcetera
fig. figure
HR Human Resources
mn marginal note
N, n number
p. page
sec. section
subs. subsection
tab. table
USD US-Dollar
vol. volume
1
Regnet/Hofmann, 2000, p. 43, own translation.
2 I Globalization strategies
However, not every internationally active company has to have a special department for
international personnel management. Depending on the kind and intensity of the companys
activities abroad the HR management is adjusted to the cooperating foreign partner. In case
of a cooperation, the influence on personnel management by the foreign cooperating partner
2
Comp. Schmeisser, 2008 as well as Schmeisser/Clausen, 2009
3
Wolf, 1994, p. 2, own translation.
3 Problems and aims of international HR management 3
is only limited or even inexistent. If a Joint Venture is concluded with a foreign partner, the
national personnel management is only influenced in the case of staff exchange.4 In case of a
buy-out of a company abroad, however, the national company can determine the
management of the foreign office via the corporate structure. The same happens in case of a
foundation of a new subsidiary abroad.
In this case the International Human Resource Management is influenced by the local
country cultures (comp. country research, e.g. South Africa) as well as by country specific
personnel management systems. Also the strategy of internationalization and the
management system of the company and the company culture play a role.
The international human resource management can be distinguished from the national human
resource management by the following factors:
bigger amount of activities,
global perspective,
consideration of privacy of employees,
more risks in Corporate Governance and Compliance Management,
consideration of different economic, legal and cultural conditions and factors and
attempt of non-discrimination of different nationalities through diversity management.5
4
Comp. Drumm, 2008, p. 625
5
Comp. Bartlett/Ghoshal, 1990, p. 99 et seq.
4 I Globalization strategies
order to avoid misunderstandings and failures. Besides, the delegated employees are required
to have the capacity to react flexibly to challenges.6
The international personnel management also has to consider social targets besides the HR-
related support of the whole company when striving for economic and profit aims. The legal
minimum requirements are different in every country (e.g. minimum wage). Furthermore,
international personnel management contributes to the creation of a uniform identity of the
company at home and abroad by the unification of the frame of action of personnel
management within the frontiers of governing law.7
6
Comp. Regnet/Hofmann, 2000, p. 261
7
Drumm, 2008, p. 628, own translation.
8
Kumar/Wagner, 1998, p. 5, own translation.
4 Options of personnel policy in international personnel management 5
high
Forces of
global
integration
low
low Forces of high
country-specific
adjustment
As can be seen in Fig. 4.1., the different models can be differentiated by the degree of global
integration and local adjustment.
9
Comp. ibid., p. 5
6 I Globalization strategies
necessary to adjust the personnel management to the frame conditions of the country in
question. Due to the differentiated adjustment it becomes difficult to implement standardized
actions in the corporation. Personnel related problems are solved independently and without
connection to other corporate parts in the local offices.10 Thus, central coordination in the
main office is not necessary.
5 Internationalization strategies
in personnel management
Company aims, strategy and company culture have to be adjusted to the requirements of
internationalization and globalization of the individual company, taking the companys
historical development, the company structure and the national and international sector-
10
Comp. Kumar/Wagner, 1998, p. 6 et seq.
11
Ibid., p. 6, own translation.
12
Ibid., p. 6
5 Internationalization strategies in personnel management 7
13
Regnet/Hofmann, 2000, p. 40, own translation.
14
Comp. the Perlmutters E.R.R.G. categorization quoted from Perlitz ,1995, p.142 et seq.
15
Comp. Scholz, 2000, p. 96
16
Comp. Scholz, 2000, p. 97
8 I Globalization strategies
organizations are different and independent from each other. Multinational companies chose
this strategy for their personnel management.
The disadvantages of the ethnocentric strategy are equal to the advantages of the polycentric
strategy. Only small remuneration costs result, because delegation costs do not apply and the
employees of the subsidiary have enough possibilities of promotion, because the leading
positions are filled in with employees of the individual subsidiary. Besides, communication
problems of the employees of the subsidiary in the host country are avoided. On the other
hand there are communication problems with the head office, because there is often a
language barrier. Besides, conflicts between the ideals of the individual subsidiaries can
arise. A further problem can be the recruitment of specialized and executive staff. As every
country searches its own executive staff higher searching and placement costs can be the
result.17
17
Comp. ibid., p. 97
18
Comp. Scholz, 2000, p. 99
5 Internationalization strategies in personnel management 9
Monocultural Strategy
Multicultural Strategy
Mixed-cultural Strategy
In the case of the monocultural strategy, the company culture of the head company is
transferred to the subsidiary abroad. The head office considers its own company culture as
superior to the foreign one and takes care that a company culture which is identical to the one
of the head office is created in the foreign subsidiary.20
The multicultural strategy, in contrast, is characterized by the fact that the subsidiaries
develop their own company cultures and adopt them to their individual country cultures. This
means that it is possible that the subsidiaries have a company culture which is completely
different from the one in the head office. However, generally, the main features of the head
office are also recognizable in the company culture of the subsidiary.
It is called strategy of mixed cultures when cultures of the subsidiary and the head company
are mixed and a homogeneous company culture is created. Because of the influence of the
country culture on the subsidiaries a culture results which matches at least to a certain degree
each individual country culture.
The choice of the cultural strategy has direct effect on the individual tasks of human resource
management. In the area of human resource development an appropriate choice of
development measures has to be made in the case of the monocultural strategy. A job
rotation is only possible between the head office and the subsidiary. In the case of the
multicultural strategy, however, one has to keep the qualification level of employees all
19
Comp. ibid., p. 99
20
Comp. ibid., p. 98
10 I Globalization strategies
around the world in mind. There are only few possibilities of rob rotation in case of this
strategy, because every subsidiary has its own culture. The mixed-cultural strategy on the
other hand is very appropriate for a systematic job rotation for the integration of employees
across all companies.21
In the case of the central structure there is a parent company where all important decisions
are taken.23 These decisions are then transferred to the subsidiary through exact hierarchies
and the abandonment of autonomy.
The local structure is characterized by free and independent decisions. However, the parent
company still provides guidelines which are binding for the subsidiary. In extreme cases it
is even possible that the subsidiary defines own targets which need only to be approved by
the parent company.24 Through individual decisions the subsidiaries negotiate their
relationship themselves. The result is a partnership of convenience where important aspects
are agreed upon.
21
Comp. Scholz, 2000, p. 100
22
Comp. ibid., p. 101
23
Comp. ibid., p. 100
24
Scholz, 2000, p. 101
5 Internationalization strategies in personnel management 11
decision
strategy
Alternative 1 combines the monocultural strategy with the central decision strategy, which
means that all decisions are taken within the head company and from there jointly taken to
the different subsidiaries.26 Variant 2 is different: In this case a central structure exists, too,
but in combination with the multicultural strategy, which accepts different company cultures.
This internationalization strategy is applied when a company is active in different country
cultures and wants to avoid problems of a inflexible culture.
25
Ibid., p. 102, own translation
26
Ibid., p. 101, own translation
12 I Globalization strategies
Only alternative 3 can be realized on a long term basis, i.e. the combination of the central
structure with the strategy of mixed cultures. In this case there is a uniformly defined
decision center in the corporation. However, through the multitude of merger processes a
company culture is created which consists of the different partial cultures. [].27
Alternative 4 is characterized by a local decision strategy. It is true that in case of the local
solution, there are several decision centers, but there is always one which disposes over
some more power at least.28 Exactly this characteristic can be observed in the fourth
alternative, in which the company culture of the lead company is transferred to the
subsidiaries. In the case of alternative 5 the company culture is mixed with country specific
characteristics. Alternative 6 leads to the formation of a totally new company culture, as the
subsidiaries contribute the respective cultural characteristics. Alternative 7 is a combination
of the federal decision strategy and the monocultural strategy, which means that there is no
single decision center and one has to assume that a company disposes of a dominant
company culture because of coincidence.29 In alternative 8 different decision strategies
with different company cultures exist which jointly try to solve problems.30 Alternative 9
makes the adaptation of company cultures possible.
6 Conclusion
More and more companies will have to seriously think about how to reach their financial
and performance oriented aims more effectively abroad.31 In order to reach these aims it is
also essential to dispose over a personnel management oriented towards the strategy of the
company, because a good personnel management will only have success if the cultural, legal,
technical, economic and ecological conditions of the host countries are analyzed and taken
into consideration for the creation of personnel management strategies and measures. 32
This leads to a change of the quantitative and qualitative labor supply with regard to
regional and structural aspects:
labor supply grows,
labor supply develops differently from region to region due to different birth rates
27
Scholz, 2000, p. 102
28
Ibid., p. 102, own translation
29
Ibid., p. 103, own translation
30
Ibid., p. 103, own translation
31
Wolf, 1994, p. 6; own translation.
32
Wolf, 1994, p. 7; own translation.
6 Conclusion 13
Literature
Bartlett, Ch. / Ghoshal, S.: Internationale Unternehmensfhrung. Frankfurt on Main/New
York 1990.
Drumm, H.-J.: Personalwirtschaft. 6th edition, Springer Verlag, Berlin 2008.
Kumar, N. / Wagner, D.: Handbuch des Internationalen Personalmanagements. Verlag C.
H. Beck, Munich 1998.
Regnet, E. / Hofmann, L. M. (ed.): Personalmanagement in Europa. Verlag fr Angewandte
Psychologie, Gttingen 2000.
Schmeisser, W.: Finanzorientierte Personalwirtschaft. Oldenbourg Wissenschaftsverlag,
Munich 2008.
Schmeisser, W. / Clausen, L.: Controlling und Berliner Balanced Scorecard Ansatz.
Oldenbourg Wissenschaftsverlag, Munich 2009.
Scholz, C.: Personalmanagement. 5th edition, Verlag Franz Vahlen, Munich 2000.
Stahl, G. K. / Mayrhofer, W. / Khlmann, T. M. (ed.): Internationales
Personalmanagement neue Aufgaben, neue Lsungen. Rainer Hampp Verlag,
Munich and Mering 2005.
Wolf, J.: Internationales Personalmanagement Kontext, Koordination, Erfolg. Gabler
Verlag, Wiesbaden 1994.
33
Ibid., p. 5, own translation.
II International remuneration
system
The task of international personnel management is to organize the company policy and, thus,
the remuneration system in a uniform way for employees from different countries and with
different cultural backgrounds.
The assignment of employees beyond the frontiers of the lead companys country is an
important instrument, in order to cope with this task. These assignments can be limited or
unlimited. Among the limited assignments are business trips, secondments, delegations,
deployments and dislocations, which are different with regard to the duration of the
employment abroad. In the case of unlimited assignments a local work contract exists. The
employee is not contracted by the home company but completely integrated in the foreign
enterprise.
If an employee is sent abroad for a medium term, this is referred to as secondment. If the stay
abroad is shorter, it is called business trip, in the case of longer assignments the
nomenclature would be dislocation.34
Also when an employee from a foreign company is contracted by the home country for a
limited period of time, this is called a secondment.
The delegating company follows different aims with regard to international personnel
management. These can be divided into three categories:35 On the one hand know-how is
transferred between the companies, on the other hand the company units at home and abroad
are easier to coordinate and control. Finally the aspect of personnel development is an
important aim of international assignments.
34
Comp. Haufe Personal Office Online, 2009
35
Comp. Schmeisser, 2008, p. 255
16 II International remuneration system
36
Comp. Brinkktter, 1997, p. 413
37
Comp. BASF The Chemical Company, Globale Prsenz, 2007
38
Comp. BASF The Chemical Company, Mitarbeiter in den Regionen, 2007
39
Adapted from: BASF The Chemical Company, Mitarbeiter in den Regionen, 2007
7 International delegation of executive managers exemplified by BASF 17
In 2007 the BASF spent 6,648 million Euros on personnel expenses and social contribution,
which includes salaries, social security payments, old age contributions and social support.
The amount has grown by 7.1 percent compared to the year 2006 (see table 7.1). The BASF
offers a market-conform, attractive remuneration to its employees, as the remuneration is
combined to social contributions, which are for example an additional health insurance, a
company pension scheme and stock purchase programs.40
Variation in
Remuneration components m. EUR
percent
Wages and salaries 5,379 6.9
Social security taxes and old age provision and support 1.269 7,5
of which old-age provisions 359 25.1
Personnel expenses 6,648 7.1
40
Comp. BASF The Chemical Company, Mitarbeiter in den Regionen, 2007
41
Adapted from: BASF The Chemical Company, Mitarbeiter in den Regionen, 2007
42
BASF The Chemical Company, Diversity, 2007
18 II International remuneration system
71 percent. In comparison, in 2003 it was only 64 percent.43 This shows that deployments
abroad are becoming more important. One has to take into consideration that the
deployments abroad do not only take place from or to Germany, but also between
subsidiaries, e.g. between Great Britain and Singapore or between Belgium and Brazil.44
In practice the BASF The Chemical Company uses three standardized contracts; the first
contract the so called delegation contract regulates the relation between the delegated
person and the home company.
In the second contract the labor relations between the receiving company and the delegated
person are set down. The third contract contains arrangements between the home company
and the receiving company which are made for the delegation. In the case of a delegation
contract the original labor contract of the delegated employee with the home company is not
43
Comp. BASF The Chemical Company, Diversity, 2007
44
Comp. Brinkktter, 1997, p. 414
45
Comp. ibid., p. 414
46
Comp. ibid., p. 414
7 International delegation of executive managers exemplified by BASF 19
annulled, but put at rest for the duration of the delegation. Thus, the expatriate has the right
and the duty to return.47
BASF guarantees a certain living standard in the country of delegation to the delegated
person, which is based on the net earnings of the employee in the home country and
guarantees a delegation bonus on top.
The delegated person is integrated into the salary structure of the country of delegation
as far as possible, with the corresponding job market as basis. If the net living standard
is not reached, necessary supplementary salary components are added.
The company bears the risks with regard to changes of external conditions regarding the
net living standard
This is guaranteed by
- determination of earnings abroad (before leaving)
- regulation of earnings (yearly revision/ adaption)
- analytical follow-up (after the end of the year/ of the delegation) valid within BASF
group.
The personal situation of the employee is taken into consideration under individual
aspects (e.g. family status, number of children, tax class, salary) as well as under global
assumptions (domestic circumstances, attitudes of consumption) under protection of
privacy
The components of the salary system as well as the parameters of the frame conditions
are transparent and explained. The sheets of calculation are provided to the delegated
person.
The exercised systems and parameters are uniformly valid for all delegated persons and
are not subject to negotiations.49
47
Comp. Brinkktter, 1997, p. 415
48
Comp. ibid., p. 429
49
Comp. ibid., p. 429
20 II International remuneration system
Regular payments are added to the salary, as described in the following chapters. Variable
payments, e.g. bonuses, are only added in the context of the analysis.50 Taxes and social
contributions are deducted from the reference earnings. The personal tax characteristics, e.g.
tax class and number of children, of the income tax card are the basis for the tax calculation.
The church tax paid before the delegation is not deducted, but only displayed for
information, because this is a personal decision of the employee. This approach is not
influenced by the German peculiarity that the church tax has to be deducted by the employer.
The voluntary payment should not lead to a net cutting for the company and, thus, represent
a disadvantage of expatriates. After this, the employees contribution to employees
insurance, unemployment insurance, company old age provisions (pension fund) and general
contributions to health and long-term care insurance are deducted. Moreover the generalized
market rent of the hometown is deducted from the reference earnings after taxes. The
resulting value is the basis for the net living-standard that has to be guaranteed in the
country of delegation and is the reference figure for the increase for delegation, which is
determined afterwards.51
Home country
Reference salary EUR 177,777
+ Other earnings (fix) EUR 0
+ Bonus (variable) EUR 0
= Gross reference earnings EUR 177,777
Income tax EUR 39,040
Solidarity surcharge (Germany) EUR 2,928
= Reference earnings after taxes EUR 135,809
Employees insurance EUR 9,216
Unemployment insurance EUR 3,120
Pension fund EUR 3,556
Health insurance EUR 4,284
Long-term care insurance EUR 486
Market rent in home country (general) EUR 23,400
= Available after rent EUR 91,747
50
Comp. Brinkktter, 1997, p. 429, 431
51
Comp. ibid., p. 431 et seq.
7 International delegation of executive managers exemplified by BASF 21
52
Adapted from: Brinkktter, 1997, p. 432
53
Comp. ibid., p. 415 et seq.
22 II International remuneration system
The single criteria have to be attributed to the countries in question. They are determined on
the basis of the circumstances in the country by international advisors and in accordance with
a point system. This way, it can be guaranteed that well-founded values are compared.54 This
is an important aspect to be able to take the different circumstances into consideration in the
case of international delegations. Delegations from a developing country to an industrial
country entail not only better living and working conditions, but also a considerable
adjustment and difficulties because of cultural differences. The balance of advantages and
disadvantages with regard to the comparison of living and working conditions in the home
country in comparison with those of the country of delegation lead to a certain value of
complication. This value is different in every case, because every executive perceives and
evaluates individual elements differently depending on age, family status and personal ideal.
E.g. a family with children puts more emphasize on the school aspect than singles. Culture
and sport enthusiast attach special importance to leisure time activities.55
Regardless of the emphasis on certain criteria, the general coherence of the individual
attributions has to be taken into account. Therefore, the BASF uses a ten-stage system, which
allows a necessary and sufficient differentiation. The countries of delegation presented in
table 7.6. which result at the end of 1996 on the basis of objective criteria and after an
examination of coherence, are differentiated in accordance with a ten-step system, with
Germany as home country basis.
Differentiation Countries of delegation
1 Austria, Switzerland
2 Belgium, Portugal, USA, Australia
3 Malaysia, Singapore, South Africa, Uruguay
4 Costa Rica, Hong Kong, Poland, Tokyo
5 Rio/Sao Paolo, Indonesia, Mexico City, Istanbul
6 Egypt, Bombay, Rumania, Beijing
7 Bogota, Mangalore, Petersburg, Nanjing
8 Banglad., Karachi, Minsk, Teheran
9 Ethiopia, Libya
10 Algeria, Nigeria
54
Comp. Brinkktter, 1997, p. 418
55
Comp. ibid., p. 418
56
Adapted from: Brinkktter, 1997, p. 419
7 International delegation of executive managers exemplified by BASF 23
If, however, the delegated person comes from another country, as for example the USA,
other classifications would result. This means that the degree of complication of going to e.g.
Malaysia is different to the one presented above.57
For several years the aspect of differentiation with regard to family status has been discussed
in many companies. The main argument of such considerations is that today often both
partners are working and that the partner of the delegated person would give up his job or
career. Several companies disapprove this differentiation, because the delegating company
has a contractual relationship only with the expatriate and not with his husband or wife. The
BASF, on the other hand, considers it appropriate to take the family status and size of family
into consideration in many ways. This can be seen in the salary determination on net basis by
determination of the corresponding tax class and deductions, in the regulations regarding
homeward flights with tickets for all family members, in the allowances to rent and private
health insurance and the refunding of school costs and language courses.
If however, the environment in the country of delegation changes, corresponding corrections
should be made. In case of deterioration of the conditions in the country of delegation it
makes sense to concede higher allowances on the key date also to employees who have
already been sent abroad. Even if the employee has lived and worked under bad financial
conditions before, the objective new evaluation of the country should lead to higher
allowances out of fairness reasons. If the contrary is the case, i.e. if the situation of the
conditions in the country of delegation improves, the new evaluation on the key date is valid
for new delegates only. The situation improves if safety or supply aspects improve or a
school which leads to a general qualification for university is built. The question is whether
this is valid for already delegated employees. For reasons of protection of trust it seems
justifiable to maintain the delegation bonus.
In Europe, also for executive managers an international labor market with more preparedness
to move has developed because of strong economic interdependences. For that reason several
companies have renewed and reduced their allowances within Europe. Since 1994 the BASF
has paid a one time allowance, which is paid at the beginning of the delegation for four years
instead of the yearly complication bonus. Married employees receive two net salaries and for
every child coming to the country of delegation a quarter of the salary is paid.
The mobility bonus, which depends on the country of delegation and the reference salary, is
higher for executive managers than for other employees, because they usually earn higher
salaries.
The delegation bonus is the sum of mobility and complication bonus. Table 7.7 shows that
when comparing different salaries and country hierarchies the delegated executive is
relatively seen not paid too much despite the higher total bonus in absolute numbers.58
57
Comp. ibid., p. 419
58
Comp. ibid., p. 422
24 II International remuneration system
12 T 32 T + 5 T 6 T = 17 T 38 T
12 T 32 T + 5 T 15 T = 17 T 47 T
The market rent takes into account that a co-contribution for the rented apartment in the
country of delegation has to be made and sometimes a housing allowance has to be granted
by the company. The amount of housing allowances depends on a fixed rent limit, which is
59
Following: ibid., p. 422
60
Following: Brinkktter, 1997, p. 423
7 International delegation of executive managers exemplified by BASF 25
calculated in collaboration with the local advisors. The amount which exceeds the limit as
well as the ancillary rental receivables are paid by the delegated employee.61
Literature
BASF The Chemical Company: Diversity, 2007, URL:
http://www.corporate.basf.com/de/sustainability/mitarbeiter/diversity.htm?id=kJKV
1C_XJbcp*OB
Status: 08 July 2008.
BASF The Chemical Company: Globle Prsenz, 2007, URL:
http://corporate.basf.com/de/ueberuns/?id=f5PDIC_BUbcp3aA
Status: 08 July 2008.
BASF The Chemical Company: Mitarbeiter in den Regionen, 2007, URL:
http://corporate.basf.com/de/ueberuns/mitarbeiter/?id=f5PDIC_BUbcp3aA
Status: 08 July 2008.
Berndt, R. / Altobelli, C. F. / Sander, M.: Internationales Marketing Management. 3rd
revised and extended edition, Springer Verlag, Berlin 2005.
Berufsgenossenschaft der Feinmechanik und Elektrotechnik (bgfe): EWR-Staaten, 2007,
URL: http://www.bgfe.de/betrieb/bb_ewrstaaten.html
Status: 03 July 2008.
Blom, H. / Meier, H.: Interkulturelles Management, Interkulturelle Kommunikation,
Internationales Personalmanagement, Diversity-Anstze im Unternehmen. 2nd
edition, Verlag Neue Wirtschafts-Briefe, Herne, Berlin 2004.
Borgmann, B.: Die Entsendung von Arbeitnehmern in der Europischen Gemeinschaft,
Wechselwirkungen zwischen Kollisionsrecht, Grundfreiheiten und Spezialgesetzen.
Peter Lang GmbH, Frankfurt on Main 2001.
Bornschein, T. / Thomas, M.: Leben und Arbeiten im Ausland. 1st edition, Interna, Bonn
2004.
Brinkktter, H.-O.: Grundfragen aus der Entsendungspraxis der BASF mit besonderer
Bercksichtigung von Oberen Fhrungskrften. in: Clermont, A. / Schmeisser, W.
(ed.): l.c., 1997, S. 413428.
Brckermann, R. / Pepels, W. (ed.): Handbuch Recruitment, Die neuen Wege moderner
Personalakquisation, Planung, Beschaffungswege, Auswahlverfahren. Beitrge aus
Forschung und Praxis, Cornelsen Verlag, Berlin 2002.
Brch, A.: Kulturelle Anpassung deutscher Unternehmensarbeiter bei Auslandsent-
sendungen, Eine empirische Studie in den USA, Kanada, Japan und Sdkorea zu
Kriterien und Einflussfaktoren erfolgreicher Aufenthalte von Fach- und Fhrungs-
61
Comp. ibid., p. 423
26 II International remuneration system
Annex
Annex I
Overview over delegation types
Business trip Secondment Delegation Relocation Transfer
Characteristics Short term Short term to Middle term Middle- to long Long term
of delegation deployment middle term delegation, term delegation, and often
types abroad, timely delegation in duration of fulfillment of a final
limited connection delegation can task in the foreign employment
journey for a with a timely usually not be company, legal abroad with
clearly limited project estimated and factual complete and
defined abroad, e.g. beforehand integration in the generally
purpose with project foreign company unlimited
maintenance management, integration
of the active market study. into the
core work foreign
place in the company
home
company.
Duration 1 day to 3 3 months to 1 1 year to 3 2 to 5 years with unlimited
months year years option of
prolongation
Contractual no further Persistence of Persistence of Contract in home Contract with
construction contract labor contract, labor contract, country is home
needed additional additional terminated or company is
contract for contract for suspended, local completely
secondment delegation labor contract with terminated,
possible possible foreign company new contract
with foreign
company
Remuneration Unchanged, Unchanged Unchanged Remuneration Remuneration
compensation basic basic agreement with agreement
of travel remuneration, remuneration, local company with foreign
expenses compensation compensation company
of business of business
trip expenses trip expenses
+ subsistence + subsistence
allowances allowances
Domicile Maintenance Maintenance Maintenance Transfer of Abroad
of domicile of domicile in of domicile in residence
and hotel or home country home country
other + 2nd domicile + 2nd domicile
accommodati in country of in country of
on abroad secondment delegation
Annex II
Checklist
General
Terminate or suspend memberships
Unregister with kindergarten/school
Give notice of change of residence to child benefit fund
Arrange mail forwarding (chargeable)
Unsubscribe phone/newspaper
Get certificates translated and certified
Take address lists along
Last will
Book flight tickets in coordination with HR department
Departure
Personnel documents
Visa, working and residence authorization
Passport
International Driving License
Medical Provisions
Consult GP and dentist
If necessary, examination for fitness for tropics
Vaccination certificate
First aid kit
30 II International remuneration system
Household
Organize relocation
Have furniture stored
Clarify regulations on import and customs
Car
Unregister or re-register car
Import limitations
Insurances/Banks
Healthcare/Long-term care/Unemployment insurance
Old age provisions
Householder and liabilities insurance
Baggage insurance
Clarify tax questions
Examine standing orders with banks
Open bank account abroad
Authorizations for withdrawals from bank accounts
Credit cards
Apartment
Terminate leasing contract or rent out apartment
Register and unregister with authorities
Terminate contracts for electricity, gas, refuse disposal
Annex III
and
Mr. / Mrs. / Ms. hereafter called the employee conclude the following
Delegation Agreement
A prolongation of the contract is possible with mutual agreement by both parties. During this
time, the previous labor contract between the COMPANY and the employee persists. For the
duration of the delegation abroad the following conditions apply:
Activities
.. is disciplinary supervisor of the employee, but is his functional
supervisor.
Remuneration
The employee receives
a) a monthly basic salary of EUR
b) a delegation allowance of EUR
The basic salary is paid as fictive comparable home salary and is examined on an annual
basis. It serves at the same time as assessment base for the benefits from the company
pension scheme/contributions to the pension fund. The adaptation of the delegation
allowance depends on the development of the living costs and the foreign exchange rate.
Holidays
For a delegation of two years the employee has the right to weeks of holidays, of
which he/she can spend up to weeks continuously at home. The holiday is included
in the named duration of the contract.
The holiday at home starts on the day of departing from the country and ends with the day of
reentering the country. During this time the employee is available for the COMPANY for
business meetings, the time needed is not deducted from the available holidays. The duration
of the absence shall not be longer than .. weeks. The employee will coordinate the dates of
the holidays at home in due time with his supervisor and the home main department. The
holidays at home in the last year of work abroad have to be connected with the return travel
due to the termination of the delegation abroad.
During the duration of the visit to the home country including the absence due to business
matters delegation allowances continued to be are paid.
7 International delegation of executive managers exemplified by BASF 33
Accident insurance
For the duration of the delegation the COMPANY concludes for the employee a group
accident insurance with the following amounts of coverage:
a) in the case of death EUR ;
b) in the case of total disability EUR
In the case of partial disability the last sum is diminished in accordance with the degree of
disability.
a) the travel costs [actual commuting expenses and airfares in economy class in accordance
with the travel expense policy] for the employee and for the spouse and children up to the
age of 18 for the departure journey, travelling to the other country and back to the home
country for holidays and the journey back once the delegation is terminated.
b) the transportation costs for furniture including transportation insurance up to an
appropriate amount which arise due to the dislocation of the employee, under the
condition that the details of the dislocation and the return are coordinated with the
..[responsible specialized company department] in due time.
c) the costs of back transport in case of a life-threatening disease of the employee or their
spouse or child.
The company grants an accommodation allowance in the amount of the equivalent of EUR
. per month.
As far as the employee has school-age children during his/her work abroad, the COMPANY
pays a school fee in the amount of EUR ..
Final provisions
The employee has to abide by the tax law of [country of delegation] and to fulfill
the duties arising from it.
Annex IV
and
Mr./Mrs./Ms. , living in ,
hereafter called the employee conclude the following
Labor Contract
The contract is concluded for an indefinite period and can be terminated during the first ..
months/ with a one months notice to the end of the month. After this period the reciprocal
termination period is . weeks/months to the end of a calendar month/a calendar year.
The labor contract ends without termination of the contract with the end of the month of the
65th birthday of the employee.
7 International delegation of executive managers exemplified by BASF 35
Remuneration
The employee receives as remuneration for his/her work:
a) a monthly basic salary of EUR and
b) a delegation allowance of EUR ,
payable at the end of the month. This covers the complete time of his/her work for the
company.
Furthermore, the employee receives special allowances related to the calendar year/business
year in accordance with the following principles:
This special allowance will be granted in the year of entry and departure on a pro rata
temporis basis.
The above mentioned allowances will be paid in . [corresponding currency] at
the official conversion rate of [corresponding state bank] at the due date.
Taxes
The employee is responsible for the correct payment of taxes of his/her remuneration in the
country of delegation in accordance with the tax laws.
Social security
During the delegation the legal provisions concerning social security in the home country
continue to apply for the employee. The COMPANY will pay the employer contributions to
the pension, health care, nursing and unemployment insurance.
COMPANY takes the remaining housing costs/pure rental costs fully over up to the
equivalent of the maximum of EUR .
The company refunds the expenses which the employee incurs because of the execution of
his function, in accordance with national practice/with the travel expenses policy.
In case of termination of the labor contract and in case of life-threatening diseases and the
return of the employee to ..[home country] due to these circumstances, the
COMPANY takes over the travel expenses of the employee including transportation costs for
relocation of goods to an appropriate extent.
For the duration of the contract in the COMPANY offers the employee a car in
accordance with the company car regulations of the company. The company car can also be
privately used by the employee.
Insurance
The COMPANY insures the employee for the duration of the contract against accidents with
the following coverage:
EUR for the case of death
EUR for the case of disability.
The insurance includes work as well as private accidents and has to be paid to the employee
or his/her successor at law. It ends with the moment of termination of the contract.
Moreover, the COMPANY procures comprehensive company liability insurance for the
totality of the employees activities.
Holidays
In the case of work in other European countries:
The employee disposes over vacation for working days. The duration and the
repartition have to be coordinated with ..[e.g. the responsible supervisor].
Generally, holidays shall be combined in one continuous period. Unused holiday days can
only be transferred to the next calendar year if urgent company or personal reasons justify it.
Remaining vacation days which are not used until the 31st of March of the next calendar year
are forfeited without compensation.
For every years of work the employee is entitled to . weeks of vacation. The employee
can spend a continuous period of up to . weeks in Europe each year. The Europe holidays
commence with the day of departure and end with the day of return. During this time, the
employee is available to the COMPANY and their business partners for business meetings.
The time needed is not deducted from the vacation.
The employee will coordinate the time of his/her holiday in Europe with his/her supervisor in
due time. The vacation in Europe during the last working year has to be combined with the
return journey due to the termination of the labor contract.
For the duration of the vacation in Europe, including the business related absence, the
delegation allowances are continued to be paid to the employee.
Final provisions
Claims from this labor contract have to be asserted within one month after receipt of the last
payroll, otherwise they will be forfeited.
Taking into consideration the external position of the employee the contract is drafted in ..
and . (e.g. Spanish) language. Both versions are legally binding; in the case of
discrepancies between both versions only the . text is decisive.
The labor contract concluded and designed with this provisions is subject to the law of ..,
as far as the mandatory national law is not preceding.
Annex V
Contents of EEC regulation N 1408/71
Country of delegation as basic rule
Insurance responsible
Countries Regulation Period Form
branch insurance
Belgium compulsory
health
Denmark Delegation: insurance in
case of
Germany art. 14 n. 1a for up to E 101 private
health
Finland EEC 12 months insurance
regulation n
France health 1408/71 responsible
old age
Greece nursing insurance
carrier
Great Britain old age
Ireland accident-
Iceland and Prolongation for responsible
carrier in
Italy unemployme of the up to a E 102 the country
nt delegation
Liechtenstein insurance art. 14 n. 1b maximum of delegation
of further
Luxemburg EEC 12 months
regulation n
Netherlands 1408/71
Norway
Austria
Portugal Special form-
Sweden agreement: diverse*- less DVKA
7 International delegation of executive managers exemplified by BASF 39
Annex VI
Countries with social security treaties
Country of contract Insurance Branch Limitation
in time
HI NI OAI UEI AI delegation
Belgium X X X X X 12 months
Denmark X X X X X 12 months
Bosnia-Herzegovina X X X X 12 months
Bulgaria X X X X X 12 months
Chile X X 36 months
China X X 48 months
France X X X X X 12 months
Greece X X X X X 12 months
Great Britain X X X X X 12 months
Italy X X X X X 12 months
Israel X X X unlimited
Japan X X 60 months
Canada X X 60 months
Korea X X 24 months
Croatia X X X X X 24 months
Malta X X X X X 12 months
Morocco X X X X 36 months
Macedonia X X X X 24 months
Poland X X X X X 12 months
Portugal X X X X X 12 months
Rumania X X X X X 12 months
Slovakia X X X X X 12 months
Turkey X X X X unlimited
7 International delegation of executive managers exemplified by BASF 41
Tunisia X X X 12 months
USA X 60 months
Cyprus (Greek part) X X X X X 12 months
HI=Health Insurance; NI = Nursing Insurance; OAI = Old Age Insurance; UEI = Unemployment
Insurance, AI = Accident Insurance
8.1 Shareholder-Value-Approach
In the beginning of the 90s a new management concept was discussed in Germany. This
concept was published by Alfred Rappaport in his book Creating Shareholder-Value at the
end of the 1980s.62 The term value in this context means the company value in the sense of
the market value of equity.
Rappaport provided with his concept a comprehensive illustration on value-oriented
company management. The focus of this approach lies on the direction of the management
towards the interests of the shareholders of a company, pursuing mainly the aim of
increasing the company value. First German companies, as e.g. Daimler AG applied the
shareholder value approach in the mid 1990s and integrated the concept in their company
management.63
The company value can be calculated with different methods. In the context of the
shareholder value analysis often the Discounted Cashflow Method is used. Put simply, the
cashflow is calculated as difference between incoming and outgoing payments which a
company has at its disposal for e.g. investments or dividend payments. For the determination
of the current company value, however, not the future, but the current payment flows are
relevant.64
62
Comp. Werder, 1998, p. 6971
63
Comp. Frndhoff, 2009
64
Comp. Friedrichsen, 2000, p. 17
44 III Stock-option programs as part of the remuneration management system
In accordance with Rappaport the current company value can be determined with the help of
present values of the future free cash flows. The free cash flows of a company are discounted
over a certain period together with the residual value at the end of the period of prognosis.
Four discounting the free cash flow the weighted average cost of capital is used.65
By discounting the estimated cash flows with the weighted average cost of capital (WACC)
the total value of the company is obtained. By deducing the market value of the dept capital
from the calculated total value of the company, the shareholder value can be determined.
Value is added for the shareholders if the calculated yield is higher than the costs of capital.66
Therefore, the managers have to direct the company management to the interests of the
shareholders if they do not want to lose them or want to win new investors for the company.
The shareholders or potential investors will only invest into the company, if they receive an
adequate yield for their capital. If they do not receive an adequate yield, they will sell their
shares. This leads to falling market prices of the shares and potential investors will avoid an
investment into the company. This can lead to difficulties of the company to raise capital.
Because of these possible problems the managers have to direct the company management in
such a way that a lasting increase of the yields on shares can be reached. The capital markets
show positive reactions to the increase of yields on shares, which again leads to an increase
of the price of shares on the middle or long run.67 The shareholder value is influenced by so
called value contributors. In accordance with Rappaport such value contributors are all
values on which the company can have influence. The management can directly influence
the value contributors trough operational business as well as through investment and
financing decisions and thus have influence on the shareholder value.68 Only those
investment measures are carried out which achieve an appropriate yield. If a satisfactory
yield cannot be reached, the measure has to be turned down. The focus of the management
on high-yield business areas can lead to an optimization of the cash flows and thus, to an
increase of enterprise value.69
In order to avoid losses of confidence on the shareholders side it is also important for the
company to pursue a shareholder-friendly information policy. An unclear communication
could lead the shareholders or investors of the company to estimating the enterprise value too
low. This erroneous estimation would have a negative impact on the market value of the
shares.
The advantage of the shareholder-value-approach is the use of future-oriented payment flows
and the consideration of the risk of costs of capital. Balance sheet related possibilities of
65
Comp. Kramarsch, 2004, p. 22
66
Comp. Schmeisser/Hahn/Schindler, 2004, p. 5
67
Comp. Friedrichsen, 2000, p. 18 et seq.
68
Comp. Achleitner/Wichels, 2002, p. 5
69
Comp. Schmeisser/Hahn/Schindler, 2004, p. 4
8 Basic considerations on economic philosophy and ethics 45
manipulation of the company profit are avoided in the application of the shareholder-value-
approach.70
The critique of the shareholder value lies mainly in the unilateral approach to the interests of
the investors (shareholders). According to the critics, stakeholders like customers, suppliers
and employees remain disregarded. Rappaport counters:
Not only the owner benefits from a value creating company, but it serves all other
interested groups; on the other hand, all interested groups are endangered if the
management does not achieve the creation of shareholder value.71
Furthermore, Free Cash Flows used to calculate the shareholder-value are considered as easy
to manipulate. For example, the reduction of staff or cost reductions in the area of research
and development can be used to have a short-term positive influence on cash flows. Such a
short-term course of action, however, is contradictory to the shareholder value concept that
aims towards a lasting increase of the company value.
The reduction of work places can be necessary for the company in order to maintain or
optimize its competitive capacity on a national and also international level. On the middle
and long run this is good for the employees, because on a long-term basis this permits to
maintain existing work places and to create new jobs.
German companies like the DAX-30 company RWE are aware of their responsibility
towards the stakeholders and care for their interests in their company management.
Also within the context of the financial crisis, the shareholder-value-approach was reason for
controversial debates. The shareholder-value-approach is accused of promoting a short term
profit maximization and therefore, of being also responsible for the crisis. In accordance with
Rappaport, however, the concept of the shareholder-value-approach is not directed towards
short-term management decisions. Apart from the generation of increasing cash flows, a long
term increase of the company value and an adequate risk assessment are the targets of his
approach. According to Rappaport, there would not have been a crisis if these components
had been taken into consideration by top managers.72
The management can be motivated to adhere to and execute the shareholder-value concept,
by receiving apart from the common remuneration package profit oriented remuneration via
value driven incentive systems as stock-option programs.73
70
Comp. ibid, p. 6
71
Comp. Rappaport, 1999, p. 8, own translation.
72
Comp. Rickens, 2009
73
Comp. Winter, 2000, p.7
46 III Stock-option programs as part of the remuneration management system
The directors of such companies, however, being the managers rather of other
peoples money than of their own, it cannot well be expected that they should watch
over it with the same anxious vigilance with which the partners in a private
copartnery frequently watch over their own. Like the stewards of a rich man, they
are apt to consider attention to small matters as not for their masters honor, and
very easily give themselves a dispensation from having it. Negligence and profusion,
therefore, must always prevail, more or less, in the management of the affairs of
such a company.
The divergences in interest between the investors in form of the shareholders and the
employed managers are described as principle-agent-theory in business sciences. In this
theory the shareholders are called principals and the managers are called agents. The
shareholders entrust the managers with the direction of the company. The shareholders do
not need to be active themselves in the company in which they invest.75
The main interest of the shareholders is a profitable capital investment. The shareholders
pursue exclusively the monetary goal of high increase in value of the invested capital.76
Furthermore, the shareholders are more adventurous than the managers. This is expressed by
the fact that financing and investment measures are chosen from which higher profit can be
expected.77
The managers are interested in maximizing their income. Besides this monetary goal
managers can also pursue non-monetary goals. These include for example the expansion of
the personal sphere of control or the improvement of ones own reputation.78 The willingness
to take risks of the managers is generally weaker than the one of the shareholders. This is due
to the fact that their workplace depends on the economic development of the company.
Managers are rather reluctant to take risky actions.79
74
Smith, 1879, p. 254f, own translation.
75
Comp. Engelsing, 2001, p. 26
76
Comp. Engelsing, 2001, p. 27
77
Comp. Friedrichsen, 2002, p. 23
78
Comp. Engelsing, 2001, p. 27
79
Comp. Friedrichsen, 2002, p. 23
8 Basic considerations on economic philosophy and ethics 47
The different goals of both parties cause goal conflicts if the agents do not act in the
principals interest, but pursue mainly their own goals. This means they act in an opportunist
way. The resulting conflict of goals can be enforced by informational asymmetries.
The informational asymmetry describes the uneven repartition of information between two
contracting partners. The agent has an informational advantage over the principal, because of
his position in the company. Because of this unilateral advantage, the agent is in the position
to take decisions in his own favor and to the disadvantage of the principal.
There are different types of informational asymmetries like hidden action and hidden
information. It is typical for these forms of information asymmetries that the informational
advantage of the agent occurs only after the conclusion of the contract.
Hidden action describes the fact that the principal can observe the behavior of the agent only
with difficulties or with high costs.80 Because the agent has the choice between different
alternative actions and the principal has the observation problem, the agent can take the
decision himself how much effort he puts into the execution of the chosen action. The
principal will only know the final result.81 However, he does not know how to assess the
final result, because he does not know whether the result is due to external influences and
how far the agent has influenced the result with his own actions.
Hidden information describes the problem that the principal can observe the actions of the
agent and is aware of the options of the agents. The agent can simulate wrong facts with
regard to his characteristics and capacities before contract conclusion which the principal
knows only after the contract has come to effect. Thus, there is the risk of the agent using
existing informational asymmetries to his own advantage.
If the investors do not insist on corresponding retaliatory actions, the conflict causes that the
shareholder investment can not evolve in the best way and that the manager uses his leeway
for action to the companys and the principals disadvantage.
In order to mitigate these asymmetries the principal has two possible options: 82
1. There is the possibility to build information and controlling systems or to improve them.
They are meant to give the principal a better insight into the agents behavior.
2. The second possibility is the output oriented control, in which the agents are supervised
by the principal with respect to the desired and future results of their actions.
One of the controlling instruments which can be used for the purpose of encouraging the
agents to behave as far as possible in the principals interest is stock-option programs. With
this solution, the remuneration of the managers (agents) is linked to the increase of company
80
Comp. Dietz, 2004, p. 27
81
Comp. Dietz, 2004, p. 27
82
Comp. Engelsing, 2001, p. 29
48 III Stock-option programs as part of the remuneration management system
value. Only because of the increase of the market price of the shares and, thus, of the
company, the manager get paid for their work.
83
Comp. Engelsing, 2001, p. 29
84
Comp. Schmeisser/Hahn/Schindler, 2004, p. 42
85
Comp. Friedrichsen, 2002, p. 27
86
Comp. Engelsing, 2001, p. 30
87
Comp. ibid, p. 30
8 Basic considerations on economic philosophy and ethics 49
88
Comp. Towers, 2009
89
Comp. Engelsing, 2001, p. 31
50 III Stock-option programs as part of the remuneration management system
When the stock-option is exercised the nominal capital increases by the face amount of the
new shares. At the same time the capital reserves rise by the difference between the new
shares and the base price to be paid.90
Especially the lack of effect on company liquidity in the case of an increase of capital has to
be positively mentioned, because German companies dispose over a lower equity-ratio in
international comparison. By giving the managers of the company stock-options the
company is able to pay an appropriate remuneration in international comparison and at the
same time to preserve the companys liquidity.
90
Comp. ibid, p. 31
91
Comp. Zitzewitz, 2003, p. 34
8 Basic considerations on economic philosophy and ethics 51
is decisive for the exercise of a stock-option. In this case, the owner of a stock-option can
only exercise it if the company evolves economically better than the competitors.
A further disadvantage is that the capital market is very sensible to negative news from
within the company. Thus, there is the risk of possibilities for manipulation, when the
managers holding stock-options give certain information to the public. Rumors which are
spread at the right moment can influence the stock quotations in one or the other direction.
The result is that the basic price of stock-options which follows the stock quotation can go up
or down.92 The problem of insider knowledge of the managers can be reduced or contained
by trading windows.
92
Comp. Friedrichsen, 2000, p. 53
93
Comp. ibid, p. 53
94
Comp. ibid, p. 232
95
Comp. Friedrichsen, 2000, p. 53
52 III Stock-option programs as part of the remuneration management system
96
Comp. Kramarsch, 2004, p. 4 et seq.
9 Changes in the remuneration structure in Germany 53
Total remuneration
Value potential
remuneration 16% Term
20% Short-
Term
The formerly used remuneration structure with a high basic salary and a low share of
bonuses in the total remuneration was criticized especially against the background of calls
for a value-oriented direction of the company in the sense of the shareholder value approach.
Also the commencing internationalization in connection with the increasing globalization
and the competition for successful managers lead to a demand for a reformulation of the
German remuneration system.98
It was criticized that the basic salary does not serve as appropriate remuneration for the
performance of the top manages. Neither did this form of remuneration portray the success of
the company in an adequate way. The lack of connection between the stock quotation and the
bonuses granted to the top managers was also seen to be a problem. Bonuses are calculated
with the help of key figures from previous business years, which caused that the
development of the stock quotation was not taken into consideration for the remuneration.
The result was that the management had no incentive to direct their decisions towards the
increase of the stock quotation of the company.99
Furthermore, German accounting standards were criticized with regard to bonuses, because
they permit assessment and accounting options and make a falsification of the accumulated
equity possible. The danger was recognized that especially high bonuses could be achieved
97
Kramarsch, 2004, p. 5
98
Comp. Schmeisser, 2008, p. 68
99
Comp. ibid, p. 68 et seq.
54 III Stock-option programs as part of the remuneration management system
when short-term yearly targets were pursued. This form of traditional remuneration system
also affected the liquidity of the company to a great extent.100
These points of criticism show that a reform of the traditional remuneration system was
necessary in Germany. In this context value-oriented remuneration systems were
implemented in German companies to support the introduction of the shareholder value
concept. Today it is merely unthinkable not to use them and they have become an important
strategic instrument for the process of increasing company value.101
100
Comp. Schmeisser, 2008, p. 69
101
Comp. ibid, p. 69
102
Comp. Laux, 1999, p. 12
103
Comp. Achleitner/Wichels, 2002, p. 7
104
Comp. Pellens/Crassselt/Rockholtz, 1998, p. 14
9 Changes in the remuneration structure in Germany 55
105
Comp. Achleitner/Wichels, 2002, p. 10
106
Comp. Pellens/Crasselt/Rockholtz, 1998, p. 14
107
Comp. Achleitner/Wichels, 2002, p. 10
108
Comp. Pellens/Crasselt/Rockholtz, 1998, p. 14
56 III Stock-option programs as part of the remuneration management system
Remuneration component
109
Fig. 9.2: Classifications of value-oriented remuneration systems
109
Following: Schmeisser/Hahn/Schindler, 2004. p. 14
110
Comp. Kramarsch/Becker, 2006, p. 24
111
Comp. Lazar, 2007, p. 37
112
Comp. Pape, 2004, p. 67
9 Changes in the remuneration structure in Germany 57
The short-term variable remuneration is also called short-term incentive. It consists for
example of annual bonuses or royalties. Short-term incentives are generally based on
strategic key figures of accountancy. The strategic incentives refer to the business year of the
company and are mostly paid in a one-time payment when the target values are met at the
end of the business year. The used key figures can be divided in traditional key figures of
accountancy as profit or revenue and value-oriented key figures as the Cashflow Return on
Investment (CFROI) or the Economic Value Added (EVA).113
The long-term incentives are long-term variable remuneration components, which are
lastingly directed by the company profit.114 They can be divided with the help of the
underlying reference values, which are oriented towards the increase of company value. The
increase of company value can be classified in internal and external reference values. Long-
term incentives which are based on internal assessment values as benchmark for increase in
value, try to calculate the economic value on the basis of company internal key figures. This
value is than used as remuneration criterion. This happens under the condition that an
increase of economic value induces rising stock quotations and thus, the increase of the value
of the enterprise.115
Furthermore, long-term incentives, which are based on external assessment values, can be
divided into stock and stock-option programs. Stock quotation oriented remuneration
systems are oriented by the stock quotation and thus, directly by the development of the
shareholder-value. The participation of the management in the company via stock and stock-
options is a good method to harmonize the interests between the management and the
shareholders and to maximize the shareholder capital which is embodied by shares.116
The German Corporate Governance Codex contains enough recommendations with regard to
the composition of the total remuneration.
113
Comp. Schmeisser/Dittmann, 2004, p. 40
114
Comp. Kramarsch, 2004, p. 35
115
Comp. Achleitner/Wichels, 2002, p. 7 et seq.
116
Comp. ibid, p. 9
58 III Stock-option programs as part of the remuneration management system
This section deals at first with the development of the Corporate Governance Discussion and
explains then the aims and the composition of the German Corporate Governance Codex
(GCGC). After that the recommendations of the GCGC and its influence on the remuneration
structure of directors in analyzed in detail.
Furthermore, the Codex contains recommendations for the design of stock-option programs
and other variable long-term remuneration forms for management.
117
Comp. Grattenthaler, 2007, p. 172 et seq.
118
Comp. Carl, 2005, mn. 1623 et seq.
119
Comp. Bericht der Regierungskommission, 2001, p. A1
120
Comp. ibid, p. A1
9 Changes in the remuneration structure in Germany 59
Further company crises as e.g. Flowtex121 or Comroad122 proved that there were deficits with
regard to company management and control in Germany. The boards of directors of the
companies have come under criticism, besides accountancy companies, because they did not
detect the fraud. The trust of institutional investors, suppliers and other stakeholders in the
company management was decisively weakened.
The newly set up commission under the direction of Dr. Gerhard Cromme, who was the
chairman of the board of directors at that moment, commenced its work in September 2001.
The commission was composed of academics and well-known business representatives.123
The results of the Baum Commission provided the basis for the German Corporate
Governance Codex. The finished version was published on 26 February 2002 and has been
checked every year since then.
The German Corporate Governance Codex should represent a document created to re-
establish and enforce the trust of the investors and of other stakeholders in the management
of German enterprises. The German Corporate Governance Codex provides besides
recommendations also ideas for business leaders for a good and responsible business
management and control.
The Codex deals with points of critique and considers the shareholders and institutional
investors demand for more transparency in the management in Germany. The preamble of
the codex formulates the goals of the codex as follows:125
121
Comp. Heise, 2009, p. 7
122
Comp. N.N., 2002
123
Members of the commission are Cr. Gerhard Cromme, Dr. Gerhard Cromme, Dr. Paul Achleitner, Dr. Rolf-E.
Breuer, Dr. Hans Friedrich Gelhausen, Ulrich Hocker, Max Dietrich Kley, Professor em. Dr. Dr. h.c. Marcus
Lutter, Volker Potthoff, Heinz Putzhammer, Peer Michael Schatz, Christian Strenger, Pro et seq. Dr. Axel von
Werder, Dr. Wendelin Wiedeking.
124
DCKG, Preamble, 2008
125
DCKG, comment by the commission head Gerhard Cromme, 2002
60 III Stock-option programs as part of the remuneration management system
This German Corporate Governance Codex (the Codex) shows essential legal
provisions for management and control of German stock-listed companies
(direction) and contains internationally and nationally recognized standards of
good and responsible management. The Codex shall make the system of German
Corporate Governance more transparent and comprehensible. Its aim is to boost the
confidence of international and national investors, customers, employees and of the
public in management and control of German stock listed companies.
The Codex contains so called shall recommendations and should or can proposals. Via
the declaration of compliance in accordance with s. 161 German Stock Corporation Act
(AktG) it is legally consolidated. Executive and Supervisory Board of listed companies have
the duty to give annual information on whether the recommendations of the German
Corporate Governance Codex were followed. In case of deviations from the codex it has to
be explained which recommendations had not been followed and the reasons for the
deviation should be given. This approach corresponds to the Anglo-Saxon principle:
Comply or Explain. The declaration of compliance has to be published on the homepage of
the company in accordance with s. 161 subs. 2 German Stock Corporation Act.
If the company deviates from proposals, no explanation is necessary. In this case the
deviations must not be disclosed. The Codex is mainly directed towards listed companies,
but its application is also recommended for companies that are not listed on the stock market.
The codex is divided in seven parts:
Preamble,
Shareholders and General Assembly,
Cooperation of Executive and Supervisory Board,
Executive Board,
Supervisory Board,
Transparency,
Accounting and Auditing.
The preamble contains the purpose of the Codex. The second and third section describes
provisions for the General Assembly and the Shareholders right. Besides the remuneration
structure for managers, the individual tasks and responsibilities of Executive Board and
Supervisory Board are described in the sections four and five. The sections six and seven
contain regulations with regard to transparency as well as accountancy and auditing.
The financial crisis and the upcoming criticism in print and other media of the remuneration
of the managers have lead to enacting the Act on Appropriateness of Management Board
Remuneration. Due to this, the government commission came together and duly adjusted the
German Corporate Governance Codex. Innovations become only binding for companies
when published in the German Federal Gazette. The currently valid version is now from 19
July 2009. The most important alterations are:
9 Changes in the remuneration structure in Germany 61
New regulations concerning the composition and the transition of members of the
Executive Board to the Supervisory Board126,
Regulations on the composition of the Audit Committee127,
Adjustment of remuneration structure and amount of directors128,
The principles of the social market economy have to be respected by the managers129,
Innovations with regard to the D&O insurances130.
Additions and amendments which come up because of the design of the Corporate
Governance Codex status as of 19 July 2009 are explained in more details in the next section.
Furthermore, the recommendations of the Codex concerning the remuneration structure of
the directors and their disclosure is underlined and explained in more detail.
Sections 4.2.4 and 4.2.5 give information on the disclosure of manager salaries. Thereby, the
demand by shareholders and other stakeholders for transparency in remuneration can be met.
Section 4.2.4 recommends the disclosure of management remuneration as follows:
The total remuneration of each member of the Executive Board has to be broken down
in success independent and success related remuneration components with long-term
incentive effect.
126
DCGK, section 5.4.4, section 5.4.5 sentence 2, section 5.4.1, 2009
127
DCGK, section 5.3.2 sentence 3, 2009
128
DCGK, section 4.2.2, section 4.2.3 par. 1 und 2, 2009
129
DCGK, preamble par. 2, 2009
130
DCGK, section 3.8 par. 2, 2009
62 III Stock-option programs as part of the remuneration management system
The Codex recommends in section 4.2.5 where the disclosure of manager salaries has to be
made:131
The disclosure of manager remuneration shall be made in a remuneration report which
forms part of the Corporate Governance report. It has to be taken care to formulate the
disclosure in a comprehensible way.
Furthermore, the parameters of the design of stock-option programs or other
remuneration systems shall be explained by long-term incentive effects. The values for
each remuneration component equally have to be published.
Currently, 29 of the 30 DAX groups comply with the requirement to disclose the
management salaries. In 2008, Merck was the only company to deviate from the GCGC.
Thereby, the companies make their contribution to more transparency and make it much
easier for shareholders and other stakeholders to gain an insight into the remuneration policy
of the company. The shareholders and investors can make a better assessment of how their
capital was used for the remuneration of managers.
The government committee, which was set up by the Federal Ministry of Justice, has adapted
the German Corporate Governance Codex with regard to the financial crisis and the
following criticism of remuneration of Board members. Now, the recommendations with
regard to remuneration of members of the Executive Board are more closely explained.
Section 4.2.3 of the Codex has been elaborated and contains the following additions:132
The remuneration of the members of the Executive Board has to be designed in such a
way that it serves a permanent company development.
Positive and negative developments shall be considered in the design of the variable
remuneration components.
All remuneration components have to be appropriate and designed in such a way that
they do not tempt the board member to take inappropriate risks.
For example, share based or key figure based remuneration elements can be used as
variable remuneration components.
The new version of the Codex takes the changed economic situation into consideration.
Besides, the Codex tries via its addendum to achieve that the remuneration is adapted to a
long-term company development.
131
DCGK, section 4.2.5, 2008
132
DCGK, section 4.2.3, 2009
9 Changes in the remuneration structure in Germany 63
133
Sec. 285 sentence 1 n 9 HGB, sec. 314 subs. 1 n 6 HGB
64 III Stock-option programs as part of the remuneration management system
If the company does not comply with these duties of disclosure, this can lead to a monetary
fine of up to EUR 50,000.134 However, the companies can be freed from the duty of
disclosure of compensation. This happens in the General Assembly, where a three-quarter
majority has to give their consent to the renunciation to disclosure. This legislative regulation
can be criticized as inadequate, because family owners could for example hold the majority
of the company, so that they could avoid the detailed disclosure of the remuneration. A
control by the investors with regard to the remuneration policy of the company can therefore
not take place.
The only DAX-30 company which does not individually disclose the compensation of the
Executive Board in the annual report is Merck KGaA.
In this case the general partner the E. Merck OHG has the control of personnel over the
personally reliable members of the management. For this reason the regulations of the
VorstOG does not have to be applied by the company.
134
Sec. 334 subs. 3 HGB
135
Comp. Grattenthaler, 2007, p. 323 et seq.
9 Changes in the remuneration structure in Germany 65
Sec. 87 AktG states that the total remuneration of the individual members of the Executive
board shall be in an appropriate relation to their tasks and to the companys situation.136
Provisions with regard to how far the remuneration of the members of the Executive Board is
appropriate are only generally regulated in sec. 87 AktG. The Supervisory Board has to
check the total remuneration of the Executive Board for adequacy. According to law the
following components have to be checked for adequacy:
the salary,
possible profit participation,
expense compensations,
insurance remuneration,
commissions,
other compensations of all kind.
Furthermore it is only regulated in sec. 87 subs. 2 AktG that a reduction of the remuneration
of a member of the Executive Board is possible when the companys situation has essentially
deteriorated and the companys survival is endangered.
The adequacy of the remuneration of the Executive Board came again into focus of public
discussions with the financial crisis. For example, the members of the Executive Board of the
Commerzbank had to accept a limitation of their salaries. This was a precondition so that the
predicated bank could get money from the bank rescue fund Soffin. The amount of the
remuneration of the members of the executive board should not be higher than EUR
500,000.137 In the previous few years the members of the executive board had still received
amounts of up to EUR 5.2 million.
What can be criticized with regard to sec. 87 German Stock Companies Act is the fact is that
it is hardly put into practice. Therefore, it is often called a Dead-Letter-Law.138
Because of the discussed points of critique the Federal Government of Germany has passed
the new Appropriateness of Management Remuneration Act (VorstAG) in order to reduce
the weaknesses of sec. 87 German Stock Companies Act. This act will be discussed in the
following section:
136
Comp. Klahold, 1999, p. 46
137
Comp. N.N., 2008
138
Comp. Boecken/Dwell/Hmmerich, 2007, p. 119
66 III Stock-option programs as part of the remuneration management system
incentives for companies to design the remuneration of their Executive Boards in the context
of sustainable enterprise development. With the introduction of this Act, the adaptations of
the GCGC became necessary.
For big income earners amongst the top managers harder regulations were elaborated. Above
all, stock-options are concerned by the new regulations. The new regulation now requires a
lock-up period for stock-options of four years instead of the formerly usual two years (sec.
193 subs 2 n 4 AktG new version). Only after the end of this period managers can exercise
their options.
A further point deals with the determination of manager remuneration. Up to then the
Supervisory Board had the possibility to delegate decisions on the remuneration of the
Executive Board to a Committee. Now, this possibility does not exist any more. The
remunerations of the Executive Board can now only be decided by the Supervisory Board of
a Company. The existing sec. 107 subs. 3 sentence 3 AktG has been changed in this respect.
Furthermore, the liability of the members of the Supervisory Board with regard to the
remuneration of the Executive Board has been intensified. If the Supervisory Board does not
determine an adequate remuneration of the Executive Board, it becomes liable for damages
against the company.
Additionally, there are amendments for members of the Executive Board who want to
change to the audit committee of the incorporated company. For them a cooling-off period
applies, which means that persons who have been members of the Executive Board during
the last years, may not change into the Committee (sec. 107 subs. 3 sentence 4 et seq. AktG
new version).
Furthermore, the law stipulates a cooling-off period if a member of the Executive Board
wants to change into the Supervisory Board. In controversial points as the limitation of
manager salaries it was not possible to come to an agreement. Also the Treasury Secretary
of the US is not in favor of a legal limitation of manager salaries. In an interview he said: I
dont think our government should set caps on compensation.139 Instead he supports the
Say-on-Pay-concept.140 The Say-on-Pay-concept deals with the co-determination right of
the shareholders of a company in the manager remuneration. In the US, this form of right to
say becomes more and more popular. Since the end of January 2009 more than 70
institutional investors, church groups and foundations have required from more than 100
incorporated companies to give shareholders the right to co-determine the remuneration of
the Executive Board in future.141
139
Comp. Christie/Homan, 2009
140
Comp. ibid
141
Comp. N.N., 2009
10 Categorization of Stock-option Programs 67
10 Categorization of Stock-option
Programs
10.1 Overview
Stock-option programs can be counted among long-term incentives. Long-term incentives
can be subdivided into programs with stock market based and key figure based management
remuneration. The stock market based management remuneration can be further divided in
real and virtual equity instruments.142 After that it can be further distinguished between
systems with an option based or a share-based character.
For the remuneration with real equity instruments the remuneration is paid via shares
(restricted stocks), stock-options or performance-oriented stock allocations (performance
shares). The remuneration via stock-options is possible via the integration of the option into
convertible bonds or exclusively via naked warrants.143
Real equity instruments are executed with the help of equity components in form of shares or
subscription rights with regard to shares. The recipients are put in the position of a
shareholder or are given the right to come into this position at a later point in time when
receiving stock-options or performance shares.
In the case of virtual equity instruments, on the other hand, money is paid. Virtual equity
instruments imitate the mode of operation of real option or share programs. This means that
the assessment of the profit is also determined by the stock quotation. Amongst often used
virtual equity instruments are Stock Appreciation Rights. They do not work like real stock-
options. The profit is not paid in shares but in cash.
Stock market based remuneration in form of real or virtual equity instruments is generally
only exercised in stock listed companies. The reason is that this form of long-term incentives
is governed by the stock quotation of the shares of the company.144 Figure 10.1 summarizes
these considerations.
Companies that are not stock-listed, on the other hand, need key figure based instruments.
Key figure based programs are also used by stock listed companies.
Key figure based instruments can be divided into phantom plans and other cash-based long
term remunerations. The focus of the following section lies on the share-based
remunerations, especially on stock-options. Phantom stocks are included in the deliberations,
because their design is quite similar to the one of the share-based management remuneration.
142
Comp. Kramarsch, 2004, p. 129
143
Comp. Dietz, 2004, p. 45
144
Comp. Kramarsch, 2004, p. 129 et seq.
68 III Stock-option programs as part of the remuneration management system
Long-term incentives
Stock-
SAR
option
Convertible Naked
bonds warrants
145
Following: Kramarsch, 2004, p. 130
146
Comp. Kramarsch, 2004, p. 54
10 Categorization of Stock-option Programs 69
nominal value. If the owner of a bond does not use his right to conversion, the bond will be
paid back to him.147 If he uses his right to conversion, the owner becomes a shareholder and
the bond expires.
A warrant bond is similar to a convertible bond. The owner of the warrant bond is also
entitled to the subscription of company stocks. The warrant bond, however, does not expire
when used by the owner. The warrant bond continues to exist until repaid by the company.148
The provision of convertible bonds in the context of the introduction of a stock-option
program was very popular in Germany up to the introduction of the Control and
Transparency in Enterprises Act, as it was the only possible way to give stock-options to
employees and managers. Today, this solution is considered as relatively complicated and
legally too complex.149 With the introduction of the Control and Transparency in Enterprises
Act it has become possible to issue naked warrants to employees and managers.
When issuing convertible option and options, stock corporation regulations have to be
complied with as will be discussed further on.
For the incorporated company giving out options or convertible options in the context of a
stock-option plan is a way to gain foreign capital. The dilution of capital of the existing
shareholders is the disadvantage. An advantage is that when the right to conversion is used,
foreign capital is converted into equity and the repayment of the option is not necessary. On
the other hand, one has to have in mind that the purpose of stock-option programs is the
increase of enterprise value and of the stock quotation.150
A consent or authorization decision of the General Assembly is necessary to issue
convertible bonds or warrant bonds.
If warrants or convertible bonds are given out, it is necessary to have a resolution of approval
or an enabling resolution of the General Assembly in accordance with sec. 221 subs. 1
sentence 1 AktG. For the resolution at least a three-quarters majority of the authorized capital
represented at the moment of resolution is necessary. The approval or authorization is valid
for no more than a period of five years. The executive board and the chairman of the
supervisory board have to leave the resolution and a report on issue of convertible bonds
with the commercial registry in charge. The report has to contain essential information on the
bond conditions and information on the reason for exemption from subscription rights (sec.
221. subs. 4 sentence 2 in connection with sec. 186 subs. 4 sentence 2 AktG).151
147
Comp. Kramarsch, 2004, p. 54
148
Comp. Schmeisser/Hahn/Schindler, 2004, p. 67
149
Comp. ibid, p. 69
150
Comp. ibid, p. 67
151
Comp. Schmeisser/Hahn/Schindler, 2004, p. 68
70 III Stock-option programs as part of the remuneration management system
There are two kinds of options, the purchase option (call option) and the sales option (put
option).152 The call option gives the right to buy the share at a fixed price. The put option
gives the right to sell the share at a fixed price.
In case of call options the purchaser participates in price advances, if the stock quotation is
higher than the fixed purchase price of the option. The owner of the option can purchase the
share from the issuing party at a lower price than the current stock quotation. The difference
between the stock quotation and the previously fixed purchase price is the profit. The exact
opposite is the put option. The owner of a put option makes profit, if the fixed purchase price
is higher than the current stock quotation. The share can be purchased by the option holder
for a lower price at the stock market and be sold for the sales price which lies above the
current stock quotation. The difference is the option profit.153
The following figure shows the difference between call and put options.
152
The option types short and long will not be described in more details, because they are not important in
practice
153
Comp. Kramarsch, 2004, p. 135 et seq.
10 Categorization of Stock-option Programs 71
Stock quotation
B i i Stock quotation
154
Following: Herrling/Schmidt/Zahner, 2008, p. 155
155
Comp. Dietz, 2004, p. 47
156
Comp. Schmeisser/Hahn/Schindler, 2004, p. 69
72 III Stock-option programs as part of the remuneration management system
157
Comp. Kramarsch/Becker, 2006, p. 49
158
Comp. Kramarsch/Becker, 2006, p. 50
10 Categorization of Stock-option Programs 73
An advantage of the remuneration via phantom shares is the flexible design. Legal
provisions, which would apply in the case of stock-options, do not have to be considered.
A disadvantage is the outflow of company liquidity at the moment of outpayment. As long as
no personal investment is foreseen, the manager bears no financial risk.
159
Comp. Kramarsch/Schelter, 2006, p. 1
160
Comp. Kessler/Babel, 2003, p. 41
161
Comp. Meiffert, 2008, p. 192
162
Comp. Kramarsch/Schelter, 2006, p. 1
163
Comp. Meiffert, 2008, p. 192
74 III Stock-option programs as part of the remuneration management system
The following Fig. illustrates the shortly presented explanation graphically via the example
of the performance share plans of the RWE group.
Conditional attribution Performance period Final attribution
Number of conditionally
attributed performance shares Calculation of the final
Performance in number of performace
comparison to shares
competitors
Final stock quotation x
final number of
performance shares
The performance share plan Beat of the RWE group has a term of three years. It is
virtually designed and the participant does not receive shares but a cash settlement. During
the runtime of the plan the participant receives a conditional attribution of performance
shares. The final number of performance shares the participant receives is only calculated at
the end of the performance period. The amount of settlement results from the multiplication
of the final quotation of the RWE share with the final number of performance shares. RWEs
condition for the outpayment is that the TSR of the RWE share is increased by at least 25
percent as measured by the benchmark index Dow Jones Stoxx Utilities. If the performance
target is not met there is no outpayment.
164
RWE AG, 2005, p. 4
165
Comp. Filbert/Kramarsch, 2008, p. 9
11 Criteria for the arrangement of stock-options programs 75
166
Comp. Winter, 2001, p. 85 et seq.
167
Comp. Klemund, 1999, p. 70
168
Comp. Weber, 2002, p. 31 et seq.
76 III Stock-option programs as part of the remuneration management system
169
Comp. Engelsing, 2001, p. 54
170
Comp. Friedrichsen, 2000, p. 169
171
Comp. Friedrichsen, 2000, p. 171 et seq.
172
Comp. Klahold, 1999, p. 31
173
Comp. Achleitner/Wichels, 2002, S 18
174
Comp. Kramarsch, 2004, p. 136 et seq.
175
Comp. Baums, 1997, p. 3
11 Criteria for the arrangement of stock-options programs 77
176
Comp. DCGK, 2008, par. 4.2.3
177
Comp. Kramarsch, 2004, p. 163
78 III Stock-option programs as part of the remuneration management system
Performance targets
Generally, the use of relative performance targets prevails on an international level. The
design of performance targets is especially complex in Great Britain. In the US there is
hardly any performance target determined in stock-option programs. If a performance target
is determined anyway, mostly the total shareholder return in comparison to a sector index or
a peer group is used.179
The following points describe the diverse possibilities to design success fees. In this context
the different types of performance targets and the possible use in the management of stock-
option programs is examined.
178
Ibid., p. 163
179
Comp. Meiffert, 2008, p. 191
180
Comp. Baums, 1997, p. 18
11 Criteria for the arrangement of stock-options programs 79
In practice an absolute rise in share price by at least eight percent is recommended.181 If this
minimum performance is not achieved, the owner of the option cannot exchange the option
for company shares and the option forfeits.182
The following figure represents the model of an absolute performance target
Share price
Stock quotation
Exercising profit
Exercising hurdle
Base price
Time
Grant Exercise
The exclusive use of absolute success targets as was common in the first stock-option
programs applied by German companies is considered as disadvantageous.184
The most criticized aspect is the fact that the beneficiaries are remunerated for developments
which are not connected to their performance.185 This is the case, when the increase of the
181
Comp. Union Investment, 2006, p. 4
182
Comp. Schmeisser/Hahn/Schindler, 2004, p. 52 et seq.
183
Following: Brhl, 2004, p. 465
184
Comp. Weber, 2002, p. 38
185
Comp. Baums, 1997, p. 12
80 III Stock-option programs as part of the remuneration management system
186
Comp. Klahold, 1999, p. 32 et seq.
187
Comp. Bsl, 2004, p. 110
188
Comp. ibid, p. 111
189
Comp. Friedrichsen, 2000, p. 151 et seq.
190
Comp. Rappaport, 1999, p. 137
191
The Deutsche Lufthansa and also Daimler AG have made an index of several competitors in their programs.
192
Comp. Friedrichsen, 2000, p. 154
11 Criteria for the arrangement of stock-options programs 81
composition of the peergroup should be transparent for shareholders and investors in order to
avoid a possible manipulation of weighting of the peergroup created.193
The following figure shows the possible performance developments of stock quotation and
reference index in the case of rising rates.
Quotation Quotation
Time Time
Grant Exercise Grant Exercise
Fig. 11.3: Display of relative success fees in the case of rising prices194
The left graphic of Fig. 11.3 shows the exercising profit that the beneficiary can achieve if he
exercises his stock-option. An exercise is possible when the stock quotation has a better
performance than the reference index. In the right graphic the owner of the option cannot
exercise the stock-option, because the stock quotation had a worse performance than the
reference index. This is a case of underperformance of the manager.
When the relative performance target is connected to an index the stock-option can even be
exercised by the beneficiary when the share prices are falling. This possibility of exercise of
an option in times of a negative stock market situation makes it possible to adequately
remunerate above average performance of the management, as long as the stock quotation of
the company in question performs better than the market despite of the negative return.195
The following figure displays these deliberations:
193
Comp. Heitzer/Klose/Steiner, 2000, p. 351
194
Following: Brhl, 2004, p. 465
195
Comp. Achleitner/Wichels, 2002, p. 17 et seq.
82 III Stock-option programs as part of the remuneration management system
Quotation Quotation
Stock quotation
Index
Outperformance Underperformance
Index Stock quotation
time time
Grant Exercise Grant Exercise
Fig. 11.4: Display of a relative performance target in the case of falling share prices196
The left graphic in Fig. 11.4. shows the maximum exercising profit that the beneficiary can
obtain when exercising the option. An exercise of the stock-option is possible if the stock
quotation has dropped less than the reference index. The right graphic in the Fig. shows that
the share prices have dropped more than the reference index. In this case it is not possible to
exercise the option.
196
Following: Brhl, 2004, p. 467
197
For example the programs of Fresenius and Linde have a target per share and the Daimler AG usees the capital
return as target.
198
Comp. Kallmeyer, 1999, p. 98
11 Criteria for the arrangement of stock-options programs 83
models. The goal of the stock-option program to create a motivation for the beneficiary to
increase the company value is not achieved.199
1 2 3 4 5 6
time
/ Granting First possible Actual exercise Last possible First Actual sale
Date of the exercise of the of option/ exercise of allowed of shares
stock- options/Vesting Exercise Date option /Expiry sale of
options Date Date shares
Option term in a narrower sense
An essential element in the design of the stock-option program is the total runtime also called
option term. The runtime of the option determines the period of time from the first time
concession to the last possible exercise of the stock-option. The length of the runtime has to
199
Comp. Friedrichsen, 2000, p. 166 et seq.
200
Comp. Schmeisser/Hahn/Schindler, 2004
84 III Stock-option programs as part of the remuneration management system
Lock-up period
The lock-up period is the period from the grant of the stock-options to the time of the first
possible exercise of the stock-option. During this lock-up period the option cannot be
exercised. When stock-option programs are financed through conditional increase of capital
or the retirement of stock, a lock-up period of at least two years has to be determined (sec.
193 subs. 2 n. 4 in connection with sec. 71 subs. 1 n. 8). The lock-up period should not be
longer than five years, because the members of the executive board are appointed for only
five years (sec. 84 subs. 1 sentence 1 AktG) and the executive board should have the
possibility to exercise the option within the runtime of the sock option programs. The use of
staggered lock-up periods is also possible. For example, from the point in time of the first
grant on, the participant in the option is allowed to exercise:
30 percent of the option after two years,
40 percent of the option after three years ,
30 percent of the option after four years.204
The following Fig. displays the different possibilities to use lock-up periods.
201
Comp. Engelsing, 2001, p. 60
202
Comp. Friedrichsen, 2000, p. 25
203
Comp. Engelsing, 2001, p. 61
204
Comp. Bsl, 2004, p. 108
11 Criteria for the arrangement of stock-options programs 85
70%
30%
1 2 3 4 5 time 1 2 3 4 5 time
In Germany, the exercise of the stock-option is generally quite close to the termination of the
lock-up period. A timely staggered execution could motivate managers to a longer holding
period of the stock-options and bind the employees longer to the company.206
205
Following Kramarsch, 2004, p. 180
206
Comp. ibid, p. 180
207
Comp. Kramarsch, 2004, p. 88
86 III Stock-option programs as part of the remuneration management system
In the second option, the blocking periods, it is assumed that, in contrast to the concept of
trading windows, there is an informational disequilibrium in certain periods between all
market participants. The managers have a lead in terms of information over other market
participants because of their position in the company. The blocking periods consist in
Germany mostly of one to fours weeks before the publication of information e.g. quarterly
reports. In these periods of time, the participants of the stock-option programs may not
exercise their stock-options.208
Furthermore a holding period can be agreed in the stock-option program. The holding period
indicates the period of time during which the shares which a manager after the exercise of
the options has received may not be sold. The shares are then kept e.g. in blocked deposits.
However, the shareholder is entitled to receive dividends and to vote during this time.209
208
Comp. ibid, p. 88 et seq.
209
Comp. Engelsing, 2001, p. 61
210
Comp. Kramarsch, 2004, p. 234
211
Comp. DCGK, section 4.2.3., 2008
11 Criteria for the arrangement of stock-options programs 87
212
Comp. Muler, 2007
213
Comp. ibid
214
Comp. Lazar, 2007, p. 51
215
Comp. Lambert/Lanen/Larcker, 1989, p. 411 et seq.
216
Comp. Lazar, 2007, p. 51
217
Comp. DeFusco/Zorn/Johnson, 1991, p. 36 et seq.
88 III Stock-option programs as part of the remuneration management system
have to be assessed as negative for the shareholders if the achieved return of the company is
higher than the return of an alternative investment.218
In order to influence the executive board in such a way that dividend distributions are not
limited, stock-option plans can be designed so that the exercise price is adapted after the
distribution of dividends.219
218
Comp. Lazar, 2007, p. 51
219
Comp. Pellens/Crassselt/Rockholtz, 1998, p. 16
220
Comp. Kramarsch, 2004, p. 115
221
Comp. ibid, p. 120
12 Possibilities of financing stock-option programs 89
12.1 Overview
The company has the possibility to finance the stock-option program trough an increase in
capital. For this it has three possibilities: the ordinary capital increase (sec. 182 et seq.
AktG), the authorized capital increase (sec. 202 et seq. AktG) as well as the conditional
capital increase (sec. 192 et seq. AktG). Besides the different possibilities to create new
shares with the help of an increase in capital the company has further possibilities to
underlay the stock-option program with shares. This includes the purchase of own shares and
the cooperation with third parties. The following overview gives a first insight into the
different variations.
222
Following Dietz, 2004, p. 58
90 III Stock-option programs as part of the remuneration management system
The limitation of purchase rights to employees and members of the management board
excludes the supervisory board from the circle of beneficiaries, because members of the
supervisory board are neither employees nor management members. The legislator justifies
the exclusion with the fact that the supervisory board can not determine the conditions for
options for itself.224
With a conditional increase in capital the authorized capital is only increased to the extent in
which the owners of stock-options use their right of share purchase and conversion (sec. 192
subs. 1 AktG).225 The authorized capital increases directly with the distribution of shares.226
The conditional capital increase is considered as authorized if at least three quarter of the
authorized capital represented at the moment of resolution consents. This is only valid under
the condition that the articles of association do not provide for a higher capital majority
(sec.193 subs. 1 AktG).
Furthermore, the executive board and the chairman of the supervisory board have to register
the resolution on the conditional capital increase in the commercial registry (sec. 195 subs. 1
AktG). Once the registration of the resolution in the commercial registry is carried out, the
executive board can grant stock-options to the employees. If the beneficiary is the executive
board, the options are granted by the supervisory board. The subsequently necessary entry of
the distributed shares in the commercial registry has only declaratory meaning.227
The advantage of the conditional capital increase is that there is no timely limitation in
contrast to the authorized capital increase which is limited to five years (sections 202, 221
AktG).228 This is why this form of capital increase is especially appropriate for stock-option
programs with long runtimes. Furthermore, there is no possibility to reverse the resolution
223
sec. 192 subs. 2 n 2 AktG does not apply to stock-option programs
224
Comp. Bsl, 2004, p. 103
225
Comp. Engelsing, 2001, p. 71
226
Comp. Schmeisser/Hahn/Schindler, 2004, p. 73
227
Comp. Einem/Pajunk, 2002, p. 93 et seq.
228
Comp. Schmeisser/Hahn/Schindler, 2004, p. 74
12 Possibilities of financing stock-option programs 91
for the conditional capital increase at a later point in time or to change it (sec. 192 subs. 4
AktG).
In the case of conditional capital increase the existing shareholders have no right to purchase
new shares. By issuing new shares and the exclusion of existing shareholders from the
purchase right, the number of shares in circulation is increased. The result is that the share of
the voting rights of the existing shareholders diminishes. Furthermore, the property of the
existing shareholders diminishes, because the participants of the stock-option program can
subscribe the shares at a lower price at the current stock quotation (dilution effect). Because
of these reasons the existing shareholders will only consent in the general assembly when
essential information on the stock-option program, as e.g. the number of granted purchase
rights is disclosed.
The legislator distinguishes different forms of the conditional capital increase in accordance
with the purpose. There are different regulations for issuing convertible bonds or naked
warrants.229
For convertible bonds and warrants in accordance with sec. 193 subs. 2 n 13 AktG
essential corner points of the stock-option program have to be determined. This information
is:
Purpose of the conditional increase in capital,
Circle of beneficiaries,
Information on the amount issued and the foundation on which this amount is calculated
Furthermore, the exclusion of existing shareholders from share purchase rights in accordance
with sec. 3 sentence 4 AktG has to be agreed with three quarter majority of the represented
authorized capital. In this case, it has to be made sure that the exclusion of the purchase
rights is in the companys interest. The exclusion of purchase rights has to be appropriate and
necessary and be in an appropriate relation to the pursued target.230 An exclusion of the
purchase right is especially appropriate when the capital increase does not surpass 10 percent
of the authorized capital. Furthermore, it shall not be essentially lower than the base price of
the shares (sec. 186 subs. 3 sentence 4 AktG).
Moreover, the executive board has to present a written report on the reason of the purchase
right exclusion in accordance with sec. 186 subs. 4 sentence 2 AktG.231 Besides, one has to
pay attention that the amount of the conditional capital increase shall not surpass fifty
percent of the authorized capital represented at the moment of resolution in accordance with
sec. 192 subs. 3 n. 1 AktG. If the company decides to introduce its stock-option program in
connection with naked warrants, further details have to be fixed in the resolution of the
general assembly in addition to the described corner points under sec. 193 subs. 2 sentence 1-
229
Comp. Dietz, 2004, p. 59 et seq.
230
Comp. Engelsing, 2001, p. 73
231
Comp. Winter, 2000, p.192
92 III Stock-option programs as part of the remuneration management system
3 AktG. In accordance with sec. 193 Abs. 2 S. 4 AktG the resolution of the general assembly
has to contain:
the repartition of the purchase rights which are given to employees or members of the
management,
performance targets,
purchase periods,
exercise periods and
lock-up periods.
The German Stock Companies Act leaves a wide scope for the design of company
performance targets. The use of absolute and relative performance targets as well as the use
of accountancy key figures is possible.
Furthermore, the purchase and exercise periods have to be determined in the resolution, in
order to counter the insider problematic sufficiently. Moreover, the legislator requires that
the resolution contains the waiting period for the first time exercise. In accordance with stock
company law the waiting period is at least two years long. A further bill requires a longer
term.
Moreover it has to be respected that the amount of the conditional capital increase may not
be higher than ten percent of the authorized capital present when the resolution is passed in
accordance with sec. 192 subs. 3 n 1 AktG. In this case, there is no need for a special
exclusion of purchase rights for existing shareholders in contrast to the procurement of
shares through convertible bonds or warrants. For this reason, there are no reporting duties of
the executive board to the general assembly in accordance with sec. 186 subs. 4 sentence 2
AktG. In the interest of transparency and publicity one should not abandon a comprehensive
reporting policy.232
This form of capital increase is often chosen because own shares do not have to be bought
back at the market, which is positive for the companys liquidity.
The above mentioned details on the conditional capital increase in connection with naked
warrants and convertible bonds have shown that it represents an appropriate measure for
financing long-term stock-option programs. Furthermore, the introduction of naked warrants
has to be preferred to issuing convertible bonds, because no exclusion of subscription rights
is necessary which makes the procedure less complicated.
232
Comp. Schmeisser/Hahn/Schindler, 2004, p. 75 et seq.
12 Possibilities of financing stock-option programs 93
233
Comp. Engelsing, 2001, p. 70
234
Comp. Engelsing, 2001, p. 71
235
Comp. ibid, p. 71
94 III Stock-option programs as part of the remuneration management system
they might not receive new shares when exercising their options, if the increase of capital has
not been entered into the commercial register.236
The presented requirements for the execution of an authorized capital increase have shown
that this form of capital increase is basically appropriate for the introduction of stock-option
programs. The time and practical restrictions, however, make the authorized capital increase
less appropriate for financing stock-option programs.
236
Comp. Kau/Leverenz, 1998, p. 2273
237
Comp. Kau/Leverenz, 1998, p. 2273
238
Comp. Engelsing, 2001, p. 69
239
Comp. Kau/Leverenz, 1998, p. 2273
240
Comp. Engelsing, 2001, p. 69 et seq.
12 Possibilities of financing stock-option programs 95
inappropriate in practice, because a fiduciary must take over the complete contribution in
accordance with sec. 56 subs. 3 sentence 2 AktG.241
On the ground of the above mentioned deliberations, we can say that the ordinary capital
increase is very inflexible and therefore very rarely applied in practice.242
The general regulations on the interdiction of repurchases of own shares are based on the
emergency decree of 19 September 1931 which was passed on the grounds of the
experiences of the world economic crisis from 1929 to 1931. At that time the incorporated
companies had tried to avoid the dropdown of prices of company shares via the repurchase of
own shares. This lead in the best case to liquidity problems of the companies and in the worst
case it meant their bankruptcy.244
However, the legislator has passed exceptional regulations (sec. 71 subs. 18 AktG), which
make the purchase of own shares by the company possible. The repurchase of own shares by
the company is permitted for the purpose of distribution to employees in accordance with
sec. 71 subs. 1 n 2 AktG or to managers in accordance with sec.71 subs. 1 n 8 AktG.
241
Comp. Klahold, 1999, p. 134
242
Comp. Klahold, 1999, p. 135
243
Comp. Engelsing, 2001, p. 87 et seq.
244
Comp. ibid, p. 86
96 III Stock-option programs as part of the remuneration management system
of 1959 this regulation was introduced in order to make the issue of staff shares for the
employees easier.245
In accordance with sec. 71 subs. 3 sentence 2 AktG the company has to hand down the
repurchased shares to the beneficiary within one year after purchase. The amount of this
measure of coverage shall not be higher than ten percent of the share capital (sec. 71 subs. 2
S. 1 AktG). One has to keep in mind that these 10 percent comprehend the purchased shares
as well as the already purchased shares which are still in the company. For the repurchase of
own shares and the design of the conditions the executive board is the only responsible. It
can decide the repurchase of shares in accordance with the performing competence under
sec. 76 subs. 1 AktG without consent of the general assembly.246
The repurchase of own shares is appropriate for the coverage of stock-option programs,
when the stock-option program is only introduced for employees of subordinated
management levels. This method of coverage is not appropriate for members of the executive
board, because they can not be considered as employees of the company.247 Employees are
only those persons who are subject to instructions. The members of the executive board,
however, are not subject to instructions. It is rather their responsibility to direct the company.
Therefore, they do not have the characteristic of an employee and do not have the right to
receive shares under sec. 71 subs. 1 n 2 AktG.248
The purchase of own shares in accordance with sec. 71 subs. 1 n AktG is nor appropriate for
stock-option programs which entitle the executive board to purchase shares, because the
legislator has narrowed the circle of participants to employees only. Also the time limitation
to hand the purchased shares down to the beneficiaries within one year has to be regarded as
disadvantage. Because of the short period of one year this method of coverage is not
appropriate for long-term stock-option programs.
With the introduction of the KonTraG (Corporate Sector Supervision and Transparency Act)
in the year 1998 the new regulation sec. 71 subs. 1 n 8 AktG was introduced, because it
makes it possible for members of the executive board and managers to take part in stock-
option programs which are financed by the buyback of own shares. This regulation is
explained in more detail in the following section.
245
Comp. ibid, p. 87
246
Comp. Klahold, 1999, p. 184
247
Comp. Engelsing, 2001, p. 88
248
Comp. ibid, p. 88
12 Possibilities of financing stock-option programs 97
with own shares is excluded as only purpose.249 If the purchase of own shares is undertaken
in the context of a stock-option program, sec. 71 subs. 1 n8 sentence 5 AktG points to sec.
193 subs. 2 AktG. The requirements for a conditional increase in capital mentioned in sec.
193 subs. 2 are also valid for own shares.
The permission to the executive board to buy back own shares has to be given in a resolution
of the general assembly. This resolution is limited to 18 months in accordance with sec. 7
subs. 1 n 8 AktG. This term of 18 months is only valid for the purchase of shares, but not
for holding them. This makes it possible for the company to hold its own purchased shares
for an unlimited period of time. In the authorization resolution, the minimum and maximum
price for which the own shares are bought back have to be specified. These two values can
be either determined in absolute or in relative numbers.250 Furthermore, the resolution has to
contain the volume for the purchase of own shares which must not be higher than ten percent
of the share capital (sec. 71 subs. 1 n1 AktG). It has to be reminded that the upper limit of
ten percent comprehends the purchased shares as well as the already purchased shares which
are still kept in the company (sec. 71 subs. 2 sentence 1 AktG).
In accordance with sec. 71b AktG the company is neither entitled to voting rights nor to
dividend payments from own shares. Furthermore, evasive transactions are forbidden in
accordance with sec. 71a AktG. If the company purchased own shares illegally the shares
have to be sold within one year after their purchase.251
Because of the insider problematic, the Federal Authority for the Supervision of Services
(Bundesanstalt fr Dienstleistungsaufsicht) has to be informed on the empowerment of the
executive board in accordance with sec. 71 subs.3 sentence 3 AktG. In the next general
assembly the executive board has to inform the shareholders over the following points in
accordance with sec. 71 subs. 3 sentence 1 AktG).
reasons for and purpose of the purchase of own shares
number of acquired shares and
the amount of share capital used on them,
their share in share capital
their counter value in shares
When the executive board is empowered, it may buy back own shares up to a maximum
amount of ten percent (sec. 71 subs. 1 n 8 s. 6 AktG). In practice, we can distinguish
between different procedures and moments for the repurchase of own shares. The following
points in time are possible for the repurchase of own shares:
249
Comp. Zitzewitz, 2003, p. 89
250
Comp. Engelsing, 2001, p. 89
251
Comp. ibid, p. 90
98 III Stock-option programs as part of the remuneration management system
The advantage of repurchase of own shares at the moment of granting the stock-options is
that the price risk is avoided if the management chooses to exercise the option at a later point
in time.252 The reason for this is that the participants in the stock-option program purchase
the shares at a base price at the moment of exercising the option which corresponds to the
purchase price of the shares by the company. If the stock-options are not exercised, the
company bears the loss of the price dropdown in the case of necessity to sell the shares. A
fact which has to be considered as disadvantage is that the shares have to be purchased at a
very early point in time. This implies that liquidity is bound in the company which is not
available for investments and payment of interests for existing credit. The positive side is
that possible dividend payments are saved during the runtime of the stock-options (sec. 71b
AktG).253
Altogether, it can be assumed that shares are bought back when stock-options are
exercised.254 The company has a lower risk for the case that stock-options are not exercised
and the liquidity is not affected during the complete runtime of the option.255
Furthermore, there are different possibilities how the share can be purchased. In practice the
following methods are distinguished:256
1. purchase of the shares on the stock market (open market purchase)
2. purchase offer by the executive boards to the shareholders (self tender offer)
3. purchase of shares by a majority shareholder (negotiated repurchase).
In the case of repurchase of own shares on the stock market, the company buys its own
shares anonymously at the stock market rate. In this case the company acts as enquirer at the
stock market.257
In the case of purchase of own shares via a self tender offer the company suggests an offer
to the shareholders to buy back own shares in a certain period. In contrast to the buyback of
shares at the stock market the repurchase is not undertaken over a longer period of time, but
is determined in time. The offer to the shareholders can have two different forms: in case of a
fixed price tender offer the offer of buyback is made at a fixed price. Hereby, the buyback
price and the period of time during which the repurchase shall be made are determined by the
252
Comp. Kallmeyer, 1999, p. 101
253
Comp. Engelsing, 2001, p. 93
254
Comp. Schmeisser/Hahn/Schindler, 2004, p. 78
255
Comp. Engelsing, 2001, p. 93
256
Comp. Schmeisser/Hahn/Schindler, 2004, p. 78
257
Comp. Engelsing, 2001, p. 91
12 Possibilities of financing stock-option programs 99
company. The buyback price is composed of the stock quotation and a sales bonus. This
motivates the shareholder to sell the shares within a determined period of time.258
In contrast to the fixed price tender offer the Dutch auction tender offer only determines
a price margin for the repurchase. The shareholders make their offers for sales within this
margin. The company then determines the lowest price (market clearing price), at which it
wants to buy the desired number of shares back. If the number of sales offers is higher than
the desired number of shares that shall be bought back, the individual sales orders are carried
out proportionately.259
The third option consists in the possibility to purchase options from a majority shareholder.
This type of repurchase is generally legally prohibited in Germany, because it offends the
principle of equality in accordance with sec. 53a AktG.260 In this case only the major
shareholder receive an offer for the repurchase of own shares, while the other shareholders
do not get this offer. This means that a small circle of shareholders is favored. The unequal
treatment of the other shareholders, however, can not be justified.261
The deliberations of this section have shown that the purchase of own shares by the company
is appropriate to cover shares for a stock-option program Furthermore, this type of financing
does not lead to dilution of capital262 nor of the voting rights of the existing shareholders.263
This means that the repurchase of own shares to cover the stock-option program is an
adequate method of coverage depending on the situation of the company.
258
Comp. Rudolph, 2006, p. 463
259
Comp. Engelsing, 2001, p. 92
260
Comp. Rudolph, 2006, p. 463
261
Comp. Engelsing, 2001, p. 92
262
Friedrichsen is sceptical with regard to this practice, 2000, p. 232.
263
Comp. Kallmeyer, 1999, p. 101
264
Comp. Dietz, 2004, p. 69
100 III Stock-option programs as part of the remuneration management system
participants of the stock-option program.265 In the case of exercise of the stock-option by the
participant of the program the credit institute has to make the required number of shares
available that it had previously acquired at the stock market on its own account and in its
own name.266 There is no need of a resolution of the general assembly for the cooperation
with third parties. The reason is that the structure of the company capital is not changed.267
The disadvantage of cooperation with third parties is that the company has to pay a fee to the
credit institute. The amount of the fee depends on the type of procurement of the stock-
option program.
Furthermore, it depends on the risks that the third party takes over by purchasing the
shares.268 The payment of the fee means that the companys liquidity is reduced. The fee
must also be paid if the stock-option is not exercised because the determined conditions in
the option contract were not fulfilled by the participant of the program.269 The positive aspect
is that the transfer of options does not imply any dilution of capital and voting rights of the
present shareholders.270
265
Comp. Engelsing, 2001, p. 95
266
Comp. Pellens/Crassselt, 1998, p. 150 et seq.
267
Comp. Zitzewitz, 2003, p. 139
268
Comp. Engelsing, 2001, p. 96
269
Comp. Kallmeyer, 1999, p. 102 et seq.
270
Comp. Schmeisser/Hahn/Schindler, 2004, p. 82
271
Comp. Engelsing, 2001, p. 98 et seq.
13 Execution of a stock-option program in the company 101
272
Comp. Zitzewitz, 2003, p. 95
273
Comp. Engelsing, 2001, p.39 et seq.
102 III Stock-option programs as part of the remuneration management system
274
Comp. Holland, 2000, p. 41
275
Comp. Klahold, 1999, p. 202
276
Comp. Schmeisser/Hahn/Schindler, 2004, p. 33
277
Comp. Zitzewitz, 2003, p. 95
278
Comp. Schmeisser/Hahn/Schindler, 2004, p. 31 et seq.
13 Execution of a stock-option program in the company 103
Decision on the execution of a conditional capital increase (sec. 192 subs. 2 n1 AktG)
resolution of approval or authorization of the issue of the bond (sec. 221 AktG),279
which has to be presented to the general assembly (sec. 186 subs. 4 sentence 2 AktG).
exclusion of prescription rights for the existing shareholders (sec. 221 subs. 4 in
connection with sec. 186 subs. 3 and 4 AktG) as well as
a written report on the reasons for the exclusion of prescription rights which has to be
presented to the general assembly (sec. 186 subs. 4 sentence 2 AktG).
The issue of naked warrants via a conditional capital increase also makes a resolution of
approval or authorization necessary in accordance with sec. 192 subs. 3 AktG.
In the case of sourcing the stock-option program with the purchase of own options in
accordance with sec. 71 subs. 1 n AktG the following resolutions have to be prepared:
a resolution of authorization in accordance with sec. 71. subs. 1 n. 8 AktG
a corresponding exclusion of prescription rights in accordance with sec. 186 subs. 3, 4,
71 subs. 1 n. 8 sentence 5 AktG as well as
a report on the reason for exclusion of the prescription right (sec. 186 subs. 4 sentence 2
AktG).
Afterwards at least a three-quarter majority of the share capital when the resolution is made
is necessary to put the resolution into action. The supervisory board and the executive board
then announce the resolution for conditional increase in capital for entry in the commercial
register (sec. 195 subs. 1 AktG). When convertible bonds or warrants are issued, the decree
of the supervisory board and the executive board has to be entered into the commercial
register (sec. 22 subs. 2 sentence 2 AktG). In case of a resolution for purchase of own shares
the Federal Institute for the Supervision of Financial Services has to be informed (sec. 71
subs. 3 sentence 3 AktG).280
279
The authorization resolution gives the supervisory board the necessary freedom for the introduction and
execution of a stock-option program when stock-options are granted to the executive board. In the case of a
resolution of approval the executive board has the duty of execution. Comp. Kelle, 2002, p. 36
280
Comp. Zitzewitz, 2003, p. 95 et seq.
281
Comp. Schmeisser/Hahn/Schindler, 2004, p. 33
104 III Stock-option programs as part of the remuneration management system
company would partially use a credit institute. The credit institute takes the convertible
bonds over and offers them to the beneficiary for purchase.282
If pure naked warrants are given to the executive board, the supervisory board is also
responsible. The grant of stock-options via conditional capital increase (sec. 192 subs. 2 n 3
AktG) or the purchase of own shares (sec. 71 subs. N 8 AktG) makes it necessary to
conclude a new employment contract with the executive board or to change the old
employment contract with the executive board.283
If the participants of the stock-option programs receive virtual options, they do not receive
shares, but an immediate cash settlement.
282
Comp. Zitzewitz, 2003, p. 96
283
Comp. ibid, p. 96, 99
284
Comp. Friedrichsen, 2000, p. 225
14 Accountancy of stock-option programs 105
285
Comp. Schubert, 2002
286
Comp. Kramarsch, 2004, p. 94 et seq.
287
Comp. Pellens, 2008, p. 502
288
Comp. IFRS 2.53
106 III Stock-option programs as part of the remuneration management system
goods, work or other services are granted. Another example would be the one of a business
consultant who receives stock-options of the company instead of monetary payment.289
Moreover, IFRS has to be applied in the case of share-based remuneration, when the equity
instruments are not created by the company itself, but by the parent company in case of
affiliated companies. It has to be taken into consideration that the standard may not be used
for transaction for which the accounting is expressly regulated in other regulations of the
IFRS rules.290
The standard distinguishes between the following types of share-based remunerations:
equity-settled share-based payment transactions, like shares or stock-options
cash-settled share-based payment transactions, e.g. stock appreciation rights
share based remunerations with a choice between equity settlement or cash settlement
(combination model).291
It can be understood from the above deliberations that the standard distinguishes between
real and virtual equity settlement. This differentiation is necessary in order to recognize
whether the beneficiaries have an equity or foreign capital claim against the company.
The following table gives an overview over the different forms of design of share-based
remuneration.
The following deliberations focus the accounting of share based remuneration of employees
and managers of the company.
289
Comp. Pellens, 2008, p. 502
290
Comp. IFRS 2.52.6
291
Comp. IFRS 2.2
292
Following: Pellens, 2008, p. 503
14 Accountancy of stock-option programs 107
Approach
The assessment of a share-based remuneration which is settled with equity instruments
(equity-settled share-based payment transactions) is undertaken at the fair value which is
determined at the moment of grant.293 This type of accounting is valid for shares as well as
stock-options which are sourced via conditional capital increase as well as via repurchase of
own shares.294
The problem with accountancy of employee remuneration with real equity instruments is that
the grant of shares or stock-options is a type of work remuneration. Work independent of
whether it is already performed or not may not be included in the balance sheet. The
problem with that impossibility to include work into the balance sheet is solved via an
expense entry. If the employee remuneration is solved via stock and if the employees have to
carry out an additional own investment for the shares, the following entry has to be made:295
personnel expense debited capital stock credited
cash debited capital reserve credited
The recognition of stock-options in the balance sheet on the other hand is more complex
because the moment of granting the stock-option as well as the moment of exercising it have
to be recognized. The corresponding journal entry in the case of granting a stock-option is as
follows:
Personnel expense debited capital reserves credited
If the stock-options are exercised after the lock-up period through the employees, the one-
time payments by the beneficiaries for the stock-option have to be debited on cash.
The exercising profit which the beneficiary makes by exercising his stock-option does not
lead to a retroactive adaption of the capital expense.296
The previously stated thoughts include the assumption that the work has already been
performed. This is based on the assumption that the stock and stock-options are freely
disposable and exercisable and do not depend on an employment relationship in the
293
Comp. IFRS 2.10, status 24.02.2005
294
Comp. IFRS 2 BC331
295
Comp. Pellens, 2008, p. 508
296
Comp. Pellens, 2008, p. 509
108 III Stock-option programs as part of the remuneration management system
company.297 This is mostly not the case in stock-option programs. In practice, stock-options
are only granted, if there is an employment relationship. It may therefore be assumed that
stock-options which are given out under this precondition, correspond to future work
performances. The expenses must therefore be evenly distributed in the personnel expenses
with effect on the net income over the period of service. In accordance with IFRS 2.15 the
end of the performance period corresponds to the moment from which on the stock-options
are freely disposable and exercisable. In the case of stock-option programs this period
corresponds usually to the lock-up period.298 If the stock-option program is based on
performance targets, the period of performance is estimated on the day of grant.299 If capital
market related performance targets (market conditions) are set, the estimated period of
performance may not be corrected at a later point in time. If non-capital market related
performance targets (performance conditions) are set, the performance period and the
personnel expenses to be entered have to be adapted to the actual duration up to the
fulfillment of the targets, if necessary in each period.300
Assessment
Real equity capital instruments used as remuneration have to be recognized with the fair
value of the services received by the company. The fair value of the named equity
instruments (stocks and stock-options) are generally calculated from the current market
price.301
The use of current market prices is unproblematic for companies that give out employee
stock. In contrast, in the case of stock-options the use of market prices is usually not
possible. This is due to the specific design of options, like the longer run-time and the
possibility of an early exercise of the stock-option before the end of the run-time. The stock-
options distributed to the managers are therefore very different to the stock-options traded on
the stock market. For this reason a generally recognized assessment method can be used for
the calculation of stock-options:302
In the assessment of stock-options it has to be differentiated between the intrinsic value and
the fair value . The intrinsic value is determined by the value by which the current stock
quotation of the share surpasses the subscription price. Therefore, it demonstrates the
possible profit for the case of immediate exercise. The fair value includes besides the inner
value also the time value. The time value takes the positive as well as the negative price
developments into account. This means that the time value is positive at any moment before
297
Comp. IFRS 2.14
298
Comp. Pellens, 2008, p. 509
299
Comp. IFRS 2.15b
300
Comp. Coenenberg, p. 340
301
Comp. IFRS 2.16
302
Comp. Buschhter/Striegel, 2009, p. 260 et seq.
14 Accountancy of stock-option programs 109
the end of the run-time. This means, the stock-option has a positive value even if the intrinsic
value is zero.303
IFRS name no specific option price model for the determination of the fair value. The reason
is that possible developments of option price models should be considered in the option price
assessment. Some models are admissible which take the following factors into
consideration:304
exercising price of the stock-option,
run time of the option,
current market price of underlying stock,
the expected volatility of the stock,
the expected return on dividends,
and the risk free interest factor for the run-time of the stock-option.
IFRS 2 name the Black-Scholes model as example for the assessment of stock-options.305
The advantage of the Black-Scholes model is its simple application. The disadvantage is that
it can only be applied on stock-options which are not containing complex conditions (e.g.
lock-up periods, exercising windows). An example is that the Black-Scholes model can not
display stock-options which are exercised before the end of the run-time. Furthermore, the
expected volatility is determined via a fixed value and takes not into consideration that the
volatility can change in the course of the run-time of the stock-option. But this model can
still deliver a sound value, if the stock-option program contains short contractual periods or
short exercising periods.306
A further evaluation method to be taken into consideration for the assessment of stock-
options is the binomial options pricing model by Cox, Ross and Rubinstein. The model
contains the same calculation factors as the Black-Scholes model, but is more flexible and
can be applied on almost all types of share and stock-option programs.307
To the contrary of the Black-Scholes model the binomial options pricing model can deal with
changes of the assessment parameters during the run-time of the stock-option. The binomial
model assumes that the stock quotation can have two different variations in money or out
of money within a certain period of time.
By dividing the run-time of the stock-option in the shortest possible periods, the real
distribution of the price development of the stock can be displayed via the binomial model.
303
Comp. Pellens, 2008, p. 512
304
Comp. IFRS 2.B6
305
Comp. IFRS 2.B5
306
Comp. Buschhter/Striegel, 2009, p. 262
307
Comp. Kramarsch, 2004, p. 211
110 III Stock-option programs as part of the remuneration management system
The disadvantage is that the complexity of the model increases the shorter the examined
periods become.308
Furthermore, simulation procedures as the Monte-Carlo simulation can be used for the
evaluation of the option price. In this procedure a multitude of random paths is generated
which represent the conduct of the relevant factors of influence. On these random paths the
discounted value of the payment is calculated. The average of the discounted values equals
the value of the stock-option as well as the random error. This random error can be
diminished with a high number of simulations.309
Furthermore the IFRS 2 contains regulations on the record of performance targets. While in
Germany under sec. 193 AktG success targets are obligatory for stock-option plans which
are financed via a conditional increase in capital, the IFRS 2 divides them in market
conditions and performance conditions.310 Market conditions are stock market oriented
targets , as the absolute increase of the share price or outperformance of a peergroup.
Performance conditions on the other hand are key figure based targets as the increase of
profit per share by 10 percent etc.
Only the market conditions are used for the determination of the fair value in the evaluation
of the option. The expense remains the same in case of not achieving the aim. Performance
conditions are not taken into consideration in the option assessment, but are considered in the
determination of the number of shares which are likely to be exercised. In the case of not
reaching the performance conditions, no personnel expense results and the accruals can be
dissolved in cash in case of an application.311 This type of assessment applies also to a
combination of market and performance conditions.312
In exceptional cases it is possible to deviate from the fair value assessment. The stock-
options are then assessed at their intrinsic value. One may recur to this type of evaluation, if
it is not possible for the company to determine the fair value in a reliable way. The
assessment of stock-option at their intrinsic value at the day of grant of the stock-option is
not final. Each change of intrinsic value has to be considered in each reporting period up to
the end of the run-time of the stock-option. It is not possible to change from the assessment
at the intrinsic value to the assessment at the fair value.313
308
Comp. Buschhter/Striegel, 2009, p. 262
309
Comp. Kramarsch, 2004, p. 211
310
Comp. IFRS 2.15b
311
Comp. IFRS 2.19
312
Comp. Kramarsch, 2004, p. 102
313
Comp. Pellens, 2008, p. 513
14 Accountancy of stock-option programs 111
Approach
The accounting of virtual equity instruments deviates in very few points from real equity
instruments. The accounting of virtual stock-options, however, is less time consuming,
because the equity is not affected in this case.314
Virtual equity instruments, as e.g. stock appreciation rights are recorded just like real equity
instruments in the personnel expenses. In contrast to the real equity instruments no capital
accrual is made as counter-entry, but a liability in form of an accrual is made.315
At the moment when the work of the employee is fully done, the company has to record the
personnel expense and the accrual. Some value increasing rights are e.g. exercisable at once,
with the effect that at this moment the services by the employee are fully rendered.
Therefore, the stock appreciation rights have to be recorded at the moment of grant to full
extent.316
If the services of the employees have not been completed, the personnel expense and the
accruals have to be recorded otherwise. The services by the employee are generally not
completed when certain exercising conditions, as e.g. lock-up periods were agreed on in the
stock-option program. In this case, the personnel expense has to be assessed and recorded
anew at any accounting date during the lock-up period. This type of assessment is carried out
up to the moment when the services of the employee are completed.317
Assessment
Share-based remuneration instruments, which are paid in cash, as e.g. stock appreciation
rights, are also assessed at the fair value. Like in the case of real stock-options the
assessment of the virtual stock-options has to be carried out with the help of appropriate
assessment models. In contrast to the real stock-options the first time assessment is not
carried out at the moment of grant. The evaluation has to be updated at each accounting date
during the run-time.318 This means that personnel expenses and accruals have to be adapted
with effect to net income to the changes in value.
314
Comp. ibid, p. 513
315
Comp. IFRS 2.7
316
Comp. IFRS 2.32
317
Comp. IFRS 2.32, 2.33
318
Comp. Pellens, 2008, p. 518 et seq.
112 III Stock-option programs as part of the remuneration management system
The corresponding accounting records at the end of the corresponding reporting period are
formulated as follows:319
Through the regular adaptation of the assessment of virtual options, the exercising profit of
the beneficiary affects net income in contrast to real stock-option programs. The exercising
profit can be higher or lower depending on the situation of the stock markets. This induces a
high volatility of the personnel expenses.320
319
Comp. ibid, p. 520
320
Comp. Pellens, 2008, p. 520
321
Comp. ibid, p. 522
322
Comp. ibid, p. 522
323
Comp. ibid, p. 522
14 Accountancy of stock-option programs 113
1. The company chooses cash settlement: The cash settlement has to be recorded like the
buyback of real equity instruments in this case; it has to be deducted from equity without
effect on net income.
2. The company chooses settlement via equity instruments. No further record in equity is
necessary.
Furthermore, there are combination models in which the beneficiary (employee) has the right
to choose the settlement type. This is a so called compound financial instrument, composed
off an equity and a foreign capital component.326 Because its existence is rather seldom in
practice it will not be examined in more detail.
14.1.5 Disclosures
IFRS 2 contains extensive regulations on the disclosure of share-based remuneration. With
the requirements in IFRS 2, it shall be made possible for those interested in the annual
accountancy to comprehend information on kind and extent of share-based remuneration and
to assess it. Furthermore, information on the assessment and the effects of share-based
remuneration on the financial circumstances and revenue situation have to be published.327
These three principles contain minimum standards which have to be fulfilled by the
companies. With regard to the information on type and extent of relevant transactions the
following information has to be given under IFRS 2.445:
1. A presentation of all share-based remuneration systems used in the recording period. All
important parameters of each program have to be displayed, as e.g. exercising conditions,
lock-up period and run-time.
2. The number and the weighted average exercise price for all real stock-options:
stock-options outstanding at the start of the recording period,
stock-options granted in the reporting period,
stock-options forfeited in the recording period, because of unfulfilled exercising
conditions,
stock-options exercised in the reporting period,
stock-options forfeited in the recording period,
stock-options outstanding at the end of the reporting period as well as
exercisable stock-options at the end of the reporting period.
324
Comp. IFRS 2.41 bis 2.43
325
Comp. IFRS 2.43
326
Comp. IFRS 2.35
327
Comp. Pellens, 2008, p. 522
114 III Stock-option programs as part of the remuneration management system
3. Furthermore, information has to be given on all stock-options which have been exercised
in the period, the average stock quotation at the day of exercise and the weighed average
price of the recording period in the case of regularly exercised options.
4. The fluctuation margin in exercise prices and the contract run-time for the end of
outstanding stock-options have to be equally published.
With regard to the assessment of share-based remuneration, the following information has to
be given under IFRS 2.47 to 2.49.
1. The weighted average fair value for the stock-options granted in the recording period on
the record date as well as information on the option price model including the following
influencing factors:
the average stock quotation, exercise price, expected volatility, run-time of the option,
expected dividends, risk-free interest rate, as well as further assumptions included in
the option model;
a description on how the expected volatility was determined;
information on whether and how other factors (e.g. market conditions) were included
in the calculation of the fair value.
2. For other share-based remuneration instruments (other than stock-options) the number
and the average fair value at the record date have to be published as well as information
on how the fair value was calculated.
3. In the case of changes of the conditions in the granted share-based remuneration
instruments, information has to be given why these changes were made and information
on the changed fair value and its determination has to be given.
With relation to the third principle the following information has to be published:
4. A display of the effects of the distribution of share-based remuneration on the income
statement as well as on the capital and finance situation of the company.328 In this context
the following information has to be given:329
the total expenses recorded which have arisen in the recording period because of
share-based remuneration
the total expenses which were recorded as accruals at the end of the reporting period
because of share-based remuneration
in case of accruals which have arisen from share-based remuneration, the intrinsic
value of the accrual at the end of the period.
The companies may give further details in the annual balance sheet when the three named
principles are not fulfilled with the minimum requirements.
328
Comp. IFRS 2.50
329
Comp. IFRS 2.51
14 Accountancy of stock-option programs 115
330
Comp. Accounting Principles Board, Accounting Principles Board Opinion No. 25: Accounting for Stock
Issued to Employees, 1972.
331
Comp. Statement of Financial Accounting Standards No. 123, published by FASB, 1995.
332
It was critizised that the APB determined only the intrinsic value of the option. This had generally the result,
that the base price was set at the current stock quotation which meant that the intrinsic value often had the
unrealistic value zero.
333
Comp. Coenenberg, 2005, p. 346
334
Comp. KPMG, 2007, p. 283
335
Comp. Coenenberg, 2005, p. 349
116 III Stock-option programs as part of the remuneration management system
4. Many analogies between SFAS 123(R) and IFRS 2 and comparability between
company balance sheets under IFRS and US-GAAP.
The SFAS 123(R) was developed in close collaboration with the IASB. The IASB published
the standard IFRS (which was described above) almost at the same moment.336
Area of application
SFAS 123(R) regulates the accountancy for all variants of share-based remunerations which
are spent by a company for received goods and services. This means that also non-employed
parties as suppliers are included in the area of application. In practice, however, share-based
remuneration paid to suppliers plays only a minor role.337 For this reason the standards
focuse share-based remuneration granted to employees.
Approach
SFAS 123 (R) distinguishes between two variants of share-based remuneration: equity
classified awards and liability classified awards. The separation of share-based remuneration
in two different types is crucial because there are important differences in the recognition of
both forms in the balance sheet.338
Share-based remuneration which provide for a cash settlement, as e.g. stock appreciation
rights are classified as liability classified awards. Share-based remuneration which do not
provide for cash settlement as shares or real stock-options are classified as equity classified
awards.339
If the company has the right to choose a form of settlement, i.e. if the exercise of the share-
based remuneration is settled either in cash or in company shares, the intent of the company
is decisive. If the company had already chosen the cash settlement in the past, one may
assume that this type of settlement will be chosen in future. The result is that the company
has to classify the chosen share-based remuneration as liability classified award.340
Assessment
Under SFAS 123(R) all transactions, in which the company has granted share-based
remuneration as e.g. stock-options and similar rights for received goods and services to the
employees, have to the assessed at fair value.341 The Fair Value of share-based remuneration
336
Comp. KPMG, 2007, p. 283
337
Comp. ibid, p. 283
338
Comp. ibid, p. 284
339
Comp. ibid, p. 285 et seq.
340
Comp. KPMG, 2007, p. 285
341
Comp. SFAS 123(R). par. 7
14 Accountancy of stock-option programs 117
has to be calculated with an accepted assessment model like for example the Black-Scholes-
model or the binomial model.
The value of the share-based remuneration is to be assessed at the moment when the
employees can exercise their stock-options or similar rights for the first time. This moment,
however, lies in the future, with the result that the fair value has to be estimated on the grant
day.342
The following parameters are integrated into the assessment model:343
subscription price of the shares,
expected volatility of the share,
expected dividend of the share as well as
risk free interest rate for the expected run-time of the stock-options.
Further changes of the parameters, which lead to a change of fair value, are not taken into
consideration in equity classified awards.344 The distribution of the fair value has to be linear
over the lock-up period and the fair value has to be recorded as personnel expense and
capital accrual. The following accounting record applies:345
342
Comp. SFAS 123(R). par. 16
343
Comp. Dietz, 2004, p. 29
344
Comp. KPMG, 2007, p. 287
345
Comp. SFAS 123(R). par. 39
346
Comp. KPMG, 2007, p. 292
347
Comp. KPMG, 2007, p. 292 et seq.
118 III Stock-option programs as part of the remuneration management system
Disclosures
For companies that balance their share-based remuneration in accordance with US-GAAP,
the disclosure regulations are set down in SFAS 123(R) par. A240 and A241. These new
regulations replace the regulations under SFAS 123, par. 45-48.
In the annex a description of the share-based remuneration and the most important conditions
as lock-up period, performance targets, run-time etc. has to be made.348
Furthermore, the following detailed information on share-based remuneration has to be
provided in accordance with 123(R). par. A240:
1. For each business year information on the number and the average exercise price of
options has to be provided:
stock-options outstanding at the beginning of the business year,
stock-options outstanding at the end of the business year,
stock-options exercisable at the end of the business year
stock-options granted, exercised, forfeited of expired during the business year.
2. The average fair value at the moment of grant of the equity instruments has to be
provided separately for each of the following groups:
not invested equity instruments at the beginning and the end of the year as well as
equity instruments granted, acquired or forfeited during the business year.
3. The average fair value at the moment of grant for all real stock-options granted in this
year and other equity instruments.
4. A description of the assessment method for the evaluation of the fair value with the
following parameters:
risk-free interest rate,
expected volatility of the share,
run-time of the stock-options as well as
expected payment of dividends.
5. The total expenses for remuneration of the business year in question for the recorded
personnel expenses have to be displayed in the income statement.
6. Important modifications of existing option plans.
If a company has introduced several stock-option plans, the information has to be given in
the group or annual consolidated financial statement or annual balance sheet separately for
each stock-option program.
348
Comp. SFAS 123(R). par. A240
14 Accountancy of stock-option programs 119
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124 III Stock-option programs as part of the remuneration management system
employer employee
Duty to pay salary Duty to perform work
Principal
Duty of equal treatment
obligations Prohibition of victimizations
Duty to provide work Obligation of confidentiality
Duty to grant holidays Omission of notices and information
Fiduciary duties damaging reputation or
Duty to protect the employees health creditworthiness of employer
and life Restraint on competition
Subsidiary
Duty to protect the employees Duty to inform, to render accounts
obligations personal rights and make restitution
Duty to protect the employees Duty to give notice of impending
property damage
Duty to protect the employee against Fiduciary duty
sexual harassment at work
Table 15.1: Main and ancillary duties from employment relationship350
349
Comp. Schaub, 2004, p. 119
350
Following Schmeisser, 2008, p. 256
128 IV Delegations and their consequences
The labor contract is not subject to particular formal requirements. However, under the Law
of Proof of Substantial Conditions Applicable to the Employment Relationship
(Nachweisgesetz), the employer is obliged to put the essential terms of the contract in writing
and to deliver the document to the employee within four weeks after the start of the labor
relationship.351
The documents have to comprise the following minimum contents
name and address of the parties of the contract,
starting point of the labor contract,
in the case of a temporary work contract the estimated duration of the labor relationship,
place of work or notice that the employees shall work in different places,
characterization/description of work,
composition and amount of remuneration and due-date,
contractual hours of work,
annual vacation,
notice period,
notice of existing collective agreements, company and operating agreements.
If these points are not put down in writing, a valid labor relationship results anyway352 and
both parties are obliged to fulfill the underlying duties. Should the document not contain
individual regulations, the legal regulations come into effect (e.g. vacation).
The employee has an authority to give instructions resulting from the labor contract, i.e. he
may determine the working hours and the place of work for the employee.353
However, this authority is not sufficient to send the employee for a limited or unlimited
period abroad.354 In this case, the employees interests have to be taken into consideration
and no unreasonable burdens shall be caused by the change of job location.
Because the authority to give directives is a unilateral right of performance determination, it
has to correspond to reasonable discretion in accordance with s. 106 GeWO (German Trade,
Commerce and Industry Regulation Act). However, the employer has the possibility to
expressly agree on a possible delegation abroad in the labor contract already. Also a very
short period abroad, in the sense of a business travel, does not cause problems in the sense of
the unilateral authority to give directives of the employer.
351
Comp. Schaub, 2004, p. 120
352
Comp. ibid, p. 121
353
Comp. Schmeisser, 2008, p. 257
354
Comp. Schmeisser, 2008, p. 257
15 Aspects concerning labor contracts 129
Fig. 15.1: Relations in the case of a supplementary contract in addition to the labor contract
It is thinkable to organize delegations abroad this way, if the control of the foreign company
units or market research for managerial decisions is aimed at. Also for delegations abroad for
355
Comp. Schmeisser, p. 257
130 IV Delegations and their consequences
the purpose of human resource development, especially for the promotion of young staff and
for project related delegations, this type of contract is common.356
Fig. 15.2: Relations in the case of dislocation agreement and local labor contract
356
Comp. Schmeisser, 2008, p. 257
357
Comp. ibid, p. 258
358
Comp. Schmeisser, 2008, p. 258
15 Aspects concerning labor contracts 131
labor contract with the host company. This dislocation agreement regulates the inactive work
as well as further additional payments and bonuses, if applicable.359
This way the employee can be sure that he can re-enter into his original labor contract after
returning from his delegation abroad or at least to be re-employed under the former
conditions. Under certain circumstances also the continuance of German social security is
possible. This, however, will be described later in more details. Furthermore, the
employment affiliation with the delegating society is not interrupted because of the design of
the contract. This contract design bears also advantages for the delegating company: In case
of need it can get a qualified employee back into the head office. Usually, a call-back right is
therefore regulated, which permits the employer to call the employee back at an early point
in time. Furthermore, the head office can represent certain interests in the branch offices
abroad via the integration of the employee.360
Agreement on inactive work
Through the agreement on inactive work the existing labor contract with the delegating
company is transformed in a so called passive contract.361 This is due to the fact that the
contractual main duties for the employee the duty to deliver the work and for the employer
the duty to pay the remuneration for the work do not apply for the duration of the
delegation. The supplementary duties, however, continue to exist, as for example fiduciary
duties. In this form of contractual design the employee remains in a legal connection with the
home company.
Return Guarantee
The return guarantee or resettlement commitment is the employers promise towards the
delegated employee to re-employ him in the home company after the termination of the
delegation. The conditions under which the labor contract is carried out can be negotiated in
variable ways. Essentially, there are three possibilities: The employer can assure an
employment under comparable conditions as before the delegation for the employees return.
A further possibility is to consent an employment under consideration of the experience
gained abroad without concretizing the exact job after return. Finally, the employer can
promise a concrete position to the employee. However, this last type of return guarantee is
rather seldom used.362
Additional remuneration and provisions
The delegated shall be integrated as far as possible into the salary structure of the host
company during his time abroad in order to avoid a negative impact on the atmosphere
between the employees based on the often big differences between the salaries and to evade
359
Comp. ibid, p. 258
360
Comp. ibid, p. 258
361
Comp. ibid, p. 258
362
Comp. Schmeisser, 2008, p. 259
132 IV Delegations and their consequences
tensions. It is common for the delegating company to pay additional salary and make
additional provisions to the delegated employee, despite the fact that there is no proper
payment duty on its side.363
363
Comp. ibid, p. 259
364
sec. 8 AO
365
sec. 9 AO
16 Tax law aspects 133
According to this, the employee has to pay taxes on all revenues in Germany, if he has his
domicile or habitual residence in Germany and has unlimited duty to pay taxes.366
If, however, the employee does not have his domicile or habitual residence in Germany, he
has limited duty to pay taxes and has only the duty to pay taxes on domestic revenues.367
In the last case a double taxation can be the result, i.e. the same taxpayer has to pay the same
or similar taxes in at least two countries.368
366
Comp. Schmeisser, 2008, p. 261
367
Comp. ibid, p. 262
368
Comp. Schmeisser, 2008, p. 262 et seq.
134 IV Delegations and their consequences
369
Bundesfinanzministerium, status: 03 May 2009, 21:12h
370
Schmeisser, 2008, p. 263
371
Bundesfinanzministerium, status: 03 May 2009, 21:26h
16 Tax law aspects 135
Finally, the model agreement provides that the contracting states shall communicate between
each other if the residency cannot be determined on the basis of the named criteria.372
The following fig. represents a short examination schedule of the considered characteristics:
3. habitual residency
4. nationality
If on the basis of the named examination scheme in the case of dual residency one of the
contracting states is determined as country of residency, the taxpayer is taxed under the
double taxation agreement as if he would reside only in this country. In principle, the
unlimited duty to pay taxes continues to exist in both states.374
372
Comp. Schmeisser, 2008, p. 263
373
Following Schmeisser, 2008, p. 264
374
Comp. ibid, p. 263
136 IV Delegations and their consequences
According to this, the workplace principle under Art. 15 subs. 1 OECD-MA is considered as
basic rule under which all remunerations as wages and salaries etc. are charged with taxes in
the country in which the work is performed and in which the employee is physically located
to perform this work.376 This means for an employee who has been sent abroad that his
income in Germany has to be exempt under consideration of the progression proviso. This
means that all other domestic revenues, as e.g. revenues from capital assets are charged with
375
Following Schmeisser, 2008, p. 264
376
Comp. ibid, p. 265
17 Social security aspects 137
the tax rate, which was calculated taking the foreign revenues into consideration. Therefore,
the employee has to file a tax return.
The 183-day-rule sets a limit to the workplace principle. The right to charge taxes remains in
Germany if the following conditions are fulfilled:
1. Residency in the country of work not longer than 183 days in twelve months,
2. Remuneration is paid by or on behalf of employer who is not resident in the country of
work
3. Remuneration is not paid by the branch office the employer holds in the workplace
country.
If these three conditions apply cumulatively, the income is subject to German taxation;
otherwise the workplace principle is still applicable.377
377
Comp. Schmeisser, 2008, p. 267
378
Comp. Art. 15 Abs. 1 OECD-MA
379
Comp. Schmeisser, 2008, p. 267
380
Comp. ibid, p. 267
138 IV Delegations and their consequences
called transmission. Through this, the delegated employee has social security protection
under domestic regulations.381
381
Comp. Haufe Personal Office Online, Haufe Index 1564333, status: 26 April 2009, 14:38h
382
Comp. Haufe Personal Office Online, Haufe Index 1564333, status: 26 April 2009, 14:53h
383
Comp. Schmeisser, 2008, p. 268
384
Comp. Haufe Personal Office Online, Haufe Index 1564333, status: 26 April 2009, 15:08h
385
Comp. BfA., n 24/2002, p. 4
386
Comp. Schmeisser, 2008, p. 268
17 Social security aspects 139
Therefore, the following conditions are required for the Ausstrahlung under sec. 4 SGB IV:
The delegation has to be made into an area outside the area of application of the German
Social Security Code (outside of Germany).
The delegation is made in the context of an existing labor relationship in Germany.
The delegation has to be timely limited in advance either by contract or by the
characteristic of the occupation (e.g. for a certain project).
It is possible for the employer to get the employee back from the other country at any
moment. By this, it is guaranteed that the employee is integrated in the German
organizational structure for the complete duration of the assignment abroad.
The employer is entitled to give directives to the employees.
The remuneration for work is paid by the employer in Germany, i.e. it is not handed
down to the foreign company.388
If one of these conditions is not fulfilled, there is no duty to have social security protection in
Germany in accordance with sec. 4 SGB IV. This result is achieved by the following
examination scheme:389
387
Juris, status: 26 April 2009, 15:35h
388
Wikipedia, status: 26 April 2009, 16:04h
389
Comp. Haufe Personal Office Online, Haufe Index 1572178, status: 26 April 2009, 16:16h
140 IV Delegations and their consequences
For a better understanding the described conditions are explained in more detail in the
following paragraphs.
390
Comp. Haufe Personal Office Online, Haufe Index 1564346, status: 26 April 2009, 16:46h
17 Social security aspects 141
income tax is deducted under the German-Egyptian Agreement for Double Taxation
Avoidance. This difference when paying remuneration changes nothing for the delegation in
the sense of Ausstrahlung. For this, all other conditions have to be fulfilled.391
Also the occupation in other countries in representations is seen as Ausstrahlung, because
those are considered as independent branches of the domestic company and the employees
remain to full extent employees of the domestic employer.392
391
Comp. ibid, Haufe Index 1564347, status: 26 April 2009, 17:21h
392
Comp. ibid, Haufe Index 1564349, status: 26 April 2009, 17:36h
393
Comp. ibid, Haufe Index 1564351, status: 26 April 2009, 18:02h
394
Comp. ibid, Haufe Index 1564352, status: 26 April 2009, 18:24h
395
Comp. ibid, Haufe Index 1564352, status: 26 April 2009, 18:26h
396
Comp. BSG, decision of 4 May 1994, 11 file 55/93
397
Comp. Haufe Personal Office Online, Haufe Index 1564351, status: 26 April 2009, 18:13h
398
Haufe Personal Office Online, Haufe Index 1564354, status: 26 April 2009, 19:10h
142 IV Delegations and their consequences
399
Comp. ibid, Haufe Index 1564352, status: 26 April 2009, 18:48h
400
Comp. ibid, Haufe Index 1564353, status: 26 April 2009, 19:02h
401
Comp. ibid, Haufe Index 1564353, status: 26 April 2009, 19:05h
402
Comp. Haufe Personal Office Online, Haufe Index 1564376, status: 27 April 2009, 08:27h
17 Social security aspects 143
territory principle as well as at the place of occupation. This can lead to double payment of
contributions.403
The EEC agreements count among these agreements as transnational law and bilateral
agreement count among them as international law. This shall prevent that the delegated
person has to change the insurance system for the time of his occupation abroad and has to
pay double contributions.404
EEC regulations
For countries belonging to the European Economic area it is assured through regulations that
in the case of delegations the social insurance is to be carried out in accordance with
domestic law.405 Among these countries are Belgium, Bulgaria, Denmark, Germany, Estonia,
Finland, France, Greece, Great Britain and Northern Ireland, Iceland, Italy, Latvia,
Liechtenstein, Latonia, Luxembourg, Malta, Netherland, Norway, Austria, Poland, Portugal,
Rumania, Sweden, Slovakia, Slovenia, Czech Republic, Hungary and Cyprus.406 For this, the
delegated person has to work in a member state of the European Economic Area. The core of
the regulation EEC regulation n 1408/71 applies here and is valid for all member states of
the European Union. The area of application was expanded to Iceland, Norway and
Liechtenstein and is also applied to Swiss citizens.407 Under Art. 2 sec. 1 EEC-Regulation
N1408/71 the personal scope of application includes employees, independent workers,
students and refugees. For this reason, an employee who is citizen of a third country does not
fall under the area of application of the EEC regulations.408 In this case the regulations on
transmission apply, as long as no regulations on competences from agreements on social
security between the EU members state exist.409 The factual area of application is regulated
in Art. 4 sect. 1 of the EEC Regulation 1408/71 and includes insurance branches that offer
the following benefits:
Benefits in case of illness and maternity,
Benefits in case of disability, including benefits determined for maintenance or
improvement of the employment capacity,
benefits in old-age,
benefits to surviving dependants,
benefits in case of working accidents and professional diseases,
burial allowances,
403
Schmeisser, 2008, p. 271
404
Ibid, p. 271 et seq.
405
Comp. Haufe Personal Office Online, Haufe Index 1564341, status: 27 April 2009, 09:03h
406
Comp. ibid, Haufe Index 1564341, status: 27 April 2009, 09:45h
407
Schmeisser, 2008, p. 272
408
Ibid, p. 272
409
Haufe Personal Office Online, Haufe Index 1564341, status: 27 April 2009, 09:51h
144 IV Delegations and their consequences
Via the enumeration of the above mentioned benefits it becomes clear that the German
Social Security (health, old-age, accident and unemployment insurance) is subject of the
factual area of application of the agreement. It includes also the nursing insurance, whose
benefits have to be counted among the health care benefits in the context of the EEC
regulations.411
A duration of twelve months is considered as limit in accordance with Art. 14 Sect.1a of the
EEC Regulation 1408/71 if the employee does not replace another employee for whom the
delegation time has expired. If the work is longer than twelve years, the German legal
provisions still apply until the end of the work. At the longest, however, for further twelve
months, as far as the responsible authority in an EU state or the designated authority has
consented to it before expiration of the time.412 For this, the German employer has to apply
for the approval declaration before the end of the 12-months deadline.
410
Schmeisser, 2008, p. 273
411
Ibid, p. 273
412
Haufe Personal Office Online, Haufe Index 1564341, status: 27 April 2009, 09:58h
413
Schmeisser, 2008, p. 275
414
Comp. Haufe Personal Office Online, Haufe Index 1564341, status: 27 April 2009, 21:00h
415
Ibid, Haufe Index 1564341, status: 27 April 2009, 21:06h
17 Social security aspects 145
The individual agreements can be separated into closed and open agreements. Closed
agreements (as e.g. Tunisia and Morocco) are restricted to the citizens of the contracting
states as well as refugees and stateless persons. In open agreements all persons are integrated
which have a connection to the social security law of one of the two contracting states.416
416
Comp. Schmeisser, 2008, p. 276
146 IV Delegations and their consequences
The factual application area is very different for all agreements, because hardly any
contracting country includes all insurance branches. Many agreements with contracting
countries offer only limited possibilities. It is striking that all social security agreements
include the legal pension insurance.417
417
Comp. ibid, p. 276
418
Comp. Haufe Personal Office Online, Haufe Index 1564379, status: 26 April 2009, 20:47h
419
Comp. ibid, Haufe Index 1564380, status: 26 April 2009, 21:00h
420
Haufe Personal Office Online, Haufe Index 1564381, status: 26 April 2009, 21:12h
421
Comp. ibid, Haufe Index 1564381, status: 26 April 2009, 21:17h
422
Ibid, Haufe Index 1564381, status: 26 April 2009, 21:17h
17 Social security aspects 147
The ratio determined once at the beginning of the assignment abroad remains valid for the
whole duration of the delegation for the determination of the fictive work remuneration.423
From the sum of the remunerations (EUR 11,400) and the sum of the contribution
assessment ceilings (EUR 16,200) the ratio of (EUR 11,400/EUR 16,200 =) 0.7037 can be
obtained. This ratio is higher than the required minimum ratio of 0,6667 and is therefore
valid. The fictive remuneration for the year 2009 amounts to (5,400 x 0.7037 =) EUR
3,700.98. 424
Because the calculation is based on the actually paid remuneration for the last three calendar
years fully subject to social security contribution before taking up the occupation abroad, one
time revenues (as e.g. Christmas allowances) can be fully taken into account.425
Example 2: calculation of the fictive salary in the case of exceeding the contribution
assessment ceiling
Last three months fully subject to social security contributions
423
Ibid, Haufe Index 1564383, status: 26 April 2009, 21:47h
424
Ibid, Haufe Index 1564381, status: 26 April 2009, 21:27h
425
Comp. ibid, Haufe Index 1564382, status: 26 April 2009, 21:32h
148 IV Delegations and their consequences
For the calendar year 2009 a monthly assessment remuneration of EUR 5,400 x 0.668 = EUR
3,611.52 can be obtained.426
If only two calendar months are subject with two fully obligatory contribution duties, the
ratio has be calculated from the sum of the remuneration and the sum of the contribution
assessment ceiling of these two months.427
426
Haufe Personal Office Online, Haufe Index 1564382, status: 26 April 2009, 21:37h
427
Ibid, Haufe Index 1564383, status: 26 April 2009, 21:37h
428
Comp. Schmeisser, 2008, p. 278
429
Comp. Schmeisser, 2008, p. 278
17 Social security aspects 149
430
Comp. ibid, p. 278
431
Comp. ibid, p. 279
150 IV Delegations and their consequences
employee in period of three years had had a work relationship under social security law for at
least 12 months. Therefore, the delegated person is entitled to receive unemployment
benefits, if the assignment abroad was no longer than 24 months.432
The employees A and B work due to delegation in the sense of an Ausstrahlung under
sec. 4 SGB IV in Saudi-Arabia. The employer of employee A changes in the context of
this employment, because the company is taken over by another national company. The
employer B accepts a position in another German company in Saudi-Arabia, because the
employment relation with the first German company is terminated.
For employee A there are no changes with regard to his delegation in the sense of the
Ausstrahlung in the context of the replacement of his employer. For employee B, a new
work relation is taken up in a foreign country which is not based on the delegation, with
the result, that he is not subject to the German insurance obligation in the sense of
Ausstrahlung and therefore to German social security.434
2. The workplace is temporarily dislocated from the foreign country to the home
country.
If however the delegated person is temporarily in his home country during the delegation
period (e.g. for holidays or because of part-time employment), the delegation itself is not
interrupted. In sec. 8 subs. 1 n 2 SGB IV it is determined that a duration of two month in
the course of a calendar year is acceptable. If, however, it is contractually agreed that the
period named in sec. 8 subs. 1 n 2 SGB IV shall be exceeded, a new delegation would
commence when the occupation abroad is taken up again.435
432
Comp. Schmeisser, p. 280
433
Comp. Haufe Personal Office Online, Haufe Index 1564357, status: 27 April 2009, 21:54h
434
Ibid, Haufe Index 1564357, status: 27 April 2009, 22:09h
435
Comp. Haufe Personal Office Online, Haufe Index 1564358, status: 27 April 2009, 22:12h
18 Conclusion 151
Employee E has the contractual obligation to return every three years to Germany for
reporting purposes and the introduction into new techniques for a temporary national
occupation during a period of time which exceed the duration of two months in the
course of a calendar year under sec. 8 subs. 1 n 2 SGB IV. The national activities
discontinue the foreign occupation with the effect that it is a case of limited delegation in
the sense of the Ausstrahlung. This means each occupation abroad is subject to the
insurance duty under the German Social Security.436
18 Conclusion
The individual design of the labor contract has essential influence on labor, tax and social
security aspects. It is important to know the contractual connections with the national
employer, the timely limitation or the duration of the delegation as well as the employees
organizational integration, in order to make a competent judgment over the individual case of
the delegated person. In some cases, and when the employer does not dispose over the
necessary know-how, advice should be obtained from competent legal experts, consultants or
authorities, because delegation issues are highly complex.437 Especially for small and
medium-sized companies a delegation is always a financial and personnel burden. Therefore,
alternatives should be taken into consideration, like e.g. cooperations with other companies,
company pool memberships in the chambers of foreign trades etc.438 However, even in times
of worldwide economic crisis the following trend can be observed: even if the delegation of
employees is connected with high expenses, also in future many employees will be sent
abroad by their companies.439 40 percent of interviewed companies assumed to send more
employees to positions in foreign offices in future. 51 internationally active companies took
436
Ibid, Haufe Index 1564358, status: 27 April 2009, 22:19h
437
Comp. Schmeisser, 2008, p. 280
438
IHK-Nordwestfalen, status: 26 April 2009, 22:47h
439
Haufe , status: 27 April 2009, 22:32h
152 IV Delegations and their consequences
part in the study. 25 percent had between 100 and 500 German employees in foreign offices,
10 percent disposed over more than 500 expatriates.440
Therefore, it will be unavoidable for the companies in question to deal with the issues of
delegation with regard to labor, social and tax law aspects.
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status: 26 April 2009, 15:35h.
Kfner-Schmitt, I.: Arbeitsrecht. 5th edition, Planegg, 2007.
Schaub, G.: Arbeitsrecht von A-Z. 17th edition, dtv, Munich, 2004.
Schmeisser, W.: Finanzorientierte Personalwirtschaft. Oldenbourg Wissenschaftsverlag,
Munich, 2008.
Wikipedia: URL: http://www.wikipedia.de
http://de.wikipedia.org/wiki/Entsendung
status: 26 April 2009, 16:04h.
440
Ibid, status: 27 April 2009, 22:41h
V International remuneration
systems for companies listed
on stock exchange in flux
The German industry and banks are currently up in arms against the German legislative
initiative regarding the regulation and adequacy of manager remuneration, which is
connected with the multiple regulatory attempts on EU-level.
Questions on how and whether manager remuneration should be limited and designed in a
more performance related and transparent way on a long term basis, whether stock option
programs because of their short term, capital market-oriented deliberations are the wrong
incentives, how the staffing of boards of directors as supervisors of manager remuneration
systems should be undertaken etc. are only some aspects which should be re-discussed under
the Corporate Governance and Compliance standard, with the individual parts of a variable
remuneration system.
The reason for these legislative initiatives is the dimensions at which managers had received
golden handshakes, even though they were losers. The following questions are now open for
discussion:
1. Is there a managerial and human resources related basic logic, which can suffice the
demands of listed companies? The finance-oriented personnel management logic can be
discussed as possible process in this context. Among the aspects to be discussed is e.g.
the question regarding who should be responsible for the remuneration of senior
managers and managing directors and whether this would be comprehensible at the stock-
market and for the investors.
2. Substance: This term means the adequacy of variable parts of the remuneration of the
manager performance, so that some sort of positive sustainability of manager conduct
for the company can be instrumentally guaranteed, without providing wrong incentives
with e.g. stock option programs. A negative form sanction has to exist, e.g. via human
capital assessment or shareholding in the company, if managers fail. There is the question
which other and complementary instruments apart from stock option programs could be
used in the context of a four-pillar-remuneration-management to punish management
failure. Could this be the Berlin Human Capital Assessment Model?
3. Transparency: There must be an (individual) disclosure on the performance assessment
of managers, risk management, remuneration systems for senior management and
154 V International remuneration systems for companies listed on stock exchange in flux
(executive) directors from quarterly reports, business reports, information from financial
public relations for the stock market and other stakeholders.
The finance-oriented personnel management provides approaches for all three fields of
discussion and shows with its basic logic the process for listed companies regarding how for
branches, business units, managers and directors of a company the performance
measurement can be logically deducted and how variable parts for the remuneration
management system in the context of the Berlin Balanced Scorecard Approach and the
Berlin Human Capital Assessment Model can be obtained.
accountancy (IFRS)
441
Schmeisser, 2008 and Schmeisser/Clausen, 2009.
V International remuneration systems for companies listed on stock exchange in flux 155
There are two types of corporate information problems for accountancy in this context:
1. For the recognition or the formulation of decision problems (regarding personnel
management) accounting information in accordance with IFRS is needed, e.g. social plan,
decisions with respect to company pension schemes, stock option programs, Berlin
Human Capital Assessment Model etc.
2. Furthermore, information for the personnel management assessment regarding the
consequences resulting from the decision alternatives is necessary, e.g. strategy
calculation via innovation success calculation and the Berlin Balanced Scorecard
Approach, Human capital assessment and its consequences for the research and
development team (e.g. patent assessment), staff assignment, cash flow calculation, value
added statements and their consequences for pursuing the strategy etc.
Groups and listed capital companies, which use IFRS, tend to use a finance-oriented
personnel management without knowing the name of the concept. With the help of the
following financial indicators, the personnel management instruments, activities and key
figures of such companies can be attributed to different types:
They have a personnel controlling that deduces key figures from the IFRS consolidated
accounts or IFRS annual balance sheets, the payroll etc. and use the information again as
figures for quarterly reports to the stock market, rating and annual balances.
Up to now they have a type of stock option program for managers, directors, executive
managers and out-of-tariff staff etc. which is based on the result of the ordinary activities
as orientation.
They have a company pension scheme and/or employee involvement models, which are
permanently scrutinized under financial aspects.
Finance oriented personnel management looks into financial burdens caused by staff
which can then be found in the profit and loss statement and the annual balance sheet.
1. Group, company and business unit strategies can be better handled and controlled with
the help of financed-oriented personnel strategies. This can be achieved via the Berlin
Balanced Scorecard Approach, the Berlin Human Capital Assessment Model or
intangible value drivers (patents, licenses, human capital etc.).
2. Also a merger, the closure of a plant, a partial relocation of a plant, outplacements etc.
have to be assessed and calculated under finance-oriented personnel management aspects.
Thus, finance oriented personnel management supports the fulfillment of the duty to inform
the investors via market reports:
As a help to decide over investments, in order to assess a current research program with
relevant and reliable information with regard to its success prospects. In order to take a
decision over an investment, the investor e.g. of the pharmaceutical industry has to be
able to assess the development of medicine and the human capital potential of researchers
with key figures via their patents and the resulting cash flows and EBITs.
442
Adapted from: Schmeisser, 2008.
158 V International remuneration systems for companies listed on stock exchange in flux
Literature
Schmeisser, W.: Finanzorientierte Personalwirtschaft. Oldenbourg Wissenschaftsverlag.
Munich 2008.
Schmeisser, W. / Clausen, L.: Controlling und Berliner Balanced Scorecard Ansatz.
Oldenbourg Wissenschaftsverlag. ; Munich 2009.
Schmeisser, W. / Mohnkopf, H. / Hartmann, M. / Metze, G (ed.): Innovationserfolgs-
rechnung. Springer Verlag, Berlin 2008.
VI Application of the Berlin Human
Capital Assessment Model
in an international bank
for the control of its branches
Now it will be attempted to undertake a human capital assessment of branches via benefit
analysis for an international bank on the basis of existing data from controlling and with the
use of planning, control and deviation analyses. The Berlin Human Capital Assessment
Model443 has the advantage of a flexible usage of instruments of internal and external
accountancy and should therefore not be understood as inflexible construct. This means the
model can be individually adapted to the company, in order to do justice to the changing
demands of assessment. The starting point is always the existing data within the company,
which is prepared in a way that guarantees the measurement of the employee performance
depending on the company performance.
443
Comp. Schmeisser/Clausen, 2009.
160 VI Application of the Berlin Human Capital Assessment Model
The following four characteristics allow considering the branch offices as profit centers:
1. market performance as goal,
2. personal responsibility,
3. individual formulation of goals
4. contribution margin calculation (sometimes also cash flow or EBIT) as center
performance calculation.
The central office of the group assesses the market performance of the branches via profit
center calculations, which are taken as data basis for the human capital assessment. The
resulting key figures are measurable criteria for the assessment of human capital in the
branches. These data are completed with figures regarding staff structure and costs resulting
from the reports of the personnel development area. Under 37 branches 15 branches are
taken into consideration for human capital assessment. The lack of assessment of the other
branches is due to the fact that they are responsible for a transregional market area, which
would distort the results of the rest of the branches.
Additionally, it must be underlined, that the data used in this model has to be seen fictively,
because a uniform period of data collection does not exist and no conclusion can be made for
an existing bank.
Criteria Weighting
Profit oriented perspective Active business volume per branch 15 percent
Deposit business volume per branch 5 percent
Existing customers 2 percent
New customers 4 percent
Lending business volume per customer 2 percent
Deposit business volume per customer 2 percent
Income/cost ratio 20 percent
Profit center
calculations
The achieved business volume per branch is chosen to clarify that a profit oriented
perspective is used. For this, the division into lending and deposit business volume is made.
The lending business is understood as collective term for bank business having an effect on
the asset side of the bank balance sheet, as demands against customers, companies, banks as
e.g. loans, time loans and overdraft facilities. I.e. it consists mainly of granting credits. The
deposit business is synonymous for bank business, which is displayed at the liabilities side of
the balance sheet of the bank, i.e. liabilities against customers and banks, e.g. demand
deposits, time deposits and saving deposits or loans for refinancing credits. To make profit,
the asset side as well as the liabilities side is important, because in order to grant credits in
the lending business, foreign capital on the liabilities side is needed. The core business of the
bank is still the lending business, so that it has a higher significance in the model. The
162 VI Application of the Berlin Human Capital Assessment Model
achieved lending business volume per branch has a weight of 15 percent in the assessment
and the deposit business per branch has a weight of 5 percent.
In order to generate lending and deposit business volume customers are needed. Therefore,
the capability to identify, to acquire and to bind the right customers on a long term basis
belongs to the central profitability factors. To do so, new customers are distinguished from
existing customers. Nowadays, the efforts of the banks are rather concentrated on winning
new customers instead of reinforcing existing customer relationships. But also a large pool of
existing customers is an important leverage for revenues and at the same time an indicator
for customer satisfaction and the banks potential to bind customers on a long term. Because
winning new customers demands more sales efforts and the accretion of new customers can
be regarded as key figure for the growth potential of the bank, winning new customers is
with 4 percent higher weighted than holding existing customers with 2 percent.
The presentation of the business volume per customer shows the size and economic strength
of the customer and provides information on the quality of the customer portfolio. Also in
this case, there is a differentiation between lending and deposit part of customer business
volume. Both figures are valued with 2 percent each.
For the controlling of the branches the determination of objective success criteria is
necessary. For this, the bank has defined two central control criteria, which are seen as
essential key figures for the performance measurement of individual branches and which are
subject to regular analysis in the monthly profit center calculation. The first control criterion
is the income/cost ratio444. It informs about the ratio of administration expenses and
operative revenues and is a key figure for efficiency measurement of a company or a branch:
gross revenues
income/cost ratio =
costs
The gross revenue of a branch is determined by adding the conditional interest rate
contributions445 and the commissions/fees446. The costs subsume due staff and material costs.
The conditional interest contributions, as result of the multiplication of the average volume
and the interest margin, occur on the asset as well as on the liability side of the bank. A
minimum income/cost ratio is defined which has to be fulfilled by each branch depending on
its staff and material costs. As aggregation of all branches the benefits resulting from the
income/costs ratios lead to a minimum benefit for the overall bank.
444
The cost/income ratio is the inverse value of the income-to-cost ratio.
445
Conditional interest rate contributions result for example from interest surpluses of granted loans, overdraft
credits, acceptances, demand deposits or overnight and time deposits.
446
The commissions/fees include commissions for guarantees, bonds, credits and fees as costs from value
assessment experts or agency commissions to third parties.
20 Selected key figures and their weighting 163
The second central controlling key figure is the risk profitability. Through this risk adjusted
performance key figure it shall be made sure that the risk involving business transaction
creates the expected revenues and only those business transactions are concluded whose
benefit expectancies justify taking the risks over. It has the advantage that especially for
banks an important link between profitability and risk within the financial perspective can be
covered. The risk profitability is determined as ratio of the expected revenues and the risk of
the branch in question.447
gross revenues (per year)
Risk profitability =
weighed risk assets
When banks are granting loans they have the general risk that the liquidity of the lender gets
worse in the course of time and the interest payments cannot be effected anymore. This risk,
which is only involved in the lending business, has to be taken into consideration for each
loan as additional cost component. The volume of the loan sums is called risk assets. The
risk weighting of the existing assets is realized in accordance with the credit risk-standard
approach.448 Depending on the liquidity of the lenders, different weightings are undertaken to
classify the risks, which is why finally they are called weighted risk assets.449
As the income/cost ratio as well as the risk profitability of the bank is seen as central
controlling key figure, the Human Capital Assessment Model attaches special meaning to
them, so that both key figures are integrated into the assessment with a weight of 20 percent.
A further target criterion of the profit center calculation is the Contribution Margin I, which
is calculated by subtracting all costs which can be directly attributed to the branch from the
gross revenues.
The Contribution Margin I sheds light on the question to which extent the variable costs are
covered by the revenues. The goal should be to achieve a high contribution margin; declining
contribution margins can be caused by lower revenues and/or higher costs. They indicate a
deterioration of the company situation. Therefore, the Assessment Model attributes a weight
of 10 percent to the Contribution Margin I.
In the third perspective, which is here called Human Resources standard, the employee
specific key figures are bundled. The key figure business volume per employee capacity
gives information on how much business volume an employee has achieved in the
corresponding branch office.
447
For the calculation of the risk profitability in the forecasting period the gross revenue has to be calculated for
one year (e.g. as forecasted quarterly value*4).
448
In this approach the credit risk evaluation is supported by external rating agencies, in accordance with the
requirements of Basel II.
449
Weighted risk assets = risk weighted balance sheet assets + risk weighted traditional off-balance sheet
transactions + risk weighted innovative off-balance sheet transactions.
164 VI Application of the Berlin Human Capital Assessment Model
Furthermore, it is used for the assessment of the company labor productivity, which shows
the capacity to perform in a branch office. The number of employees is calculated in the unit
employee capacity (1.0 EC), in order to get a more exact image of the labor performance
in relation to the working time. A full employee capacity (1.0 EC) corresponds to an
employee with a weekly working time of 39 hours. A part-time employee with a regular
weekly working time of 20 hours corresponds to 0.5 EC. The business volume per employee
capacity is calculated by dividing the business volume by the number of employee
capacities. Also in this case, a separation into lending and deposit business volume is
undertaken in accordance with its origin. Because the lending business is regarded as more
attendance demanding, it is integrated with a weight of 6 percent, while the attendance
demanding deposit business volume is assessed with 2 percent.
Staff costs are a further criterion for human capital assessment. Staff costs are any costs,
which a bank incurs by the deployment of employees in a branch. These are largely fix costs,
which regularly account for a large proportion of the costs of operation. They consist of
salaries and wages, social contributions and expenses for pensions and support. Also in this
case, the number of employees corresponds to the number of available employee capacities.
The key figure Staff Costs per EC has a weight of 3 percent and is calculated as ratio of staff
costs by number of employee capacities. If the Staff Costs per EC surpass the average, the
cause could be an excessive remuneration of the employees as well as surplus.
The sum of employee entries and departs is, also in the branch offices of a bank, an indicator
for employee satisfaction and engagement. Especially in times of acute lack of experts on the
labor market, a high turnover rate means rising staff costs, because newly negotiated
contracts are generally more cost intensive than the former contracts. The goal of the bank is
therefore to keep the turnover rate low with the help of specific employee engagement
measures. For the right interpretation, it is important to keep in mind that the ratio is also
subject to fluctuations of the economic and labor situation. Thus, a low turnover rate can
indicate staff expansions in an economically strong period.
The turnover rate shown in the model is calculated with the help of the Schlter-formula and
is taken into consideration with a weight of 3 percent.
It is important for the bank to show professional perspectives to the employees and to
support their further advancement in the company in a target-oriented way, not least in order
to intensify the employee engagement. The training measures are carried out by a
management school that takes care of the employees with a network of selected experts and
cooperation partners for the internal and external further training. In order to examine the
intensity of further training of the employees, the key figure Rate of Further Training is
calculated and given a weight of 2 percent. This key figure is calculated from the ratio total
number of days of further training divided by total number of employees and shows the
average time of further education per employee in the selected inquiry period (of one year
chosen for this case).
Only healthy, motivated and qualified employees are able to achieve extraordinary
performance. In order to gain information on the health structure of the staff and the
effectiveness of the initiated health supporting measures, the key figure Absence Rate has
21 On the calculability of the bank human capital assessment model 165
been integrated into the model. The key figure takes exclusively the absence hours due to
illness and the due labor time in hours per branch into consideration. Because absence time
due to illness causes a large amount of costs this key figure is integrated with a weight of 4
percent into the model.
Criteria Weighting EC 1 EC 2 EC 3
asset-side business volume
of the branch office 15 percent lower EUR 1.502m higher
revenue related perspective
liability-side business
volume of the branch office 5 percent lower EUR 536 m higher
existing customers 2 percent lower 2,934 higher
new customers 4 percent lower 110 higher
asset-side business volume
per customer 2 percent lower EUR 524 higher
liability-side business
volume per customer 2 percent lower EUR 189k higher
income/cost ratio 20 percent lower 5.0 higher
profit center
calculations
staff costs per EC per month 3 percent higher EUR 6.0k lower
turnover rate 3 percent higher 6 percent lower
further training rate 2 percent lower 2.0 higher
absence rate 4 Percent higher 2.43 percent lower
02
point value 100 percent points 3 points 46 points
benefit value in the target criterion can be calculated. The sum of the assessed part benefit
values corresponds to the total benefit value of the branch.
3,5
upper quartile
3
median
2,5
lower quartile
2
1,5
1
Maximum
0,5
0
Assessed branch offices
The illustrated maximum in the diagram shows the branch with the highest point value of 4.3
points, whereas the minimum represents the branch with the lowest points (1.42). The so
called box is divided in two by the median, which divides the totality of the branch offices at
a value of 2.73 in two parts. This means that 50 percent of all branches, which are located
between the median and the maximum, have a higher benefit value and 50 percent of all
branches which are located between the minimum and the median have a lower benefit
value. Between the minimum and the lower quartile and the maximum and the upper quartile
450
The Box-and-Whisker-Plot is a graphic method of explorative data analysis in order to illustrate the frequency
distribution of the calculated date.
168 VI Application of the Berlin Human Capital Assessment Model
are 25 percent of the branches at each side, which have reached the non-fulfillment or over
fulfillment of the previously defined target values.
In order to exemplify the existing results, three branches are introduced which have achieved
a benefit value over, under and corresponding to the average. Table 22.1. gives an example
for a branch with a benefit value under average.
Bene
Criteria Weighting SC 1 SC 2 SC 3 Pt.
fit
asset-side business
volume of the branch EUR
office 15 percent 1,502 m 3 0.45
revenue related perspective
liability-side business
volume of the branch EUR
office 5 percent 536 m 3 0.15
existing customers 2 percent 2.495 2 0.04
new customers 4 percent 168 5 0.2
asset-side business
volume per customer 2 percent EUR 602k 5 0.1
liability-side business
volume per customer 2 percent EUR 215k 4 0.08
income/cost ratio 20 percent 3.10 0 0
profit center
calculations
1.43
risk profitability 20 percent percent 0 0
EUR
contribution margin 1 10 percent 1,798 1 0.1
asset-side business EUR
volume per EC 6 percent 37 m 0 0
liability-side business EUR 13
volume per EC 2 percent m 0 0
HR-standard
In the assessment of the benefit related perspective, the branch achieves the target values
with the asset-side as well as with the liability-side business volume and achieves three
points for each in the SC 2. In the customer development, it has a below average number of
existing customers, so that only 2 points in the SC 1 are given.
It can be observed that the branch attempts to get a wider customer pool by higher sales
activities for new customers. Therefore, the acquisition of new customers is much higher
than the requested target value and receives five points. The same can be said about the
asset-side and liability-side business volume per customer. The branch disposes over
economically strong customers and is classified in SC 3 with both values. The number in the
profit center calculation is below average. Especially the weakness regarding the benefit/cost
ratio and the high risk in the customer portfolio with an unsatisfactory contribution margin
are reasons for the bad result. This is made worse by weak employee productivity in the
lending as well as in the deposit business. A further considerable flaw of the branch is the
low rate of further training, because the employee does not receive the requested two days of
further training per year. A positive value is the staff costs per employee capacity which are
slightly below average. The reason can be the low absence rate, which accounts for healthy
employees and an agreeable working atmosphere, which keeps the turnover value at a
constant value of 6 percent. However, it is also possible that there is not enough satisfactorily
qualified staff available and that therefore the staff costs are below average.
The branch office quantified in table 22.2 has with a value of 2.73 an average benefit value.
The over-fulfillment of the targets in the revenue oriented perspective as well as the
fulfillment of the target of the risk profitability is sign of a customer pool with strong
liquidity. However, neither the targets for the income/cost ratio nor for the required
contribution margin are met, which can be explained by a disproportional growth of the
costs, which is not satisfactorily covered with net revenues. The staff costs can be reason for
this: with EUR 6,300 per employee per month they are above the average staff costs of all
branch offices. A positive factor is the performance of the branch with regard of the
generated business volume per employee capacity. The turnover rate and absence rate is
average and has little influence on the labor productivity. The completed days of further
training per employee completely correspond to the requirements.
170 VI Application of the Berlin Human Capital Assessment Model
Bene
Criteria Weighting SC 1 SC 2 SC 3 Pt.
fit
asset-side business
volume of the branch EUR
office 15 percent 1,662 m 4 0.6
revenue related perspective
liability-side
business volume of EUR
the branch office 5 percent 670 m 4 0.2
existing customers 2 percent 3,109 5 0.1
new customers 4 percent 132 4 0.16
asset-side business EUR
volume per customer 2 percent 535 T 3 0.06
liability-side
business volume per EUR
customer 2 percent 216 T 4 0.08
income/cost ratio 20 percent 4.13 1 0.2
profit center
calculations
2.13
risk profitability 20 percent percent 3 0.6
contribution margin EUR
1 10 percent 2,417 T 2 0.2
asset-side business EUR 50
volume per EC 6 percent m 3 0.18
liability-side
business volume per EUR
EC 2 percent 20 m 4 0.08
HR-standard
The last branch offices illustrated as example in table 22.3 has a benefit value above average.
It is especially characterized by the quality of the customer portfolio, which is shown by the
risk profitability. With regard to the income/cost ratio and the achieved contribution margin
22 Results of the bank human capital assessment 171
this branch achieves values above average, too. This is also proved by the low staff costs per
employee capacity with high labor capacity in the lending and deposit business activities.
This high earning power of the branch, however, is at the expense of employees, which can
be discovered with the help of the absence rate. The high turnover rate can be explained with
the strategic orientation of the branch, which wants to achieve a better customer attendance
in new target markets through specialists. In order to do justice to the risings demands on the
target markets, the customers are trained at an above average rate. This means that the human
capital is increased in a quantitative way by the employment of new staff and qualitatively by
further training measures.
Benefit
Criteria Weighting SC 1 SC 2 SC 3 Pt.
value
asset-side business
volume of the branch EUR
revenue related perspective
2.59
risk profitability 20 percent percent 5 1
EUR
contribution margin 1 10 percent 2,791 T 5 0.5
asset-side business
volume per EC 6 percent EUR 55 m 4 0.24
liability-side business
volume per EC 2 percent EUR 29 m 6 0.12
HR-standard
level the percentage was with 20 percent even lower.451 New forms of remuneration,
however, can increase the cost efficiency and performance of the company. The introduction
of market-adjusted, performance-oriented remuneration systems increases the employee
motivation and the personnel costs can be more efficiently directed towards the market.
Through a comprehensive human capital assessment on the level of employees and on
branch level, the additive, variable payments can not only be connected to the individual
performances, but also to the overall performance of the company and to the business
development. There are already suggestions for a new monetary incentive system in finance
oriented personnel management, which contributes to the behavior control of managers in the
sense of shareholder value. In a four-pillar-remuneration system a new organization of the
remuneration composition is suggested, which fulfills the requirements of owners and
shareholders of a variable, long-term and value-oriented manager remuneration.452
451
Gilles, 2002, p. 198
452
Comp. Schmeisser, 2008, p. 75
VII Development of a human
resource information system
of international personnel
controlling
Internationally active companies need in the context of their merger and acquisition activities
as well as for their internationalization strategies international personnel controlling. This is
necessary in order to adjust to permanently changing customer needs and to meet the
shareholder requirements in the sense of shareholder value on global capital markets.
Consequently, since more than a decade the globalization brings the requirement along to
instrumentally lead such companies in accordance with the shareholder-value-approach.
This requirement and its acceptance in Germany are reinforced by the Law on Control and
Transparency in Enterprises (KonTraG), which permits the introduction of an international
early warning system and of stock option programs and thereby provides a material incentive
and control system for managers and employees in the sense of the shareholder value
approach to (German) international companies.
There are, however, still many misunderstandings and problems with regard to the concrete
procedure for a value-oriented controlling. The question on the kind and specialty of
international personal controlling causes the same diffuse problems.453 Whoever hopes for an
answer to the complex international personnel controlling from specialist literature is
mostly deceived, because this topic is mostly fully avoided or only marginally touched, for
example in the are of international missing hours development, the development of the labor
efficiency, the international remuneration management system or the evaluation of the
international personnel assignment with local cultural problems in the countries of
assignment.
453
Comp. Schmeisser/Clermont/Kriener, 1997, p. 529 et seq.; Schmeisser/Clermont, 1999; Schmeisser/Cler-
mont/Protz, 1999 and DGFP, 2001, p. 188
176 VII Development of a human resource information system
The demand for practicable concepts for international personnel controlling exists regardless
of whether this situation is connected with a substantial realization deficit of international
personnel management or not.454 Therefore, the question has to be discussed how the
managerial contents of a human resource information system should be structured to do
justice to the possible needs in personnel controlling.
454
Comp. DGFP, 2001, p. 188 et seq.
455
Comp. Atkinson, 1997
25 Targets of international personnel controlling 177
The system designing, international personnel tasks do not refer to a concrete operative or
strategic decision, but to decisions which will be regularly made in foreign branches in
future. For these international personnel decisions, coordination systems are created in order
to guarantee the application of appropriate coordination concepts and of their effects from
the point of view of the parent company in the company group.
An international coordination system in the human resource area is the totality of personnel
management methods, models, technical support (hardware, personnel information
software), international personnel processes as well as the application of international
coordination concepts.
In the design of international coordination systems, target oriented company group
regulations on the distribution and execution of international personnel management tasks in
the application of coordination concepts are formulated and put down in writing. Personnel
planning and controlling systems in worldwide groups, budgeting as well as control and
transfer price systems in the group of companies as well as international incentives and
flexible remuneration management systems are some examples for international coordination
systems.
178 VII Development of a human resource information system
Among the process supporting tasks of personnel controlling are coordinating and
information facilitating personnel tasks in concrete decision situations. Among those
process-supporting controlling tasks are
management of coordination processes in the group as well as
problem specific facilitation of information.
2. In the context of international personnel controlling also foreign activities are examined,
which have a connection with regard to their content to the activities of the head office. It
will be assumed that persons, products, money, know-how and information between head
office and foreign subsidiaries are transferred. Only if activities are carried out by the
foreign company units which have a connection to the business of the head office or the
whole group of companies, a support via corresponding personnel economic measures is
important. If the foreign direct investments, however, are only portfolio investments,
made only for reasons of profit-making, they have generally no consequences on the
personnel functions of the company.456
3. Among other things, these foreign activities of the mother company can be explained
with the fact that the purchase, sale, foundation and installation of subsidiaries abroad
pursues the target to dislocate the group activities of the value added chain, which in
accordance with Porter need supporting measures in the area of Human Resource
Management.
4. The aim of the parent company is to control the management via strategies,
organizational structures, managers and a (personnel) controlling system.
5. International personnel controlling should use application systems as SAP457 or
PeopleSoft458 via the use of a working language, i.e. English or German, in order to
detect, determine, process and interpret the effectiveness, efficiency and risk factors of
foreign activities with the help of external and internal (international) accountancy.
6. International Personnel Controlling helps to construe an accepted, appropriate and cost-
efficient international remuneration system for middle and top management worldwide
and permanently controls the individual parts.459
7. Agreeing with the practice-based recommendations of the DGFP working group that the
International Personnel Controlling is a special form of National Personnel Controlling
460
means that individual functions can be pursued via benchmarking as well as cost
effectiveness and profitability considerations. These are the personnel functions:
456
Weber/Festing/Dowling/Schuler, 1998, p. 3
457
Comp. Mlder, 2001, p. 457 et seq.
458
Comp. Krawinkel, 2001, p. 447 et seq.
459
Comp. Brinkktter, 1997, p.413 et seq. and 429 et seq.; Beynio/Krieger, 1998, p. 353 et seq.; Rosen, 1998,
p. 341 et seq. and Brinkktter, 2000, p. 663 et seq.
460
Comp. DGFP, 2001, p. 108 et seq.
180 VII Development of a human resource information system
Only through this persecution of personnel functions the assignments abroad can be
supported and recognition of potential and personnel development of (top) potential
managers in the group is possible on the long run.
1. In accordance with sec. 317 subs. 1 sentence 3 HGB the examination has to be performed
in such a way that incorrectness or violations against legal provisions, bylaws or articles
of association can be recognized. This includes only those violations which essentially
affect the image of the situation of assets, finances and revenues of the company under
sec. 264 subs. 2 HGB.
461
Comp. Schmeisser, 2001, p. 811 et seq.
27 Obtaining personnel information 181
Violations are deliberate deviations from accounting principles in the sense of sec. 317
subs. 1 sentence 2 HGB applicable for the preparation of the annual statement or the
position report.
The following violation have an essential influence on the (consolidated) annual
statement: violations of managers of regulations of the foreign company unit which
question the business activities in the host country, but also violations of regulations
which violate permits and licenses, violations of rules concerning form and content of the
annual statement and violations of environment protection regulations which implicate a
duty of removal and therefore a duty of accruals under commercial law.
Further typical examples are balance sheet adulterations, irregularities or legal violations
by managers, also in foreign company branches, in the area of stocks: statement of stocks
in the balance sheet even if they are not or not any more owned by the company,
statement of non-existing stocks, empty containers, addition of water to oil-containers
and transfer of costs which have arisen in already concluded orders to new orders.
In the case of signs of mistakes, frauds, property impairments and other violations of the
law, the annual auditor has to assess which circumstances have lead to this and how the
annual statement is affected, but also the international personnel controller has to decide
which report he has to present to the management of the national company unit or the
group top management on personnel wrongdoings.
2. In accordance with sec. 317 subs. 2 HGB the examination of the position report has to
include the following reports:
Consistency of the position report with the annual statement and the findings of the
examination
Generally applicable presentation of the position of the company,
Correct presentation of risks of future developments.462
The reform in connection with the examination of the position report which underlies the
highest requirements is the examination whether risks of the future development of the
group, influenced by the foreign revenues which can often account for between 40 and 90
percent of the total revenues, are correctly presented. Thereby the legislator clarifies that the
prognosis of the company development in the position report does not only imply
opportunities but also risks. This requirement makes clear that companies had not totally
complied with the requirements of reporting and displaying the actual situation of the
company from the legislators point of view.
Thereby, the legislator increases the requirements for the position report with regard to the
provision of decision relevant information, which also has to be contributed by the
(international) personnel controlling, if it is endangering growth. The position report of the
group is therefore more complex than the annual statement because future oriented facts
462
Comp. Schindler/Rabenhorst, 1998, p. 1986 et seq.
182 VII Development of a human resource information system
which can be connected to foreign activities as well as human resources have to be taken into
consideration. An example to remember is the Greencard discussion in the information and
communication technology area.
For the going concern assumption, a period of 12 months has to be taken as basis, starting
from the reporting date of annual statement. For all other essential risks, like the expected
development of essential foreign activities, a period of prognosis of two years is appropriate.
It can be necessary to determine a correspondingly longer period of prognosis for foreign
business which causes risks for the company over a longer period of time.463
The legislator does not substantiate the risk term neither in the legal wording nor in the
explanatory memorandum. In the business management literature the risk term is not
uniformly used either.464 Risk in the sense of sec. 289 HGB means the possibility of
unfavorable, future developments which can be expected with a considerable likelihood.
Risks are understood as the possibility of danger of losses in the context of business
activities. This implies a negative deviation of the company development from the planned
variables. This results from the general uncertainty of future events which are connected with
an incomplete information status.465
In the broadest sense the term risk can be described as insecurity. Insecurities, i.e. possible
deviations from expected values exist on all levels of business activities as well as in
international personnel management and the related foreign activities. Among the possible
uncertainties are e.g. changes of political or economic factors in individual countries where
the company is active, as e.g. exchange rates, inflation rates and taxes, changes of the
structure of the sector by new competitors, new technologies and unexpected legal dispute,
complaints and claims which have to be tackled by employees or managers or have been
caused by them.
463
Comp. Arbeitskreis Schmalenbach-Gesellschaft fr Betriebswirtschaft e.V., 2000, p. 7
464
Comp. Baetge/Schulze, 1998, p. 937 et seq.
465
Comp. Bitz, 2000, p. 13
27 Obtaining personnel information 183
Internal
Internal
controllingsystem
controlling system
Organizational
Organiz ational Control
Control Internalaudit
Internal audit
protection
pro measures
tecti on meas ures
466
Fig. 27.1: Design of a controlling system
In accordance with sec. 91 subs. 2 AktG the executive board has to install a supervisory
system. The executive board has to take care of an appropriate risk management and an
appropriate internal audit. The target of risk management and supervisory system is the early
detection of risks. The responsible company institutions shall be enabled in due time to
introduce measure to keep the company safe.
466
Following Lck (a), 1998, p. 9
184 VII Development of a human resource information system
Formulation/
revision of risk strategy
Comparison of risk
Determination of risk
situation with strategy
management measures
Internal requirement
supervision system
Organizational
Risk identification safeguarding Presentation of risk
(early warning systems measures situation of the
etc.) Control and company
internal auditing
Risk-controlling
Risk assessment
467
Fig. 27.2: General circuit of a risk management system
In accordance with sec. 91 subs. 2 AktG the executive board has to take appropriate
measures and to install a supervisory system in order to allow the detection of developments
which might endanger the existence of the corporation. The application of this regulation is
part of the examination of the business auditor in accordance with sec. 317 subs. 4 HGB.468
Because in accordance with sec. 91 subs. 2 AktG the risk detection system, that has to be
installed and continued by the executive board, has to be directed to the early detection of
existing endangering developments, only this aspect of the total risk management system is
part of the audit. This aspect is defined by determination by the company of risk areas which
can imply existence endangering developments.
As internationally active companies gain an essential part of their revenues abroad, the
international personnel work and management is a risk area per se, which entails the need to
take a closer look on the international personnel controlling as risk field in its aggregated and
disaggregated form.
467
Following Lck, 1998, p. 1926
468
Comp. Scharf, 1999, p. 180
27 Obtaining personnel information 185
The risk management system has to make sure that existing risk (risky foreign activities in
connection with staff activities) are determined, analyzed and assessed and that the risk
related information are forwarded to the decision makers. Part of the risk management is a
supervisory system (e.g. international personnel controlling) which supervises the
compliance with the requirements. The risk detection system in the sense of sec. 91 subs. 2
AktG has to make sure that those risks which could endanger the further existence of the
company are recognized at an early point in time. The auditor has to state whether the
executive board fulfills its requirements.
The auditor examines the existence of measures taken by the executive board with the help
of related documentations, organizational instructions and own deliberation in the context of
the examination of the internal controlling system.469 The documentation is crucial. Without
these documents the auditor can only determine whether the legal regulations ware complied
with by means of an organizational examination. However, such an examination is complex.
The documentation should display general procedure, measure for risk identification, risk
measurement, risk controlling, determined responsibilities as well as training measures for
the employees. The examination of the documentation is carried out by inspecting the
documents, via analysis of the reports as well as by interviewing leading staff members.
The documentation fulfills the following tasks:
The subordinated leaders can prove a dutiful behavior in the case of appearance of a
company crisis (accountability function).
The documentation is necessary to ensure the compliance of risk management with the
(legal) requirements in the course of time (maintenance function).
The documentation is basis and condition for the examination of the supervisory system
(examination function). 470
The auditor has to tell whether the taken measures are fit for their purpose by assessing
whether they are appropriate in relation to the corresponding risk situation of the company as
well as the size and complexity of company structure. In sum, the measures have to be
appropriate to recognize the risks of further developments at an early point in time and to
internally discuss them in order to give the executive board the possibility to react. The
suitability is checked by examining whether the supervisory system does justice to the
company goals and strategy. Furthermore, it is important how the reporting of risk potential,
e.g. frequency, assessment of risks through sensitivity analyses of worst case considerations
is carried out. The suitability of the system, its aptness and appropriateness are determined
by the size, structure and environment of the company.
469
Comp. Adler/Dring/Schmaltz, 2000, Vol. 7, p. 123 et seq.
470
Comp. Kromschrder/Lck, 1998, p. 1573 et seq.
186 VII Development of a human resource information system
Continuousanalysis
Continuous analysisof
of the
therisk
riskmanagement
managementprocess
process
Prevention function
Part
Partof
ofall
allsegments
segmentsofofthe
theinternal
internalsupervisory
supervisorysystem
system
Avoidance of potential risks
Avoidance of potential risks
Minimization
Minimization of ofthe
thepossible
possibleamount
amountofofdamage
dama geof
ofthe
theexisting
existingrisks
risks
Correction function
IsIsabove
aboveall
allpart
partof
of the
theinternal
internalaudit
audit
Development and installation phase: Examination of
Development and installation phase: Examination of execution
executionandand
effectiveness of the system
effectiveness of the system
After
After implementation:
implementation: examination of
examination of functionality
functionality
Fig. 27.3: Surveillance of the risk management process by the internal supervisory system
If the requirements of the KonTraG are transferred to the risk area international personnel
controlling, there still many creative ideas, e.g. what does an internal supervisory system
international personnel controlling look like? How are the risks identified and determined?
What are early indicators in this risk area? Which typical key figures are appropriate to make
direct and indirect measurement appropriate? What does a regular report to the management
look like? How far can the aspects of international personnel controlling be adjusted to
internal and external accountancy in order to comply with the KonTraG?
28 Design of personnel information systems 187
471
Comp. Scherm/Pietsch/S, 2000, p. 396 et seq.
472
Comp. Scherm/S, 2001, p. 360
473
Comp. ibid., p. 358
188 VII Development of a human resource information system
In other words: There is much creative work to be done by companies and economic science.
474
Comp. Scherm/S, 2001, p. 362
475
Comp. Destanick/Bennett, 1978; comp. Weber/Festing et al., p. 11
28 Design of personnel information systems 189
476
Comp. Perlitz, 1997, p. 231 et seq.
190 VII Development of a human resource information system
the delegated managers can only achieve with the help of knowledge and understanding of
culture.
About the national/international personnel controlling it can be asked, among other things,
how a personnel development strategy for non-tariff employees and top managers should be
executed nationally and internationally in the group or how a target adjustment concept for
upper and top managers should be standardized nationally and on a world-wide basis in the
group and how this would affect their careers. In this respect, the personnel development
strategy concept can certainly be well connected with the strategy concept of personnel
assessment. From this point departs the strategy concept of personnel remuneration
management in the group. All concepts can be connected to the functional concepts in the
research and development area, the marketing area, of national subsidiaries etc.
477
Comp. Brinkktter, 1997, p. 443
28 Design of personnel information systems 191
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Atkinson, A. A.: Management Accounting. 2nd edition, Upper Saddle River (N.J.), 1997.
Baetge, J. / Schulze, D.: Mglichkeiten der Objektivierung der Lageberichterstattung ber
Risiken der knftigen Entwicklung. in: Der Betrieb, volume 19, 1998, p. 937948.
Beynio, W. / Krieger, W.: Stock Option Incentives von Oberen Fhrungskrften in der
Henkel-Gruppe. in: Clermont, A. / Schmeisser, W. (ed.) 1998, p. 353362.
Bitz, H.: Risikomanagement nach KonTraG. Stuttgart, 2000.
Brinkktter, H.-O.: Grundfragen aus der Entsendungspraxis der BASF mit besonderer
Bercksichtigung von Oberen Fhrungskrften. in: Clermont, A. / Schmeisser, W.
(ed.): l.c, 1997, p. 413428.
Brinkktter, H.-O.: Das Gehaltssystem der BASF fr internationale Entsendungen von
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444.
Brinkktter, H.-O.: Aktienprogramme der BASF Aktiengesellschaft. BOP fr Obere
Fhrungskrfte plus fr die Belegschaft. in: Clermont, A. / Schmeisser, W. /
Krimphove, D. (ed.). l.c., 2000, p. 663691.
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Clermont, A./ Schmeisser, W. / Krimphove, D. (ed.): Personalfhrung und Organisation.
Munich, 2000.
DGFP Deutsche Gesellschaft fr Personalfhrung e.V. (ed.): Personalcontrolling in der
Praxis. Stuttgart, 2001.
Gilles, S.: BSC als Konzept. 2002.
Krawinkel, U.: PeopleSoft Collaborative Applications Ein berblick ber globale Einsatz-
mglichkeiten im Personalbereich. in: Clermont, A. / Schmeisser, W. / Krimphove,
D. (ed.): l.c., 2001, p. 447456.
Kromschrder, B./ Lck, W.: Grundstze risikoorientierter Unternehmensberwachung. in:
Der Betrieb, Volume 32, 1998, p. 15731576.
Lck, W.: Der Umgang mit unternehmerischen Risiken durch ein Risikomanagementsystem
und durch ein berwachungssystem. in: Der Betrieb, 51. Vol., 1998, p. 19251930.
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Managementsystems durch den Entwurf eines Gesetzes zur Kontrolle und
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Rosen, R. v.: Aktienoptionen fr Fhrungskrfte. in: Clermont, A. / Schmeisser, W. (ed.):
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192 VII Development of a human resource information system
Perlitz. M.: Aspekte, Strategien und Probleme bei der Entwicklung eines Handlungssystems
fr das internationale Personalmanagement. in: Clermont, A. / Schmeisser, W. (ed.):
l.c., 1997, p. 223237.
Scharf, P.: Risikomanagement- und berwachungssystem im Finanzbereich. in: Reform des
Aktienrechts, der Rechnungslegung und Prfung. Stuttgart, 1999, p. 177201.
Scherm, E. / Pietsch, G. / S, S.: Internationales Personalcontrolling zwischen
statusardisierung und Differenzierung. in: Personal, edition 52, volume 9, 2000,
p. 470476.
Scherm, E. / S, S.: Internationales Management. Munich, 2001.
Schindler, J./ Rabenhorst, D.: Auswirkungen des KonTraG auf die Abschlussprfung (part
I). in: Betriebsberater, volume 37, 1998, p. 1886-1893.
Schmeisser, W.: Finanzorientierte Personalwirtschaft. Munich 2008.
Schmeisser, W.: Flexibles Vergtungsmanagement im Rahmen des Shareholder Value-
Ansatzes. in: Clermont, A. / Schmeisser, W. / Krimphove, D. (ed.): l.c., 2001,
p. 811819.
Schmeisser, W. / Clermont, A./ Merle, A.: Internationales Personalcontrolling. in:
Clermont, A. / Schmeisser, W. (ed.): l.c., 1997, p. 529544.
Schmeisser, W./ Clermont, A.: Personalmanagement. Praxis der Lohn- und
Gehaltsabrechnung, Personalcontrolling und Arbeitsrecht. Herne/Berlin, 1999.
Schmeisser, W. / Clermont, A./ Protz, A. (ed.): Personalinformationssysteme und
Personalcontrolling. Auf dem Weg zum Personalkosten-Management. Luchterhand,
1999.
VIII Design, functionality and
application fields of information
systems in HR478
478
This chapter, including illustrations, is largely based on the book: Strohmeier, St.: Informationssysteme im
Personalmanagement: Architektur -Funktionalitt Anwendung. Vieweg und Teubner Verlag, Wiesbaden
2008. Strohmeier is nearly the only author dealing with this topic in Germany.
479
Comp. Jung, 2005
194 VIII Design, functionality and application fields of information systems in HR
mutual data transfer is made possible. This should involve a unification of the data base and
thus make adjustment actions between the individual system components superfluous. The
advantage of the connection is the higher informative value through combination of different
areas of the system.
A personnel information system is open to its environment, because it freely interacts with it.
Besides, it is dynamic because parts of the information system might change due to this
interaction.480
29.2 Tasks
An information system contributes to the best possible provision with information to
employees and managers. Its tasks include the processing, analysis and transfer of data and
information which are different from system to system. Therefore, each system has its own
tasks which are shown in more detail chapter 31.4.
480
Wirtschaftslexikon24, status: 2009
29 International personnel information systems 195
The benefit is segmented along the individual application fields of personnel work. Among
the application areas are the personnel administration where the question is asked how to
avoid the frequency of errors in the calculation of salaries, the personnel planning which
makes it possible to create an enlarged and improved information flow for planning purposes
on the basis of higher data consistency, and the personnel controlling which renders a
quicker and more exact deviation control in relation to performance and personnel flow
possible via the Berlin Balanced Scorecard Approach.481
481
Comp. Jung, 2005
196 VIII Design, functionality and application fields of information systems in HR
processes directly per web-based form, for example changes of address and bank details,
they can be quickly registered.
In the e-relationship management customer satisfaction and the increase of customer benefits
are focused. This means that more awareness of the human resource customer processes shall
be created. Internal customers including employees and managers but also external
customers as e.g. applicants and public institutions require from the human resource
department a variation of services. Examples are the creation of personnel statistics or the
calculation of company pension. Via automation, routine work is transferred from the human
resource department to the customer. The remuneration certification for example can be
printed out by the employee himself.
With regard to opportunities of personnel information systems one can distinguish qualitative
and quantitative benefits.
The qualitative benefits include the acceleration and simplification of human resource
processes. Through quantitative benefits more statistics are possible. This can mean that the
service quality in the human resource department can be improved, because via web the
virtual human resource department is available around the clock. In case of standard
questions, the human resource department can be relieved and rationalization effects can be
obtained. Furthermore, cost savings can be the result of process optimization.
Among other things, there are two basic problems: processes can only be estimated at the
beginning and cost-benefit-assessment can often not be carried out after implementation.482
30 Basics
482
Comp. Schmeisser/Grothe/Hummel, 2003
30 Basics 197
483
Comp. Strohmeier, 2008
198 VIII Design, functionality and application fields of information systems in HR
30.1.4 Implementation
The implementation can be achieved in an individual system. The separation in layers makes
it possible to distribute individual services to different systems.
horizontal structure
presentation layer
(integration layer)
vertical
system architecture
structure
application layer
484
Fig. 30.1: Logic layer and physical structures of system architecture
Personnel information systems can be structured and arranged from two basic points of view,
the horizontal and the vertical point of view. The vertical structure shows how one or several
systems are ordered over several architectonic layers. They are subdivided in layer
overlapping systems and layer specific systems. The layer overlapping systems offer services
from several architectonic layers. Services of data maintenance, application and presentation
are regularly offered from such systems via corresponding components.
The layer specific system offers exclusively services from one single architectonic layer.
Here, outsourcing data maintenance services to independent data base systems is very
common. The data base system works in this architecture as layer specific data maintenance
system while services of application and presentation remain in the corresponding personnel
system.
There is, however, also the possibility of combining layer overlapping systems and layer
specific systems. The attribution of a system to an architectonic layer can also depend from
the form of application.
The horizontal structure displays the organization of one or more systems by relations to the
architectonic layer in question. Services can be rendered via one or several systems. If in the
data maintenance of the application layer several individual systems are used in parallel,
these can be integrated. If there is no integration, an additional integration layer is necessary
or useful.485
484
Source: Strohmeier, 2008, p. 5
485
Comp. Strohmeier, 2008
30 Basics 199
Planning
TS (portfolio)
planned
Appropriation
IS (portfolio)
made available
Implementation
IS (portfolio)
applicable
Application Operation
results
1-n
486
Fig. 30.2: information system related activities
486
Source: Strohmeier, 2008, p. 15
200 VIII Design, functionality and application fields of information systems in HR
30.3.2 Co-determination
The co-determination is regulated by the Industrial Constitution Law (BetrVG). These
regulations are relevant for the implementation and application of information systems.
Among other things the regulations are targeted on the participation of the works council.
The German Act on the Speakers Committee (SprAuG) on the other hand governs the
participation of Speakers Committees.
487
Comp. Strohmeier, 2008
31 Structure, functionality and application area 201
31.1 Structure
A personnel information system is composed of the components human resource database,
work place database, methods and model database, electronic data processing systems and
system users. These components can be understood as follows:
The human resource database administrates the human resource master data. It is needed for
the payroll. Examples of basic data of the human resource database are personal data,
employment data as well as remuneration master data. These basic data are completed with
dynamic data, e.g. data from time tickets, commission accounts and travel expense reports.
The workplace database is targeted towards saving workplace related data, e.g. the tasks of
the position, the requirements of training and education and the workplace number.
The method and model database is responsible for procedures and algorithms for further
processing of the saved data. It can be understood as computer programs to solve the
problems in the human resource area, e.g. remuneration accounting systems or calculations
of absence periods and turnover rates.
The core of a personnel information system is the electronic data processing system. They
are the central processing unit. Further peripheral devices are attached to allow data input,
saving and output. The totality of the technical equipment is called hardware.
202 VIII Design, functionality and application fields of information systems in HR
Among the system users active users can be distinguished from passive users. Active users
are employees who directly correspond with the data and change and connect them via use of
methods. Passive users are employees who only take notice of the available information and
may use them as basis for decisions.488
31.2 Functionality
The personnel information system can be organized in very different ways depending on the
area of responsibility and development status. It is generally especially customized to the
company needs. This way, it can be subsequently updated at any time. The staff specific
tasks and problems which are fulfilled with an information system can be separated in the
main areas of administrative and dispositive tasks.
With the administrative tasks rationalization effects shall be achieved which arise because of
the relief provided in the area of routine work and mass procedures. These include especially
repeated procedures like salary accounting.
The dispositive tasks support the decision and planning process in the human resource field
via the improvement of the information basis. By processing data material, a better
information basis and decision-making support is provided. It serves for future problem areas
of human resource planning and controlling, e.g. for the selection of applicants.
The personnel information system fulfils the functions of personnel planning, human
resource accounting, of master data administration, time determination, administration and
human resource reporting. The position plan, personal resource availability plan and the
plans for further training are understood as personnel planning.
Human resource accounting includes the calculation and management of remuneration costs,
income tax and social security contribution accounting. Master data administration connects
change services, labor contract data and address data. Time determination includes absence
control and administration and assessment as well as holiday accounting. Administration
includes administrative efforts for employment, dismissals and promotions. Personnel
reporting connects statistical analyses, creation of internal staff statistics, e.g. the age
structure or turnover rate, as well as statistics for external addressees.
Widely used data processing systems in personnel management are for example SAP or the
PAISY-system. The SAP system offers the possibility to standardize core processes in human
resource management. This means that the necessary data are available to the authorized
employees at once. The PAISY-system is a dialogue-oriented, modularly structured data
administration, calculation and information system for the DP-based human resource
management. It can be quickly and cost-efficiently used and is also applied in remuneration
accounting etc.
488
Comp. Strohmeier, 2008 and Jung, 2005
31 Structure, functionality and application area 203
31.3.1 Users
Users can be divided into the groups of active users and potential addressees. Active users
can be split into participants with active-indirect and active-direct contact. The active-
indirect users can access information without entering into direct contact with the personnel
information system. The active-direct contact involves the access with direct contact.
The information desires of potential addressees are fulfilled with the help of the information
system. Within a company, the data are needed by the human resource department, the
supervisors and employees. Outside the company, information from the personnel
information system is accessed by public institutions and the general public, as e.g.
shareholders, associations and media.
This means that information systems are used by complete workforce, managers and
executive board members.
In the personnel development area the most important elements of the career of an employee
are mostly saved in form of a list. Among these are the duration of the membership in the
company, area of responsibility, possible further qualification measures and promotions.
The termination of labor relations also creates a high number of administrative tasks which
are systemized and accelerated with the help of information systems. Important tasks in the
termination of a labor relation are the preparation of letters of notice, the issue of
employment certificates with an exit interview, changes of the personnel file or personnel
data as well as archiving the personnel records, in order to be able to give information in case
of further enquiries of succeeding companies or insurance-related questions and to make
additional statistical evaluations.489
489
Comp. Strohmeier, 2008 and Jung, 2005
31 Structure, functionality and application area 205
personnel managing. They deal with general personnel data management. Many
commercially offered personnel information systems are really only simple database-based
applications. They relief the users from data modeling and designing the corresponding
forms or user interfaces. However, they offer the possibilities to make ad-hoc queries and
reports in the core functionalities of the database management system. Database systems are
widely used for data management in personnel management application systems.
Planning Component
Analysis
Require- Shift Employee and
Shift
ments sequences assignment Disposition
planning
planning planning planning Component
assignment
requirements shifts shift sequences employees
plans
490
Fig. 31.1: Typical architecture of Personnel Assignment Planning Systems
Application areas are sectors and company areas characterized by short-term fluctuations and
requirements with need of timely fulfillment. These are for example commerce, hotels and
restaurants, guard services, transport and traffic and emergency services in the public are and
industrial fabrication. Around one quarter of the German companies use personnel
assignment planning systems.491
490
Source: Strohmeier, 2008, p. 107
491
Comp. Strohmeier, 2008
31 Structure, functionality and application area 207
User interface
Telecommunication Process
Communication Analysis
Interface Management
Application
systems
492
Fig. 31.2: Typical architecture of Service Center Systems
Furthermore, it has to be mentioned that there is the possibility of shared service centers.
There is a smooth transition to outsourcing: The services are not only offered to the own
company, but also to customer companies. Service center systems are useful for handling
administrative and personnel management tasks, the interaction between human resource
492
Source: Strohmeier 2008, p. 339
208 VIII Design, functionality and application fields of information systems in HR
management and employees, supervisors and applicants. They are used to deal with the
proper requests, as information hotline and for reclamation management.
32 Conclusion
32.1 Opportunities
Modern IT solutions offer big opportunities to optimize the traditional, time and cost
consuming personnel management processes. A profound analysis and optimization of
personnel processes is indispensable for the successful and efficient utilization of
information systems in human resource area. By their introduction it is possible to offer
better personnel services at lower costs. Quicker administrative processes and the possibility
of quicker specialized trainings belong to the opportunities, too. Furthermore, the
information and communication are improved by use of internet and intranet.
32.2 Risks
However, the introduction implies certain risks as well. Different factors can be responsible
for this. E.g. problems can result from tensions between different factions in the company.
The employees who attribute high importance to their privacy are alienated and persons who
are not open-minded with regard to reforms and not willing to learn, show skepticism and
pessimism towards the introduction. The rationalization possibilities mean besides the
positive aspects for the company also negative aspects for individual employees, who are
afraid to lose their jobs and therefore take position against the introduction of an information
system.
A profound analysis and optimization of personnel processes is indispensable for the
successful and cost-efficient utilization of information systems in the human resource area.
Despite of the numerous advantages, a personnel information system remains only a tool in
order to be able to act in a better, quicker and more flexible way in human resource work.
Today, the introduction of a personnel information system can still offer large, strategic,
competitive advantages the introduction of an international personnel information system
will be unavoidable in future.
32 Conclusion 209
Literature
Jung, H.: Personalwirtschaft. 6. revised edition, Oldenbourg Wissenschaftsverlag GmbH,
Munich 2005.
Schmeisser, W. / Clermont, A.: Personalinformationssysteme und Personalcontrolling
Auf dem Weg zum Personalkosten-Management. Hermann Luchterhand Verlag,
Neuwird Kriftel (Taunus) 1999.
Schmeisser, W. / Grothe, J. / Hummel, Th. R.: Internationales Personalcontrolling und
internationale Personalinformationssysteme. Rainer Hampp Verlag, Munich and
Mering 2003.
Strohmeier, St.: Informationssysteme im Personalmanagement: Architektur Funktionalitt
Anwendung. Vieweg und Teubner Verlag, Wiesbaden 2008.
Wirtschaftslexikon24: URL:
http://www.wirtschaftslexikon24.net/d/informationssystem/informationssystem.htm
status: 2009.
IX International external personnel
recruitment and staff selection
493
Comp. Holtbrgge, 2007, p.100
494
Comp. jobpilot AG, status: 04 June 2002
212 IX International external personnel recruitment and staff selection
Print 2003 39
Print 2001 22
Online 2003 11
495
Beck, 2002, p. 10
496
Comp. ibid, p. 17
497
Comp. Brake/Zimmer, 2002, p. 50
34 Instruments of Electronic Recruitment 213
The advantages of e-recruiting are obvious. Via the system based selection it is possible to
save a considerable amount of time and money. It is not necessary any more to look at all
application documents received. All information needed on the applicants is available in a
standardized form and additional postal costs for sending application documents back do not
apply.498
Further advantages are the speed and availability of the internet, its timeliness as well as the
comfortable search and navigation function. Besides, a job offer which is published on the
internet can reach special international target groups and be seen for relatively little expenses
and independent from place and time by the applicants. Moreover, the internet offers the
possibility for applicants willing to change jobs to leave their profile anonymously.499
498
Comp. Brkermann/Pepels, 2002, p. 86
499
Comp. Holtbrgge, 2007, p. 102
500
Comp. Weber, 2007, p. 59
501
Comp. Brkermann/Pepels, 2002, p. 91
502
Comp. Weideneder, 2001, p. 385
214 IX International external personnel recruitment and staff selection
create an own area to publish their company profile on the website.503 The target is to inform
potential applicants and to create and maintain a company image.504
If a position has to be urgently filled, the ad on the internet job board can be useful, because
it addresses a broad international market, because online job boards can be read supra-
regionally and worldwide. It is an advantage that over the link to the company homepage the
applicant can obtain essential information on the advertising company and reflect on whether
the employee would be suitable. If an applicant posts a job search the company can look at it
anonymously. If a potential applicant is found, he will be contacted, without need of having
placed an ad.505
A disadvantage, on the other hand, is the flood of applications. Through the online-
presentation, applicants can be animated to quickly apply for the job. The lowering inhibition
thresholds animate also those applicants to send an application, whose requirements do not
correspond to the needs of the advertising company, which can be the case for a large share
of the incoming applications. This leads to high administration expenses, if no screening is
installed, because all incoming applications have to be dealt with.506
503
Comp. Brkermann, 2007, p. 7779
504
Comp. Spickschen, 2005, p. 101
505
Comp. Weber, 2007, p. 59
506
Comp. Brkermann/Pepels, 2002, p. 91
507
Comp. Karle, 2001, p. 18
508
Comp. Holtbrgge, 2007, p. 100
509
Comp. Brake/Zimmer, 2002, p. 53
34 Instruments of Electronic Recruitment 215
This high number of providers of job markets makes it difficult for the companies to make a
decision for the right electronic job board. The job boards have recognized this problem. In
the past years so called career boards were born where more services are offered than by
normal job boards and which have therefore become complete providers for personnel
recruiting.510 They offer to compose and design job offers and take the administrative part in
connection with recruitment over, as well as the pre-selection of applicants if desired.511
However, one should not forget that job boards are meant to publish job offers, which cannot
replace personal contacts.514
34.2 Human-Resources-Websites
In the context of electronic staff recruitment, the company website or the HR-homepage
gains importance beside the job boards. The essential reason can be seen in the fact that
companies that want to recruit personnel want to avoid the job board interface knowingly or
unknowingly. The attractiveness of a company is mostly subjectively assessed and can lead
to a visit to the company homepage. Whether an employer is attractive depends on the
company image, the popularity, the experience of other acquaintances, the products and
services etc. A further possibility to attract the applicants consists in the preparation of
contents and design of the website.
510
Comp. Karle, 2001, p. 18
511
Comp. Brkermann/Pepels, 2002, p. 92
512
Comp. Spickschen, 2005, p. 99
513
Comp. Egle/Bens, 2004, p. 324326
514
Comp. Brkermann/Pepels, 2002, p. 92
216 IX International external personnel recruitment and staff selection
In the paper age the possibilities to present oneself as employer were very limited. In the
internet on the other hand, there is the possibility to obtain overall information without
problems, including HR-offers and activities.515
An optimally designed HR website consists of the following four contemplation elements:
Following Herzbergs motivation theory, the formal requirements to a HR website could be
referred to as hygiene factors. This means that the fulfillment of all requirement does not
forcibly lead to the success of the homepage, the non-fulfillment, however, leads to its failure
at once. The access to the homepage of a company has generally to be intuitively possible.
The homepage must be accessible by entering a simple publicly known name. An example is
the Badische Anilin und Soda Fabrik. Instead of this name the internet address
www.basf.com is used. In order to make sure that the homepage is internationally available it
should be accessible with pure .de or .com addresses in equal shares. In this context the
homepage should offer the possibility of seeing the page in different languages. Furthermore,
the layout has to support the recognition value of the presenting company by the use of a
corporate design. The formal requirements of a HR-homepage also include a user-friendly
navigation, the possibility of direct contact by providing an email address and name of
contact persons as well as the guarantee of timeliness and data protection.516
The basic elements are all functionalities, services and information which are mandatory for
the process of personnel recruiting without regard to sector and company size and which the
job seekers expect nowadays.
These are the address of the target group, job offers, information with regard to job offers,
company related information and the possibility to send an application.517
A target group specific address is only possible if it is known who visits the HR-page on the
internet. By direct interviewing on the page this knowledge can be gained, which makes it
possible to address the target group in accordance with motivation for a job and degree of
qualification. For example, the address could be under the heading: pupils and apprentices,
students, university graduates and professionals.518
Additional elements on the other hand contain functionalities, services and information
which give indirect support to the process of staff recruiting, clarify company HR activities
and increase transparency. Among those are the following elements: the possibility of
unsolicited applications, the HR-info-base, the personnel development as well as
personalization.519
515
Comp. Beck, 2002, p. 168
516
Comp. ibid, p. 169174
517
Comp. Beck, 2002, p. 175
518
Comp. Brkermann/Pepels, 2002, p. 86
519
Comp. Beck, 2002, p. 192193
34 Instruments of Electronic Recruitment 217
Service elements of HR sites contain information which exceeds the personal recruiting.
This information has to underline the attractiveness of a company, accelerate interaction and
communication with the company and/or provide additional benefits520 and awaken the
users interest for further visits. Crazy Chicken, a computer game, which was available for
download on the company website of Jonny-Walker was one of the most spectacular actions
in this area and a reference with regard to individuality and creativity. Self-assessment,
surveys, application tips, screensavers or competitions already belong to the classic
additional offers.521
520
Comp. ibid, p. 200
521
Comp. Brkermann/Pepels, 2002, p. 90
522
Comp. Brink et al., 2008, p. 285286
523
Comp. Brake/Zimmer, 2002, p. 55
218 IX International external personnel recruitment and staff selection
34.4.1 Definition
It is uncertain whether it was the realization that personnel will have higher significance in
the company in future or only the possibilities which the medium internet provides to
distinguish oneself from the competitors which lead to a new innovative recruiting
instrument. It is still a fact that the search for new forms of personnel recruiting has
developed an innovative recruiting instrument which is defined as follows:
Online games are a web-based link between assessment center elements and their
imbedding in a game context for a target-oriented recruitment, with the possibility of
documentation and matching of performance results (Hard and Soft Skills) as well as the
option of automated applicant screening and ranking for the support and backup of the
selection decision.527
524
Comp. Brink et al., 2008, p. 286
525
Comp. Brake/Zimmer, 2002, p. 55
526
Comp. Brink et al., 2008, p. 286
527
Beck, 2002, p. 212
528
Comp. ibid, p. 212213
34 Instruments of Electronic Recruitment 219
New ways of addressing target groups via the internet in combination with a procedure for
pre-selection were meant to be tested with this product. This instrument linked a high-
performance online assessment with a fascinating and attractive online-game and took
around between three and four hours. In the course of the play time the participants
elaborated their competence profile. This reflected the achieved results of the test against the
background that the online game is a recruiting instrument for Siemens. Almost 13,000
players took part within the game time on the internet and more than 10,000 participants
released their profiles for examination.529
34.5 Newsgroups
In comparison with 3D-fairs or online recruiting games newsgups may seem rather old-
fashioned. Newsgroups are meant for the exchange of information on certain topics in open
groups. The notice board, where one could write or read notices, served as basic idea for
newsgroups. Because there is a big number of newsgroups, they are divided into topics.
Moreover, there is the possibility to search for keywords in the newsgroups, as Deja
(www.dejanews.com). Generally it is free of charge to post an ad. The disadvantage is that
there is no possibility for graphic design, company logos or other optical effects. The ads are
529
Comp. ibid, p. 213
530
Comp. Beck, 2002, p. 225
531
Comp. ibid, p. 225227
220 IX International external personnel recruitment and staff selection
only published in text format. A corresponding link to the company website should not be
forgotten in any case. The danger that an ad is overlooked is quite high given the amount of
ads looking just the same. Among the most important German newsgroups are:
de.markt.arbeit.angebote,
de.markt.arbeit.gesuche,
de.markt.arbeit.de,
at.jobs und euro.jobs.532
In order to access one of the above mentioned newsgroups the user has to enter the
corresponding news-server with address in his browser. An alternative way of research is
possible under http://www.deja.com. Here it is possible to publish a notice in the newsgroups
without charge. In this context one may often find ads which are not directly linked to the
topic. Whether this form of employee recruiting is still interesting depends on the one hand
on the spread of job boards on the electronic applicant data bases and their price on the other
hand.533
34.6.1 Opportunities
Via the use of the internet, considerable amounts of time and costs can be saved. This
aspect can become the decisive factor in the fight for so called high potentials.534 The
internal processing and forwarding of application on a digital way is made much easier. The
processing processes are shortened which again improves the application process. With the
online presence companies can also contribute to the improvement of their company image.
Information is available at all times and by the timely transmission it can be assumed that
data are up-to-date. The internet as only medium can be used for worldwide personnel
recruiting without limits. Currently, there is a strong need for specialized workers in
Germany and especially for this reason an internet presence is crucial for internationally
active companies. Furthermore, a creative design and additional benefits for the user on the
company homepage can be a sign of capacity for innovation of the company. This effect,
however, could decrease with the growing establishment of the internet and the rising offer
of additional benefits. The simplified possibility to reach applicants via the internet is far
better as in print media. This aspect is certainly very important, because the probability to
find the best possible candidate for a vacancy increases with the number of applicants.
532
Comp. Brake/Zimmer, 2002, p. 56
533
Comp. ibid, p. 56
534
Preuss/Knoll, 2001, p. 130
34 Instruments of Electronic Recruitment 221
34.6.2 Risks
The personnel recruitment via internet does not only bring opportunities but also some risks.
A stable company security is condition for a communication without barriers between the
user and the company: Applicants who suffer a technical crash when accessing a company
homepage or when filling in a time-intense application form will certainly not return to the
company website too soon.535
The big question regarding security when transferring personal data concerns most users of
the world wide web (www). A company in which an online application is possible has to
provide for absolute security for data transfer and to make the access for unauthorized
persons impossible. The user is flooded with information in a continuously rising amount of
offers. In order to limit them and to guarantee an efficient use of job offers, a user-friendly
navigation has to be available. Table 35.1 presents opportunities and risks of e-recruiting
again in catchwords:
Opportunities risks
o Potential to save costs o Company security
o Potential to save time o Data security
o Stabilization of image o Information flood
o Worldwide recruiting o Identification in the staff selection
o Timeliness procedures
o Communication of capacity for innovation o Pressure for quick processing
o Broad range of contacts
o Neutrality in personnel selection
o Unlimited timely utilization
Table. 34.1: Risks and opportunities of e-recruiting536
Especially the risks have to be considered in online staff recruiting and have to be integrated
in the recruitment strategy. However, with the rapidly growing development of
communication and information technologies a reduction of risks can be assumed in the long
run. The opportunities offered via personnel recruitment on the internet should be used
because there will be enormous progresses in this area.537
535
Dix/Witrahm, 2001, p. 444
536
Brckermann/Pepels, 2002, p. 94
537
Comp. ibid, p. 9394
222 IX International external personnel recruitment and staff selection
35 Scouting
In specialized literature there is no fix definition of the term scouting . Scouting rather
combines methods of personnel recruiting in such a way which allows the use of the
proactive character of addressing the applicants at an early stage and which is different to the
traditional recruitment methods through newspaper ads and recruitment consultants.538 In
any case scouting is about the recruitment of career starters. Scouting is directed towards a
special and important target group which is students and job starters and especially high
potentials. The focus of scouting activities lies on graduate-oriented measures and university
presence.539
538
Brckermann/Pepels, 2002, p. 135, own translation.
539
Comp. ibid, p. 120
540
Comp. ibid, p. 122
541
Comp. Eisele/Horender, 1999, p. 29
35 Scouting 223
Because of the higher turnover, these contacts have generally to be renewed each semester. It
is always recommendable to use a continuously created and maintained data basis.
It is possible to distinguish two groups of contact partners at universities in the context of
scouting via university presence: on the one hand professors, chairs and employees and on
the other hand students themselves. The group of professors, chairs and employees serve as
contact partners especially for lesson-related activities and offers for indirect scouting.
Among these offers are offers of working on topics of research and development in the
context of diploma and master theses, as well as dissertations but also by offering company
visitations, excursions and assigning assistant lecturers and instructors who offer
presentations and seminars. By such events often contacts with especially talented and
interested students are construed, which can then be intensified with the help of the following
measures:542
The group of students is the contact partners for direct scouting at university. The direct
scouting can be undertaken in a variety of ways. The offer of internships to students has to be
mentioned in this context. As in degree programs of some universities and in all universities
of applied science an internship is obligatory and the student is given the right to choose an
appropriate internship, companies can attract students and, thereby, also high potentials with
corresponding offers and information on internships and with the offer of special trainee
assistance. Very important is the support of student projects and initiatives. Initiatives as
AIESEC are mostly supported by highly talented and active students and can be supported
by sponsoring memberships and the offer of internships but also by means of fair
participation and ads. The involved students themselves are often very demanded in
recruitments.543
542
Comp. Brckermann/Pepels, 2002, p. 123
543
Comp. ibid, p. 123124
544
Brckermann/Pepels, 2002, p. 124
545
Comp. ibid, p. 124125
224 IX International external personnel recruitment and staff selection
parallel, the students have a practical part of their studies in the company. Because it will be
more difficult in future to find enough qualified graduates, the participation in such
cooperation will gain momentum.546
They can also be understood as market places where different companies present themselves
with their own stands to graduates and students. This gives students the possibility to meet
many potential employers and to gain additional information and to take part in the services
offered, e.g. discussions or specialized presentations, application trainings etc.
Because of the mass character of such events it is hardly possible to have a direct
communication or receive detailed information. The participation in a graduate fair often
targets more the improvement of the company image than the real recruiting purposes.550
With regard to the individual functions or sectors one can observe a stronger specialization
of todays graduate fairs. In this case the filling of certain positions is the main goal of the
fair. Already in the run-up phase of the fair the organizers make a preselection of the visitors
with help of the sent application documentation. In order to organize the processes during the
fair in the best possible way, job interview meetings are arranged by the company
beforehand. But problems can still arise, e.g. if the invited candidates do not comply with the
546
Comp. Schmeisser, 2006, p. 40
547
Comp. Brckermann/Pepels, 2002, p. 126
548
Comp. Schmeisser, 2006, p. 40
549
Bachelor und Master, status: 11 July 2009
550
Comp. Sunter, 2000, p. 42 et seq.
35 Scouting 225
assigned times or if the selection criteria for the participation in the fair were not exactly
defined.551
35.2.3 On-Campus-Recruiting
In the case of on-campus-recruiting companies present themselves on the premises of a
university with the goal to stimulate interesting applications of graduating students. In the
US On-Campus-Recruiting is an often used instrument of personnel recruiting; in Germany,
however, it is only rarely used. At the best US universities around 30 percent of the
graduates decide to start their career with a company with which they were in contact in the
context of on-campus-recruiting. Before the final examination phase the contact can also
have developed in an internship.556
551
Comp. ibid, p. 42 et seq.
552
Comp. Brckermann/Pepels, 2002, p. 127
553
Comp. ibid, p. 127
554
Comp. Brckermann/Pepels, 2002, p. 138
555
Comp. ibid, p. 127
556
Comp. ibid, p. 128
226 IX International external personnel recruitment and staff selection
36 Personnel leasing
A further modern external way of staff provision is personnel leasing. . This type of staff
provision is very different to the already mentioned ways of personnel recruiting. In this
form, the personnel seeking company acts as client. The client is referred to as lessee and
contacts the lesser. The lesser lends a workforce to the lessee against a fee for a limited
period of time. The legislator refers to this type of contract as temporary employment.
Personnel leasing is also called temp-work or freelance work. The Act on Personnel Lease
557
Comp. Schmeisser, 2006, p. 41
558
Comp. Brckermann/Pepels, 2002, p. 132
36 Personnel leasing 227
requires that temporary work Agencies dispose over a license and the authorization by the
Federal Employment Agency.559
Fig. 36.1 displays the economic and legal relations of the parties involved.
Temporary
worker
Labor contract Work instructions
There is a labor contract between the temporary worker and the lesser. There are no special
regulations for this contract. All special regulations including the limitation possibilities
which generally exist for all labor relations apply. Within this working relation the usual
labor law, social law and tax law conditions are valid. The temporary worker receives the
agreed remuneration from the lesser who deducts the taxes and social contributions due. In
accordance with sections 3 and 9 of the Act on Labor Lease
(Arbeitnehmerberlassungsgesetz) the lesser has to send the permanent worker for the
leasing time under the individual labor conditions to the leasing company, which applies
especially to the labor remuneration of the work exercised. Because in quickly growing
companies in different sectors this is partially hard to put in practice, the legislator offers a
solution to the problem. If the lesser enters as member in an employer association which has
concluded a collective agreement with the unions in charge with regard to personnel leasing,
the conditions fixed in the collective agreement will apply.
The lesser is the one who can give instructions to the temporary worker. In the agency, the
temporary worker has a right to vote and can be elected to the labor council. Additionally,
the temporary worker, as soon as he comes of age and is assigned to the lessee for more than
559
Comp. Brckermann, 2007, p. 89
560
Brckermann, 2007, p. 89
228 IX International external personnel recruitment and staff selection
three months, has a right to participate in the company labor council elections in accordance
with sec. 7 of the Industrial Constitutional Law.
The lessee has to pay attention that the lesser fulfills its duties with regard to payment of
social insurances. If it does not fulfill the payment duties, the lessee has the duties of a
primary obligor. For this reason, the lesser has to inform the health insurance in charge on
each personnel leasing. The company labor council of the lessee has a right of co-
determination, if a temporary worker is to be assigned to a job.
There is no labor relation between the temporary worker and the lesser. The temporary
worker provides his workforce to the lessee and the lessee gives instructions.
In this triangular relation, there is an employee leasing contract between the lesser and the
lessee through which the lessee is obliged to pay the agreed leasing fee and the lesser to
provide the agreed personnel.561
At the end of 2002, 4,261 companies were predominantly or exclusively active in the area of
temporary work leasing in Germany. Almost 320,000 employees were sent to other
companies on the annual average.562 Randstad Deutschland GmbH & Co. KG, which
belongs to the Dutch Randstad Holding, is one of the largest temporary work agencies
worldwide and has been active in Germany for 40 years. With around 700,000 employees
and total revenues of EUR 17.2 billion (2008) Randstad is active in more than 50
countries.563
The most important advantage of personnel leasing is that employees can be obtained at
short notice. Temporary workers are particularly used for writing work in the administrative
area or as craftsmen, assemblers and technicians in the corporate area. The personnel leasing
offers the possibility to cover short-time work peaks and to replace own personnel in the case
of illness, holiday etc.564 Another positive aspect of personnel leasing is that no costs for
personnel recruiting or for job adjustment arise. Furthermore, the lessee has no employment
risk. He can quickly release the temporary worker even without stating reasons.
Considering all these advantages, the disadvantages shall not be forgotten. Because their
activity is limited in time, the temporary workers often feel like second class employees.
Social problem and the high time consumption to transmit company specific knowledge are
the other side of the coin.565
561
Comp. Brckermann, 2007, p. 8991
562
Comp. Holtbrgge, 2005, p. 36
563
Comp. Randstad, status: 01 July 2009
564
Comp. Jung, 2008, p. 145
565
Comp. Holtbrgge, 2007, p. 99100
37 Personnel selection process 229
566
Comp. Holtbrgge, 2007, p. 103
567
Comp. Jung, 2008, p. 153
568
Manke, 2008, p. 8, own translation
569
Comp. Brckermann/Pepels, 2002, p. 193
570
Comp. Olfert, 2008, p. 131
571
Comp. Berthel/Becker, 2007, p. 262264
230 IX International external personnel recruitment and staff selection
Applicant Assessment
Discussion and Analysis Job interviews, Overall assessment,
determination of and test procedures, comparison,
requirements with assessment assessment selection
regard to of center, biografic
qualification application questionnaires
documents
In the best case, after the complete assessment procedure a test result from which can be
deducted to which degree the applicant fulfills the job requirements is received. It has to be
mentioned that without exact requirement profiles of the individual jobs no target-oriented
examination of the qualification is possible.
Against this background, it is necessary in practice to overcome a multitude of difficulties in
personnel selection, which result from the following factors:
There are always multiple requirement categories:
There are multiple sources that show to which extent it is necessary to fulfill the
requirement categories, e.g.:
572
Ibid, p. 264
573
Comp. ibid, p. 264
37 Personnel selection process 231
3. the company internal (e.g. supervisors, colleagues) and the company external labor
environment (e.g. employees of certain customer businesses or suppliers) with which the
employee needs to be in contact.574
It can be tried via multiple procedures to determine the actual qualification of the
applicants:
The problem is that all procedures for personnel selection lead to results concerning several
types and partially categories of requirements. In order to be able to make a decision on the
qualification of the applicant, the results of the examination of the qualification are attributes
to the different requirement types in such a way that a conclusion can be drawn to which
degree each is fulfilled. The main problem is that the determination of the applicants
qualification is rather an evaluation. The better the assessment is with regard to its
verifiability and interpersonal comprehensibility, the closer it gets to the ideal of
objectivity.576
574
Comp. Berthel/Becker, 2007, p. 264
575
Comp. ibid, p. 256
576
Comp. ibid, p. 264265
232 IX International external personnel recruitment and staff selection
Many companies still use only the analysis of application documents and job interviews.
Assessment centers are often used for the selection of national and international managers.
577
Comp. Brckermann, 2007, p. 92
578
Following Berthel/Becker, 2007, p. 266
37 Personnel selection process 233
579
Beska-Bewerbungsservice, status: 22 July 2009
580
Comp. Blank et al., 2009, p. 142
234 IX International external personnel recruitment and staff selection
1st Preselection
- Evaluation of results
2nd preselection
Additional selection
zustzliche procedures(z.B.
Auswahlverfahren (e.g.zweite
second interview round)
Gesprchsrunde)
Selection decision
581
Blank et al., 2009, p. 142
38 External procedures of selection of personnel and instruments 235
582
Comp. Brake/Zimmer, 2002, p. 5758
583
Comp. ibid, p. 58
584
Comp. Beck, 2002, p. 149
236 IX International external personnel recruitment and staff selection
585
Comp. Brckermann/Pepels, 2002, p. 216
586
Comp. Brckermann, 2007, p. 94
587
Comp. Olfert, 2008, p. 129
588
Comp. Brckermann/Pepels, 2002, p. 216217
38 External procedures of selection of personnel and instruments 237
In an email application with attachment the application material is sent as attachment (e.g.
text file with CV or scanned certificates). Reason for criticism is the danger to transfer
viruses or problems when opening the attachments. This form of online application,
however, is the most popular one in companies and has nowadays the same significance as
written applications. Therefore, the same assessment criteria apply for both application
forms.589
Besides, there is the possibility of an own website or application website to which the
applicant can refer in an email or written job application letter. This page is mostly created
by the job seeking person himself and serves to present his own person. In most cases,
however, it is not designed in a position-specific way.590
Because of the named problems many companies develop and use so-called online
application forms. These structured and standardized forms are positioned on online job
boards or the company website as a link in order to receive all important information about
an applicant which is necessary for an application. This way an equal treatment of any
applicant who has applied in writing is ensured and the same assessment is possible.592 A
further advantage is that the statements made are compatible with the system to 100 percent.
Unfortunately, the force of expression and the individuality of the applicant are lost this
way.593
589
Comp. Olfert, 2008, p. 130 and Brckermann/Pepels, 2002, p. 217
590
Comp. Brckermann, 2007, p. 9495
591
Comp. Brckermann/Pepels, 2002, p. 217
592
Comp. Schmeisser, 2006, p. 49
593
Comp. Brake/Zimmer, 2002, p. 58
238 IX International external personnel recruitment and staff selection
594
Comp. Brckermann/Pepels, 2002, p. 253
595
Comp. Brckermann, 2007, p. 119
596
Comp. Schmeisser, 2006, p. 52
597
Comp. Brckermann/Pepels, 2002, p. 253
38 External procedures of selection of personnel and instruments 239
that interviews serve as preselection for the completion of application material. It can be
concluded that digital interviews still have rather the status of a phone interview and not the
one of a selection or job interview.598
Literature
Achouri, C.: Recruiting und Placement, Methoden und Instrumente der Personalauswahl und
-platzierung. Gabler, Wiesbaden 2007.
Anger, G. / Christ, H. / Kiel, I. / Mller, H.: in Blank, A. / Christ, H. / Schneider, K.-H.
(ed.): Personalwirtschaft. 4th ed., Bildungsverlag Eins, Troisdorf 2009.
Arbeitsagentur: Der Arbeits- und Ausbildungsmarkt in Deutschland Juli 2009 Der
Monatsbericht der Bundesagentur fr Arbeit, URL:
http://www.pub.arbeitsagentur.de/hst/services/statistik/000000/html/start/monat/aktue
ll.pdf
Status: 06 August2009.
Bachelor und Master: URL:
http://www.bachelorundmaster.de/karriere/jobsuche/absolventenmessen.html
Status: 11 July 2009.
Beck, C.: Professionelles E-Recruiting: Strategien Instrumente Beispiele. Luchterhand
Neuwied, Kriftel 2002.
Berthel, J. / Becker, F. G.: Personal Management Grundzge fr Konzeptionen betrieb-
licher Personalarbeit. 8th edition, Schffer-Poeschel, Stuttgart 2007.
Beska-Bewerbungsservice: Auswahlverfahren in Deutschland fr Bewerbungen, URL:
http://www.beska-bewerbungsservice.de/bewerbertipps/auswahlverfahren_d.htm
Status: 22 July 2009.
Blank, A. / Christ, H. / Schneider, K.-H. (ed.): Personalwirtschaft. 4th edition, Bildungs-
verlag Eins, Troisdorf 2009.
Bck, R.: Personalmanagement. Oldenbourg Wissenschaftsverlag, Munich 2002.
Brink, A. / Ernst-Auch, U. / Hamm, M. / Faber, M. / Hess, J. / Jnger, A.: Gabler/MLP
Berufs- und Karriereplaner Wirtschaft 2008/2009. 11th edition, Wiesbaden: Gabler
2008.
Brake, J. / Zimmer, D. (1993): Ganzheitliche Personalauswahl. Bamberg: Bayerische
Verlagsanstalt 1993.
Brake, J. / Zimmer, D.: Praxis der Personalauswahl: So whlen Sie den idealen Bewerber
aus. Wrzburg: Lexika 2002.
Brenner, D.: Neue Mitarbeiter suchen, auswhlen, einstellen. Munich; Unterschleiheim:
Luchterhand 2003.
598
Comp. Beck, 2002, p. 151
240 IX International external personnel recruitment and staff selection
599
Sackmann, 2002, p. XIII, own translation
600
Comp. Welge/Holtbrgge, 2003, p. 190
601
Sackmann, 2002, p. XIII
602
Jones/Bouncken, 2008, p. 408, own translation
244 X Company culture and country culture
as well as the behavior to each other and to employees and external partners. The goal of
company culture is to coordinate company targets, employee satisfaction and customer
orientation and to achieve a competitive advantage over the competitors and to increase
company effectiveness.603
In certain situations it becomes necessary for the company to question the existing culture, to
analyze it and to change it, if necessary, or to set priorities. The reasons can be in the external
sphere, the company environment or the internal sphere, i.e. in the company itself.604 Now,
some of these situations will be described.
603
bpb, status: 13 June 2009, 16:15h
604
Comp. Sackmann, 2002, p. 11 et seq.
40 Company-internal factors 245
40 Company-internal factors
Strong company growth: In case of strong company growth the former company culture and
the internal company environment should be maintained and communicated to new
employees. Typical growth sectors are currently the IT and communication sector.
Stagnation: Stagnation causes changes in the company strategies and tactics as well as in
the company culture.
Productivity problems: these are mostly signs of internal friction losses. Also in this case,
thoughts should be given to a change of company culture.
Management changes: a change in the top management can either lead to continuance of
existing strategies, aims and the company culture, a reorientation or setting of new priorities.
41 Cultural values
A company culture consists of many cultural values which influence the behavior of
employees, e.g. how they perceive their environment, how they take information and process
them, how they react to and behave in certain situations. Cultural values can be understood
as general criteria, standards, principles and directives which make clear to the employees
which behavior is desirable in certain situations. These values are mostly not formalized and
not written down. Special norms, rules and standard work instructions help the employees
and external partners like customers, suppliers and the society to understand and internalize
the company culture.
Company Culture
creativity innovations
courage profit
honesty morality
hard work quality
In accordance with Jones and Bouncken target-oriented performance values are the aspired
targets and results of a company or an organization.605 This is also referred to as lead-culture
or cultural orientation in a company. This lead culture depends on the company and the
sector and is reflected in economic efficiency, reliability, responsibility for ones actions,
innovations, morality etc. The instrumental values represent the desired behavior to reach the
target-oriented performance values. Among these values is respect for authority figures,
preparedness to take risks, honesty, creativity etc. To make it clear: A company cannot
launch innovative products if the employees in the development department do not have
creative ideas and are not willing to take certain risks, because the company knows only later
via sales revenues and profits whether the product was really well accepted by customers
and whether it was beneficial for the purchasers.
605
Comp. Jones/Bouncken, 2008, p. 409
606
Jones/Bouncken, 2008, p. 416
41 Cultural values 247
607
Comp. Jones/Bouncken, 2008, p. 412
248 X Company culture and country culture
42 Communication of culture
This chapter presents, how the company culture is communicated to employees and groups
of stakeholders (suppliers, customers, society). This is undertaken in form of socialization
tactics, stories, rituals, the company language etc. Now different forms of communication of
culture will be described
608
Welge, 2003, p. 169, own translation
609
Comp. Jones/Bouncken, 2008, p. 421
610
Welge, 2003, p. 169, own translation
42 Communication of culture 249
decisions faster and to reduce the control efforts. In practice, the institutionalized role
orientation is above all relevant in military, in the financial sector etc. where values as
honesty and trustworthiness come in first place. The danger of institutionalized role
orientation lies in the manipulation of the employees by the leaders. Leaders might play on
the behavior adaptation, obedience, subordination and act against the law.
collective individual
communication of company-typical learning learning experience is unique individual
experience standardized reactions to reactions by new employees
certain circumstances
formal informal
learning of new tasks in isolation from old experiencing new tasks in the organizational
personnel (e.g. external trainings) team as new team member
sequential random
new employee obtains overview over task sequences of tasks and order of functions
process and functions directed by employee needs (individual)
fix variable
new employee knows time schedule for tasks Learning and tasks directed by the individual
employee needs
directed individual
old employees as mentors and advisors for Employees individually analyzes own actions
new employees without instructions from others
separating integrating
no social support by old employees Social support by existing team
(ignoring, derision)
The tactics on the right (see above) lead to an individual role orientation. In this case
individual and creative ways of working of the employees are targeted and promoted. The
employees can experiment with changing norms and values within their scope of action and
create innovative solutions for problems. This type of role orientation is typical of creative,
innovative sectors as the IT or automobile sector.
611
Comp. Jones/Bouncken, 2008, p. 421
250 X Company culture and country culture
612
Comp. Sackmann, 2002, p. 57
613
Comp. Jones/Bouncken, 2008, p. 427
614
Sackmann, 2002, p. 28, own translation
43 Formation of company culture 251
problems and reduces communication barriers and strengthens the identification feeling of
employees within the company.
615
http://www.ehow.com/about_7426498_stock-market-slang-termp.html, Status: 30 June 2011, 13:15h
616
Ibid.
252 X Company culture and country culture
617
Comp. Jones/Bouncken, 2008, p. 431
618
Comp. ibid, p. 434
619
Comp. Demsetz, 1967, p. 347 et seq.
43 Formation of company culture 253
A good practical example for a company that provides certain disposition rights to its
employees is the Google group. It offers numerous non-monetary benefits two T-shirts for
free per week, free all-you-can-eat buffets and snack machines, a company own fitness
studio etc. Furthermore, Google employees receive free broadband internet access and
mobile phones for their disposition. In addition to these non-monetary benefits, a higher
salary in case of good work assessment makes a positive contribution to the motivation and
company connection of the employees.621
620
Comp. Jones/Bouncken, 2008, p. 439
621
Google, status: 13 June 2009, 16:15h and onpulson, status: 13 June 2009, 16:16h
254 X Company culture and country culture
are characteristics of the company culture, the decentralized structure can often be found in
the IT and marketing sector.
Literature
bpb: URL: http://www.bpb.de/popup/popup_lemmata.html?guid=M9O9WM
Status: 13 June 2009, 16:15h.
Demsetz, H.: Towards a Theory of Property Rights. American Economic Review, 1967, 57,
p. 347359.
E-How: http://www.ehow.com/about_7426498_stock-market-slang-terms.html, Status 30
June 2012, 13:15h.
Google: URL: http://www.google.de/intl/de/corporate/culture.html
Status: 13 June 2009, 16:15h.
Jones, G. R. / Bouncken, R. B.: Organisation. Theorie, Design und Wandel [book], Pearson
Studium Verlag, Munich 2008.
onpulson: URL: http://www.onpulson.de/karriere/magazin/fachartikel/show--727-1.htm
Status: 13 June 2009, 16:16h.
Sackmann, S. A.: Erkennen Entwickeln Verndern [Buch], Hermann Luchterhand
Verlag, Neuwied Kriftel (Taunus) 2002.
Welge, M. K. / Holtbrgge, D.: Internationales Management. Theorien, Funktionen,
Fallstudien, Schffer-Poeschel Verlag, 3rd edition, Stuttgart 2003.
XI Country research at the example
of South Africa: history,
population and culture
South Africa is a world in a country. This is the slogan that the tourist board uses to
advertise the outstanding landscapes and the diverse climate, numerous peoples and various
cultures as well as religions and mentalities. There is hardly any other country that allows
such different impressions. Two worlds, the rich and the poor still called third world
often collide and there is still harmony. The country is intriguing, but characterized by the
social contrasts, AIDS and political change.
44 Early history
The history of South Africa is the history of a battle for land and political power.622 It starts
with the San, the so-called native people of South Africa. The Bushmen were mere gatherers
and hunters and lived in the whole Southern area of Africa. Characteristic for their language
are the click-consonants. Later on came the Khoikhoi, the human-humans, to the South
Africa of today. Their traditional way of life combined nomadism and foraging. Both peoples
were similar to each other regarding their looks and their language, which is why, nowadays,
they are often called Khoisan. The hunting Khoikhoi had first and foremost conflicts with the
San with regard to cattle. However, the Khoikhoi successfully drove away the San from their
settlement or subdued them.
The great migration movement of the Bantu peoples began already before Christ in the
Cameroon of today. The Nguni-language group with the languages Swazi, Tsonga, Zulu,
Xhosa and Ndebele have spread furthest south from the different Bantu peoples. They
reached the area between todays city of East London and Bloemfontein around 1500 post
Christ.623
622
Hagemann, 2001, p. 7 et seq., own translation.
623
Comp. Wiese, 1999, p. 88
256 XI Country research at the example of South Africa: history, population and culture
Given the great Bantu-expansion, the original inhabitants were squeezed out to other
territories increasingly. Therefore, the only living space left for the San was the central
Kalahari. The advancing expulsion and impoverishment of this population group came about
as a consequence of their exploitation by the political and economic elite. To this day, the
only surviving tribe of the Khoikhoi is the Nama tribe, which migrated to the south of
Namibia. All others were traded as slaves and driven away from their settlements by the
Boers since the 17th century. Diseases which were introduced, such as pox, and wars have
further reduced the tribes. A vast part also mixed with the Caucasians and the Bantu.
624
Comp. Jrgens/Bhr, 2002, p. 42 et seq. and Hagemann, 2001, p. 26 et seq.
45 Arrival of the Europeans and development of the partitioning of the land 257
the country. This gave rise to two language groups with English being determined as the
official language.625
The British parliament abolished slavery in 1834. First and foremost the Boers626 which
were native to the border regions of the colony considered their existence threatened thereby.
Therefore, they moved as Voortrekker to the largely unknown inland in order to escape the
British law.627
The Boer republics received much attention with the discovery of diamonds near Kimberly
in 1867 and of gold at the Witwatersrand in 1886 which attracted thousands led by diamond
fever and gold rush. Finally, in 1899 the so-called Boer War (South African War) erupted,
which the militarily superior English won only with great effort. However, this impaired the
relationship between Caucasians of English and Boer origin for a long time.
The South Africa of today has only been a unified state since 1910 which has formed by the
unification of the four colonies Natal, Transvaal, Oranje-republic and the Cape Colony to the
South African Union (see Fig. 45.1).
625
Comp. Pabst, 1997, p. 36
626
Derived from the Dutch boer for peasant.
627
Comp. Pabst, 1997, p. 3637
628
South Africa Infoweb, 2007
258 XI Country research at the example of South Africa: history, population and culture
46 Population groups
The division of the population into four groups which was established at the times of the
apartheid is still common as of today. However, only the Whites belonged to the privileged
people, followed by the Coloureds and the Indians, which, again, were superior to the
Blacks.
Statistics of South Africa carried out a population census in 2001. As shown on Fig. 46.1
79.0 percent of the about 45 million inhabitants of South Africa belong to the Blacks. In
contrast to that, the Whites constitute a small population group at 9.6 percent, similar to the
Coloureds at 8.9 percent. The smallest group is that of the Indians at 2.5 percent.
Coloured
8,9%
Indian/Asian
2,5%
White
9,6%
Black African
79,0%
Within the four categories there are further sub-groups with different languages, ethnic
groups and religious beliefs. The skin color dominated the existence of the South African
population up until the elections in April 1994. During the apartheid the skin color
influenced the choice of the place of domicile, the school, the means of transport, the
workplace, just to name a few examples.
In the following four chapters the population of South Africa will be presented group by
group, categorized into Whites, Coloureds, Indians/Asians and Blacks.
629
Statistics South Africa, Census, 2001
46 Population groups 259
46.1 Whites
The 4.5 million white South Africans are of Dutch origin, also called Boers, and were the
first to arrive at the Cape in the mid 17th century. They were followed by settlers from
England from 1820.
Both groups battled each other mercilessly in the Boer Wars. From 1857, over 5,000 German
men, women and children stepped on land at East London. Cities such as Braunschweig,
Hamburg or Heidelberg developed. Today, around 1 million Germans live in South Africa,
along with French, Italians and 120,000 Jews.630
The mother tongue of these South Africans is the Afrikaans similar to Dutch. There is also
an English speaking part of the population which is concentrated in the western and eastern
Cape area and in Natal. This population group lives primarily in cities and controls the
commercial and economic sectors to a large extent.
46.2 Coloureds
The children of black and white couples are still often called Coloureds. These are around 4
million South Africans that live first and foremost in the Cape Province and in Cape Town.
They are the descendants of relationships of the first Dutch settlers with the Khoikhoi, the
native people on the Cape. Also, the around 200,000 Cape Malay are added. They are
descendants of slaves that were brought from East India to the Cape in the 18th century. The
Coloreds have their own cultural heritage. As an example, the Coloreds which were
privileged as compared to the Blacks at the time of the Apartheid define themselves by way
of their profession rather than by way of their origin.631
46.3 Indians/Asians
Given the introduction of large-scale sugar cane farming, the expansion of mining activities
and the commencing railway construction, the need for workforce in Natal increased
considerably in the middle of the 19th century. This need was partly satisfied with the hiring
of Indians. The Indian population of South Africa derives from the descendants of the
original day laborers. The around 1.2 million people dominated a vast part of commerce in
Durban. Mainly Chinese people settled in the area around Johannesburg. They came to South
Africa as miners at the end of the 19th century and were also classified in this category.632
630
Comp. Nohlen, 1996, p. 631
631
Comp. Wiese, 1999, p. 8586
632
Comp. Pabst, 1997, p. 4647
260 XI Country research at the example of South Africa: history, population and culture
The Indians were bound by the British in five year work contracts. After the contract
terminated, many of them stayed in the country as Free Indians. They had the freedom of
establishment and were entitled to run a business. From 1870 further Indians, so-called
Passenger Indians were attracted to the country without work contracts and oftentimes
brought their wives with them. The non-native Indians did not form a homogeneous
population group given also their religion, language and classification into a certain caste.
They were overwhelmingly Hindus and came from rather low castes. Among the languages
commonly spoken were initially Tamil, Hindi and Gujerati. Later on, English became their
official language.633
Up until today the vast part of the Indian population lives in Natal. In the system of the
Apartheid the Indians were categorized as a separate population group since 1959. They, too,
were subject to similar restrictions as the other non-white population groups. Especially, they
had to face compulsory relocations of inhabitants and business people. There were tensions
between the Indian and the black population which turned into violence at times.634
46.4 Blacks
Nine different Bantu peoples with equally as many official languages belong to the black
population. Around 10 million people form part of the largest South African people, the
Zulu. This is almost a third of the black population. They settle first and foremost in
KwaZulu-Natal and in the wider area of Johannesburg. Regarding their number, they are
followed by the Xhosa (7.2 million). They live primarily between Port Elisabeth and Durban.
6 million people belong to the North and South Sotho followed by the Tswana (3.3
million), Tsonga (1.8 million), Swazi (1 million), the Ndebele (0.6 million) East of
Johannesburg and the Venda (0.9 million) in the furthermost North East on the border to
Zimbabwe. The traditional cultures also contain different larger and smaller sub-groups.
Most of the Blacks live in rural areas of the former ten Homelands or still in a very small
space in the Townships at the border of the cities.635
47 Religion
Missionaries have contributed their share over many centuries. The largest part, around 80
percent, of all South Africans is Christians. The Dutch-Reformed Church, NG-Kerk, of the
633
Comp. Bilger, 1986, p. 172
634
Comp. Jrgens/Bhr, 2002, p. 57
635
Comp. Bilger, 1986, p. 215216
48 Culture 261
Boers did not only convey its strictly Calvinistic way of life, but also promoted the
Apartheid, which was also palpable in the NG-Kerk through the division into the four known
groups.636
Already in 1910 the Zion Church was founded as a Church without the White. There, its
members found recognition and understanding. Most communities of faith of the Blacks
combine Christian with traditional African religious beliefs. The proportion of Hindus and
Muslims as part of the population is relatively low at a total of about 0.5 million people.637
48 Culture
Many different ethnic groups with different language, culture and origin are native to South
Africa. Among these are eleven official languages. The population mainly speaks English,
Afrikaans, seSotho, isiXhosa and isiZulu.
The fusion and commingling taking place in the urban areas of South Africa lead to the
dilution of old, at the same time to the creation of new cultures. However, in many rural
areas, the black traditions are still alive.
All of them have as common trait the belief in a male God, in the spirits of the ancestors and
in supernatural powers. Polygamy is legal and usually a bride price is paid. In many cultures
cattle plays an important role, both as status symbol and for sacrificial rituals.
Oftentimes the artistic heritage of the native South African people provides the only
possibility to learn about a vanished culture. The petrography and cave art of the San
constitute an example. Further, traditional crafts, such as the pearl crafts of the Zulu, were
developed in times of need for the purpose of securing the existence of such people. The
culture of the Xhosa, the so-called red people, is likewise prominent and comes from the
red scarves which are worn by most adult Xhosa. The Ndebele which are related to them live
in Northern-Transvaal in self-painted homes (see Fig. 48.1).638
636
Comp. Wiese, 1999, p. 9899
637
Comp. Wilke-Launer/Khne, 1993, p. 421
638
Comp. Jrgens/Bhr, 2002, p. 39.
262 XI Country research at the example of South Africa: history, population and culture
The totally independent culture of the white Africans formed in self-inflicted isolation. They
tramped around Africa among their herd of cows and with a bible in their hand. To this day
the conservative Dutch-Reformed Church is the center of all attention.
Even though many cultures originated in South Africa, most of them became obsolete or
were destroyed during the Apartheid when the conventional and contemporary cultures were
not looked after.640
The new South Africa arises in the streets of the Townships and cities. Retrospectives of
black, contemporary and traditional artists are on display in galleries and musicians from all
of Africa make an appearance at big festivals.
49 Socio-political aspects
South Africa is still far away from the ideal of a multi-cultural society. There is still a large
division in the population. Blacks and Whites live largely separate from one another. There
are few points of contact. The Apartheid regime made an effort to stress the differences
between the ethnic groups and to ignore the common grounds. The politics of racial
segregation served the purpose to secure the political and economic governance of the white
minority. South Africa is still battling the consequences of these politics as of today.
639
Saembassy, 2004. own translation
640
Comp. Sdafrika Guide, 2008
49 Socio-political aspects 263
641
Comp. Pabst, 1997, p. 102104
642
Comp. Jrgens/Bhr, 2002, p. 188
264 XI Country research at the example of South Africa: history, population and culture
Finally, the inhabitants had to accept resettlement to the reservations. The total number of
forced resettlements was 3.5 million only between 1960 and 1982/83.643
The introduction of the Homeland-Concept after 1948 was finally the continuance of the
reservation policy. The Bantu Authorities Act of 1951 and the Promotion of Bantu Self
Government Act at first accounted for eight, later ten Homelands, and in parallel abolished
the last representation of black people in the white parliament. Then, efforts of
consolidation and frontier displacements of the Homelands were continued. Around 16.2
million people lived in the Homelands in 1990 among them around 1.6 million, mostly
male migrant workers, who were active outside their Homelands. Around 800,000
commuters traveled, partially long distances, into the white region. This made clear that
the economic basis of the Homeland was insufficient. The migrant workers and commuters
constituted over 50 percent of the black workforce in white South Africa. However, the
homeland-concept still did not make a real independence of the black population
possible.644
Since 1994, the government has tried to reverse this massive injustice regarding the
repartition of land without endangering the economic effectiveness. A land reform was
planned to be carried out in three stages: the return of land, the redistribution of property and
the reform of land and tenancy rights. The return of dispossessed land to the former owners,
which was regulated in corresponding Act on the Return of Land of 1994, had highest
priority.645
In order to avoid losses of productivity, cultivated farmland was protected against it at first.
It will still not be easy to reach a balance between the high expectation of landless people,
the interests of white farmers and the financial possibilities of the state.646
49.3 Democratization
The wave of democratization started in 1991 and affected the whole country. In order to
point out the importance of this change, it is sometimes referred to as second independence
or second liberation. Especially church groups, influential legal associations and the free
media, which has been flourishing since 1990, have decisively contributed to the
construction of a civil society.647
643
Comp. Wilke-Launer/Khne, 1993, p. 431
644
Comp. Jrgens/Bhr, 2002, p. 47
645
Comp. Wilke-Launer/Khne, 1993, p. 457
646
Comp. Wiese, 1999, p. 189
647
Comp. Ansprenger, 1999, p. 137
50 Demographic and social aspects 265
For the first time, a government was elected by all South Africans in 1994 which changed the
political map. The independent Homelands were dissolved, but the outlines remain existent.
Almost 50 percent of the population, i.e. around 19 million people, live in these areas.
Fig. 49.1 shows that todays South Africa divided into nine provinces. They do not have the
same status as German Bundeslnder. The provinces have each their own parliament with a
Premier.
648
South Africa Infoweb, 2007
649
Comp. Jrgens/Bhr, 2002, p. 62 et seq.
266 XI Country research at the example of South Africa: history, population and culture
this is the worldwide anti-Malaria program which was started by the World Health
Organization (WHO) with the help of several foundations in 1955. They also installed a
project for the eradication of pox in 1967. Pox stopped to exist worldwide from 1977.
With the start of the 1990s the mortality rate rose all over South Africa again. Many of the
returning infectious diseases started to spread again. The reasons were the agents that have
become immune as well as the unhygienic living circumstances in a big part of the country,
which caused a successful fight against diseases to fail. A simple solution would be the
improvement of sanitary installations and the connection to a water network. However, this
can still not be realized for monetary reasons in every household.650
650
Comp. ibid, p. 177
651
Comp. Wiese, 1999, p. 121
652
Comp. Weltbank, 2007
50 Demographic and social aspects 267
AIDS does not only lead to mortality, but also to a deterioration of the general state of health,
the outbreak of other diseases like tuberculosis and the early death of the badly fed and cared
AIDS orphans. Up to the year 2010, the life expectation will drop to 48 years. Because of the
loss of human resources and the strongly rising health costs. the economic consequences of
the disease are considerable. Already today, partially three persons have to be trained for
each higher position, in order to take precautions for the case of deterioration of performance
and death as result of AIDS. Many companies complain about warning signals as insufficient
employee morale and disturbed production processes. The abatement of mass poverty and a
betterment of population groups which have been disadvantaged for a long time have
receded into dim distance.653
653
Comp. Wiese, 1999, p. 119 et seq.
654
Comp. Caldwell/Caldwell, 1993, p. 225262
655
Comp. ibid, p. 225262
268 XI Country research at the example of South Africa: history, population and culture
adolescences coming into reproductive age, but also the influence of AIDS on the mortality
and fertility has to be estimated.656 Up to now the reduction of births has had only little effect
on the age structure, as can be seen in Fig. 50.1.
Age category
0,1
85+ 0,2
0,2
80-84 0,4
0,3
75-79 0,5
0,5
70-74 0,9
0,7
65-69 1,1
1,0
60-64 1,4
1,2
55-59 1,5
1,7
50-54 1,9
2,2
45-49 2,5
2,8
40-44 3,1
3,2
35-39 3,6
3,6
30-34 3,9
4,2
25-29 4,5
4,7
20-24 4,9
5,5
15-19 5,6
5,6
10-14 5,7
5,4
5-9 5,4
5,0
0-4 5,0
0 1 2 3 4 5 6
male female %
Fig. 50.1: Total population in accordance with sex and age groups657
656
Comp. Wiese, 1999, p. 130133
657
Statistics South Africa, Census, 2001
50 Demographic and social aspects 269
have no job and no proper home. For example in the township Soweto near Johannesburg
more than 90 percent of all acts of violence are committed by young persons between 14 and
25 years. The realization by leading ANC members that the boycott of schools and university
for decades during the Apartheid had harmed a whole generation is not sufficient. Training
programs, school and university education will have to give new opportunities and hope to
these young people.658
Some secondary
30,8 %
No schooling
17,9 %
Higher
8,4 %
Grade 12/ Std 10
20,4 %
Fig. 50.2: Population aged 20 and older and highest school certificate 659
Education in South Africa is an example for all the problems which arise in the context of
restructuring the Apartheid society. Since April 1994 all children have access to state schools
and general compulsory schooling was introduced. Many hundred million rand are necessary
for a school developmental program, in order to guarantee the necessary human resources for
further economic progress.660
With the Higher Education Act 1997, the government started a reform of universities. By
combining universities and higher technical colleges in 2004 and 2005, the target is pursued
to get rid of the former separation into white and black universities. The complex
redesign is a difficult management task.661
658
Comp. Wilke-Launer/Khne, 1993, p. 458
659
Statistics South Africa, Census, 2001
660
Comp. Wiese, 1999, p. 115119
661
Comp. Auswrtiges Amt, 2007a
270 XI Country research at the example of South Africa: history, population and culture
51.1 Unemployment
The unemployment rate of the white population is relatively low with around 2 percent. In
contrast, each second Black person is unemployed or lives from occasional jobs. The main
reason is the educational deficit. Furthermore, criminality and diseases like AIDS are
further reasons.663
Fig. 51.1 illustrates the unemployment in South Africa over a period from 1999 until 2007. It
can be perceived that since 2001 the unemployment rate has decreased by 12.8 percent. This
success can be explained by the creation of new workplaces and an increasing level of
education. However, there is still need for further measures.
662
Comp. Auswrtiges Amt, 2007b
663
Comp. ibid
51 Economic aspects and employment policy 271
unemployment %
40 37
34
35 31
30 30
30 26,2 26,6 25,5 24,2
25
20
15
10
5
0
1999 2000 2001 2002 2003 2004 2005 2006 2007
year
A public job program shall provide training positions and work to the young generation
between 6 and 19 years that accounts for one third of the black populations.665 The
Reconstruction and Development Programme aims at a faster and stronger
industrialization of the country. This means especially an improvement of technological
capabilities and thus of international capacity to compete.666
Economic experts like Clem Sunter ex manager of the gold and uranium division of the
mining group Anglo American Corporation hold the view that small and middle-sized
companies should be supported in order to avoid a reduction of workplaces and to create new
jobs. This should not aim at a racial separation conform to the former line white
corporations and black corner shops. This is about giving black people their place in
large-scale industry as well as promoting small business.667
Beside the official labor market there is also an expanding informal sector. Examples are
private taxi companies who drive their customers from the townships to work, traders with
portable junk-shops or car mechanics who open a garage on the side of the road. If young
664
CIA The World Factbook, 2008
665
Comp. Behren/Rimscha, 1994, p. 180
666
Comp. Wiese, 1999, p. 15
667
Bond, 1994, p. 34, own translation
272 XI Country research at the example of South Africa: history, population and culture
people should not achieve to get access to an official labor relation, they will also try to earn
their lives with this African form of economy.668
Despite of this, many Blacks still need to resort to the knowledge and experience of white
people. The Whites again cannot exist without the black potential of workforce and
purchasers.
668
Comp. Behrens/Rimscha, 1994, p. 181 et seq. and Wiese, 1999, p. 183 et seq.
669
Comp. Alexander, 2008
670
Comp. ibid
52 South Africa: automotive industry 273
the states legal system and limit the principle of equal treatment and liberal decision-making
of women.671
The socially weak position of women also results from a lower educational standard. The
reasons are early pregnancies, the compulsion to work or to take care of younger siblings.
The social and geographical mobility is limited for many women. They are disadvantaged on
the formal residential market, because single educating persons under 21 years or women
over 21 years without children have no chance to receive state housing loans.672
The percentage of women in white-collar-professions (employees) is very low with 21
percent. There are better chances in the blue-collar-sectors (workers) with 88 percent. Here,
women can clearly catch up with men. Because of the bad education of women from the
country, their activities are concentrated on the informal sector, where little seed capital is
needed. Formerly they were disadvantaged by the white colonial power and after the
independence they are discriminated in a black world of men if they want to gain access to
the formal labor market. The consequence is that women cover local supply deficits in
unattended townships as sellers of grocery and household equipment or prostitutes.
The participation of women and the co-determination of women in political decision
committees are still of little importance. The ANC supports them, and therefore has one of
the highest female representation rates in parliament.
671
Comp. Jrgens/Bhr, 2002, p. 196
672
Comp. Lohnert, 2000, p. 67
274 XI Country research at the example of South Africa: history, population and culture
imported cars drastically. At the same, time incentives were given for a stronger local share
in automotive fabrication. This way, companies could export at cheap prices, and models
which were only required in small numbers could be imported at low costs. Therefore, many
companies decided to fabricate in South Africa.
Presently the MIDP which is effective until 2012 is examined by the government, industry
and trade unions. The government, however, has already assured that it would continue its
support to the automotive industry after 2012.
The export of components and the emergence of an own sub-supplier industry complete the
growing automotive production and have become an important economic factor. In the
surroundings of Uitenhage and Rosslyn, where several manufacturers have their business,
Supplier Parks have been created. Joint Ventures between local companies and traditional
suppliers fabricate the necessary components like catalytic converters, seats and airbags in
these Supplier Parks.
NUMSA especially wants to improve the life of worker in factory buildings. Therefore, it
pursues its aims persistently:
Close wage gape from Apartheid. With the Apartheidm a big wage difference between
qualified and non-qualified workers was created. This difference existed mainly between
white and black workers.
Gain workers interest in trainings which are recognized in other companies, in case they
lose their workplace.
Reduce training grades at the workplace to five stages of training and introduce a
grading system based on capabilities. This way, anybody who attends the trainings could
be awarded with higher remunerations because of his further qualification.
Make employers aware of capabilities which workers have gained in their position in the
company and encourage payment for these capabilities.
276 XI Country research at the example of South Africa: history, population and culture
Make sure that women receive jobs which traditionally are occupied by men, if they
have the appropriate qualification. Women have to receive the same payment as men, if
both sexes carry out the same work.
Receive more control over investment plans and strategies from management. If the
company plans massive workplace reductions, NUMSA wants to be informed in order to
reduce the consequences for its members.
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Alexander, M.: Black Economic Empowerment, URL:
http://www.southafrica.info/doing_business/trends/empowerment/bee.htm
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Becker, M.: Personalentwicklung: Bildung, Frderung und Organisationsentwicklung in
Theorie und Praxis. 4th edition, Stuttgart: Schffer-Poeschel, 2005.
Becker, M.: Systematische Personalentwicklung: Planung, Steuerung und Kontrolle im
Funktionszyklus. Stuttgart: Schffer-Poeschel, 2005.
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Bilger, H. R.: 111mal Sdafrika. 3rd edition, Munich: Piper, 1986.
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April 1994, p. 34.
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mationsprozesse im Sdlichen Afrika Konsequenzen fr Gesellschaft und Natur.
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im sdlichen Afrika, ed. 12, volume 3, 2007, p. 7071.
52 South Africa: automotive industry 279
in bn. EUR
1.200
1.000
800
Export
600
Import
400
200
0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
year
Fig. 53.1: Key figures of German foreign trade from 1997 to 2008674
673
Comp. Oechsler, 2006, p. 98
674
Following Statistisches Bundesamt 2009b
53 Changes in the company environment 283
This ever stronger international orientation of companies is also reflected in the rising
number of cross-border mergers all over the world. As can be seen in Fig. 53.2 the number of
mergers and acquisitions has steadily grown since 1993, and thereby the purchase of
foreign employees by mergers in the group.
bn. US$
1200
1100
1000
900
800
700
cross-border mergers & acquisitions
600
direct investments
500
400
300
200
100
0
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
year
Fig. 53.2: Worldwide direct investments and cross-border mergers and acquisition675
Now it can be deflected that companies have to face ever more variable customer and
supplier structures. It is crucial to respond to the diverse cultural differences with different
employees, in order to make a long-term collaboration possible. At the same time, personnel
delegations take place in the context of joint ventures and strategic alliances with foreign
companies, and what is especially problematic for developing countries and emerging
nations also an emigration of qualified employees, e.g. to Germany.
Many industrialized countries headhunt qualified specialized workforce from the health
sectors in India, China or the Philippines, because there is a lack in qualified labor in the own
country.676 At the same time the emigration does not only concern developing and emerging
675
Andruchowitz, 2003
676
Comp. Stewart/Clark/Clark, 2007
284 XII The AGG and Diversity Management
nations. In Germany alone 500,000 people have emigrated since 1990.677 The disadvantage is
that economically weak countries or regions that pay for the formation of specialized
workforce do not benefit from their formation in order to push their own economic
development.
It has to be mentioned in this context that the number of foreign citizens amounted to 6.73
million in the Federal Republic of Germany at the end of 2008. This meant a small decline in
comparison with the year before, but this might be caused by the high number of
naturalizations of Turkish citizens.
What is noteworthy, on the other hand, is the increase by 1 percent of the persons who
belong to an EU-member state.678 It is noticeable that the formation of the European Union in
1993 has been widely contributing to the internationalization of the labor market, as could be
seen in other country unions. The emergence of an unlimited labor market leads to an
increasing number of foreign applicants and the possibility for companies, to start balancing
the lack in specialized and managing personnel on an international level,679 and causes a
higher variety among the workforce.680
It can be seen that via the internationalization in general and the internationalization of the
labor markets, e.g. in the European Union, an intense reflection of the companies on the
values, cultural backgrounds and points of view of the applicants, employees and merger
partners has become necessary to be able to continue successful work.
677
Comp. Heckmann, 2006
678
Comp. Statistisches Bundesamt, 2009a, p. 194
679
Comp. Kirchgeorg/Gnther, 2006
680
Comp. Gloger, 2000, p. 37
681
Comp. Oechsler, 2006, p. 100
53 Changes in the company environment 285
Million Million
90 90
average
85 85
population, upper limit
80 80
average
75 75
population, lower limit
70 70
65 65
0 0
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
year
Fig. 53.3: Forecast of development of population numbers in Germany until 2050 684
The reason for the growing birth deficit is that with the low birth rate, the number of
potential mothers decreases. It is foreseeable that the number of people in school and training
age will quickly decrease and that in 2050 twice as many old as young people will live in
Germany.
682
Comp. Statistisches Bundesamt, 2008
683
Comp. Statistisches Bundesamt, 2006, p. 15
684
Ibid, p. 15
286 XII The AGG and Diversity Management
The mortality rate increases despite increasing life expectations, because the age groups with
high numbers are getting into old age and therefore many deaths occur at once per time unit.
Today the mortality rate is already higher than the birth rate.
Also the migration balance of 100,000 to 200,000 people per year cannot really encounter
this tendency. Therefore it has to be expected that the population in working age will get
older and less numerous. Until 2014 it can be assumed that the number of working
population remains at around 50 million. The number of young people diminishes at the
same time and will be compensated by a higher number of older people. In the years after,
however, the total number of employable people will decrease, with the result that in 2050
only 35-39 million employable people are expected to live in Germany. Discussions on e.g.
how to integrate older employees in the company work organization, because young
graduates become a decreasing group, show that companies will have to adjust to this
tendency in any case during the next years. As a result, older employees will have to be
given special consideration especially in the case of new hires and a longer duration of
employment has to be granted to them.685
Because of the decrease of population it will become unavoidable to integrate also women
with and without children and ethnic minorities in the employment, because despite of
technological progress the potential of these groups will be demanded especially in company
management and administration.
685
Comp. Statistisches Bundesamt, 2006, p. 5 et seq.
686
Europische Gemeinschaft, 2002, p. 11, own translation
687
DGB Bildungswerk e.V., o. J.
54 General Equal Treatment Act 287
The directives oblige the EU member countries to ensure the implementation of the
directives. In Germany they were implemented with the coming into effect of the General
Equal Treatment Act (AGG) on 18th August 2006688.
688
Comp. Raasch, 2007
689
Comp. Busch/Kocher/Wolkoborsky, 2009, p. 17
690
Comp. Wisskirchen, 2007, p. 9
288 XII The AGG and Diversity Management
54.2.1 Race
The term race has to be treated with special care in the interpretation of the AGG, because
the legislator wants to distance itself from the existence of differences with regard to races.
The utilization of such terminology does not imply acceptance, which was meant to be
clarified by the formulation on the ground of instead of because of.692
54.2.3 Disability
With regard to the AGG the legislation took the definition of 9th book of the German Social
Code (SGB IX) and the Act on the Equal Treatment of Persons with Disability (BBG) over.
These Acts define disabled people as persons whose physical functions, mental capabilities
or psychological health are highly likely to deviate, for more than six months, from the
condition which is typical for the respective age and whose participation in social life is
therefore impaired (sec. 2. subs. 1 sentence 1 SGB IX and sec. 3 BGG).694 Disabled people
for whom adverse treatment is prohibited are therefore only persons with a severely
handicapped pass.695
691
Comp. Hoffjan/Bramann/Kentrup, 2008, p. 3338
692
Comp. Schiek, 2007, sec. 1 AGG, mn. 9
693
Comp. Wisskirchen, 2007, p. 1011
694
Comp. Schiek, 2007, sec. 1 AGG, mn. 36
695
Comp. Wisskirchen, 2007, p. 11
54 General Equal Treatment Act 289
54.2.5 Age
Age in this context means biological age. Not only younger but especially also older people
shall be protected. The basis is that each person is ageing at individual speed and the physical
characteristics of growing age cannot be generalized. Additionally, disadvantages can be
caused by age itself in todays society on the ground of high degrees of automation and the
change towards a society based on the provision of services.697
54.2.7 Sex
Furthermore, sexual discrimination is prohibited under the AGG. This includes the male and
female sex, as well as transsexuals and hermaphrodites.700
696
Comp. Schiek, 2007, sec. 1 AGG, mn. 3132
697
Comp. ibid, sec. 1 AGG, mn. 4446
698
Comp. ibid, sec. 1 AGG, mn. 1921
699
Comp. Bundestagsdrucksache 16/2022, p. 13
700
Comp. Wisskirchen, 2007, p. 12
290 XII The AGG and Diversity Management
With regard to the termination to employment, the Act on the Protection against Unfair
Dismissal applies in accordance with section 2 subs. 4 AGG. Benefits under the Social Code
and company pensions are regulated by the company Pension Act.
701
Comp. Worzalla, 2006, p. 43
702
Comp. Schtt/Wolf, 2006, p. 17
703
Comp. Schtt/Wolf, 2006, p. 18
54 General Equal Treatment Act 291
promotion, but already in the professional assessment, which provides the basis for the
decision.704
704
Comp. Schleusner/Suckow/Voigt, 2007, sec. 2 AGG, mn. 6
705
Comp. Worzalla, 2006, p. 45
706
Comp. ibid, p. 46
707
Comp. Schleusner/Suckow/Voigt, 2007, sec. 2 AGG, mn. 13
708
Comp. ibid, sec. 2 AGG, mn. 15
292 XII The AGG and Diversity Management
Persons covered
Among the employees and therefore, the possible claimants under the AGG are:
employees,
persons employed for vocational training,
persons of similar status on account of their dependent economic status,
applicants for an employed work relation,
persons whose employed work relation has ended
709
Comp. Worzalla, 2006, p. 48
710
Comp. Dubler/Bertzbach, 2008, sec. 6 AGG, mn. 1
711
Comp. Schleusner/Suckow/Voigt, 2007, sec. 6 AGG, mn. 2
712
Comp. ibid, sec. 6 AGG, mn. 4
713
Comp. Rust/Falke, 2007, sec. 6 AGG, mn. 12
714
Comp. sec. 1 subs. 1 BBiG
54 General Equal Treatment Act 293
regularly bound by the instructions of that person, this constitutes a case of employment in
the sense of the AGG. Also working students,715 student apprentices and voluntary workers
are included in the personal scope of application, because remuneration is not relevant.716
The circle of employees includes also persons with similar status on account of their
dependent economic status, as well as people engaged in home work and those equal in law
to home workers,717 as for example persons occupied in sheltered workshops and persons in
rehabilitation. Basically, people with similar status are no employees in the sense of the labor
law. A definition of the term can be found in sec. 12a Collective Bargaining Agreements
Act: persons with similar status are employees, who are economically dependent and similar
to employees in need of social protection and who have a personal obligation to fulfill their
work on the basis of service or labor agreements. Additionally, they have to work
predominantly for one person or to obtain on average more than half of their salary from one
person.718 There is no need for social protection if the obligor himself just like an
entrepreneur employs people under his own name.719
The Discrimination elements named in the AGG cover equally applicants to an employee
relation. It is regarded to be sufficient when a person applies with an employer for an
employment, by which the same must receive the desire for contract conclusion.720 However,
claims are only possible under the AGG if the application was subjectively serious and if the
applicant can objectively be taken into consideration for the vacancy,721 which can also be
the case in unsolicited applications.722
The legislator also included people into the scope of the AGG whose employment has come
to an end to encounter the case of subsequent consequences of the labor relation, especially
with regard to the company pension.723
Because they have no contract under private law, civil servants and trainees with civil service
contracts, judges, soldiers, community servants and war resisters are not considered in this
part of the AGG. However, the AGG covers them with special consideration to their special
legal position under sec. 24 AGG.724
715
Comp. Bhrle, 2007, p. 12
716
Comp. Schleusner/Suckow/Voigt, 2007, sec. 6 AGG, mn. 9
717
Comp. Schiek, 2007, sec. 6 AGG, mn. 5
718
Comp. Worzalla, 2006, p. 77
719
Comp. Schleusner/Suckow/Voigt, 2007, sec. 6 AGG, mn. 10
720
Comp. Worzalla, 2006, p. 78
721
Comp. Schiek, 2007, sec. 6 AGG, mn. 6
722
Comp. Worzalla, 2006, p. 78
723
Comp. Bundestagsdrucksache 16/1789, p. 34
724
Comp. Schleusner/Suckow/Voigt, 2007, sec. 6 AGG, mn. 6
294 XII The AGG and Diversity Management
725
Comp. Worzalla, 2006, p. 82
726
Comp. Kolmhuber/Schreiner, 2006, mn. 64
727
Comp. Schiek, 2007, sec. 6 AGG, mn. 11
728
Comp. Schleusner/Suckow/Voigt, 2007, sec. 6 AGG, mn. 16
729
Comp. Wisskirchen, 2007, p. 12
730
Comp. Busch/Kocher/Welkoborsky, 2009, p. 36
54 General Equal Treatment Act 295
Part-time employees may not obtain certain benefits without work time-related reasons
(because part-time employees are predominantly females, this can be a case of an indirect
discrimination against women).731
A social plan provides that parent time has no relevance for the staff membership time
and thus, for the amount of compensation (this can be a case of indirect discrimination
against women).
54.4.3 Harassment
On the basis of Art. 2 subs. 3 of the anti-racism directive 2000/43/EC732 there is deemed to
be an unlawful harassment in the sense of the AGG when an unwanted conduct takes place
with the effect or purpose of violating the dignity of another person.733 The stage of violation
of human dignity under Art. 1 German Basic Law does not have to be reached in this case.
With regard to the degree of violation, a conduct is sufficient which meets the criteria of
defamation in accordance with sec. 185ff. Criminal Code.734 Furthermore it has to be a case
where an intimidating, hostile, degrading, humiliating or offensive environment is created.
The conduct can be of verbal or non-verbal nature with the result that the point of view of an
uninvolved third person decides whether there is a case of harassment under the above
mentioned criteria. The harassment can also take place in form of defamation, insult,
hostility, threatening or physical assault and does not have to be carried out neither
731
Comp. Busch/Kocher/Welkoborsky, 2009, p. 36 et seq.
732
Comp. Gaier/Wendtland, 2006, sec. 2 AGG, mn. 87
733
Comp. Dubler/Bertzbach, 2008, sec. 3 AGG, mn. 67
734
Comp. Rust/Falke, 2007, sec. 3 AGG, mn. 57
296 XII The AGG and Diversity Management
intentionally nor repeatedly. Also a one time violation of a persons dignity is sufficient if a
hostile environment is the consequence.735
Examples for harassment are:
An employer makes a tasteless joke on gypsies without knowing that the employee is a
Roma (harassment on grounds of ethnic origin),736
Abusing certain groups of people.
735
Comp. Dubler/Bertzbach, 2008, sec. 3 AGG, mn. 6771
736
Comp. ibid, sec. 3 AGG, mn. 71
737
Comp. ibid, sec. 3 AGG, mn. 77
738
Comp. Bauer/Gpfert/Krieger, 2008, sec. 3 AGG, mn 50
739
Comp. Dubler/Bertzbach, 2008, sec. 3 AGG, mn. 77a
740
Comp. Wisskirchen, 2007, p. 14
54 General Equal Treatment Act 297
741
Comp. Schiek, 2007, sec. 3 AGG, mn. 76
742
Comp. Busch/Kocher/Welkoborsky, 2009, p. 53
743
Comp. Schtt/Wolf, 2006, p. 31
744
Comp. ibid, p. 32 et seq.
745
Comp. Steinkhler, 2007, mn. 84
298 XII The AGG and Diversity Management
746
Comp. Wisskirchen, 2007, p. 15
747
Comp. Schtt/Wolf, 2006, p. 39 et seq.
748
Comp. Steinkhler, 2007, mn. 91
749
Comp. Schtt/Wolf, 2006, p. 40 et seq.
750
Comp. Steinkhler, 2007, mn. 94
54 General Equal Treatment Act 299
belief an occupational requirement for the employees. It is still not clear how far the
justification goes, e.g. whether auxiliary activities can be included. Subs. 2 extends the
privileges of the above mentioned facilities even further and makes it possible for them to
demand for a certain conduct of their employees in the sense of acting in good faith and with
loyalty. Legal consequences of violations of these requirements are determined by the
facilities themselves; the courts, however, may examine whether they are adequate and
proportionate.751
751
Comp. Schtt/Wolf, 2006, p. 42
752
Comp. Wisskirchen, 2007, p. 16
753
Comp. Steinkhler, 2007, mn. 105
754
Comp. Bundestagsdruckssache 16/1780, p. 36
755
Comp. Schtt/Wolf, 2006, p. 43
300 XII The AGG and Diversity Management
The term young people can be understood in accordance with sec. 2 subs. 2 German Youth
Employment Protection Act as natural persons aged between 15 and 18 years. The term of
older workers, however, has not been defined by law so far. Person with caring
responsibilities include especially persons who care for children, older or handicapped
relatives.756
756
Comp. Worzalla, 2006, p. 113
757
Comp. Steinkhler, 2007, mn. 112
758
Comp. Bundestagsdrucksache 16/1780, p. 36
759
Comp. ibid, p. 36
760
Comp. ibid, p. 36
761
Comp. Schtt/Wolf, 2006, p. 45
54 General Equal Treatment Act 301
apply for payment of old-age pension. This rule is meant to give younger persons the chance
to integrate into the labor market, while the older workers have already reached financial
security.762
The employees are entitled to claim against the employer on the basis of this clause and can
oblige him to fulfill his duties.765 If the employer takes no or inappropriate measures for the
elimination of harassment or sexual harassment, the affected employees are entitled to use
their right to refuse performance without loss of pay in accordance with sec. 14 subs. 1 AGG.
Furthermore, they have the right to claim for compensation in accordance with sec. 280 subs.
1 Civil Code (BGB), if the employer violates his obligations under sec. 12 subs. 1-4 AGG.766
In the case of a violation of the duty to inform there are no implications concerning damages,
762
Comp. Steinkhler, 2007, mn. 122
763
Comp. Worzalla, 2006, p. 120 et seq.
764
Comp. Kolmhuber/Schreiner, 2006, mn. 155
765
Schleusner/Suckow/Voigt, 2007, sec. 12 AGG, mn. 46
766
Comp. ibid, sec. 12 AGG, mn. 47 et seq.
302 XII The AGG and Diversity Management
i.e. it constitutes a penalty-free provision.767 If the employer, on the other hand, violates the
duty of neutral formulation of advertisements for vacancies, a violation against sec. 7 AGG
can be assumed,768 which means that all affected applicants are entitled to claim for
compensation.769
767
Comp. Schleusner/Suckow/Voigt, 2007, sec. 12 AGG, mn. 5759
768
Comp. Worzalla, 2006, p. 131
769
Comp. Bhrle, 2007, p. 36
770
Comp. Bundestagsdrucksache 16/1780, p. 36
771
Comp. Worzalla, 2006, p. 124
772
Comp. Bundestagsdrucksache 16/1780, p. 37
773
Comp. Schtt/ Wolf, 2006, p. 57
54 General Equal Treatment Act 303
fulfilled his duty, which means that he cannot be claimed against for discriminations by his
employees.774
774
Comp. Schtt/Wolf, 2006, p. 59
775
Comp. Worzalla, 2006, p. 140142
776
Comp. Bundestagsdrucksache 16/1780, p. 37
777
Comp. Schtt/Wolf, 2006, p. 61
778
Comp. Bhrle, 2007, p. 44
304 XII The AGG and Diversity Management
In the context of these penalties, the employer is granted liability alleviation in case of
discrimination in the application of collective bargaining agreements in accordance with sec.
15 subs. 3 AGG. Furthermore, a two months waiting period and the period for filing a claim
under sec. 61 Labor Courts Act apply.779
779
Comp. Kolmhuber/Schreiner, 2006, mn. 203207 und Punkt 3.8.1
780
Comp. Schleusner/Suckow/Voigt, 2007, sec. 13 AGG, mn. 2
781
Comp. Bundestagsdrucksache 16/1780, p. 37
782
Comp. Schleusner/Suckow/Voigt, 2007, sec. 13 AGG, mn. 2122
783
Comp. Schtt/Wolf, 2006, p. 62
784
Comp. Schleusner/Suckow/Voigt, 2007, sec. 13 AGG, mn. 3940
54 General Equal Treatment Act 305
discrimination under sec. 1 AGG. The condition for a possible right to refuse performance is
that a complaint has been previously filed with the employer and the necessity for the
protection of the employee, e.g. if health problems can be expected.785 Sec. 14 AGG can be
applied if the employer does not sufficiently react to a complaint, commits the harassment
himself or if he has taken notice of a harassment with danger of repetition.786 If an employee
uses his right to refuse performance, the employer is still obliged to take care of the
elimination of discrimination in order to make the employees return to his workplace
possible.787
The reference to the general right to refuse performance under sec. 273 BGB was integrated
to underline, that this remains intact for other case constellations. The background is that the
purposes of both regulations are different. Sec. 273 BGB shall enforce the fulfillment of an
obligation by means of pressure, while sec. 14 AGG is meant to protect employees against
further harassment or sexual harassment.788
785
Comp. Busch/Kocher/Wolkoborsky, 2009, p. 58
786
Comp. Worzalla, 2006, p. 154 et seq.
787
Comp. Busch/Kocher/Wolkoborsky, 2009, p. 58
788
Comp. Bundestagsdrucksache 16/1780, p. 37
789
Comp. Kolmhuber/Schreiner, 2006, mn. 209215
306 XII The AGG and Diversity Management
best qualified applicant is entitled to compensation and has to prove that damages really
occurred. This would be possible for example, when he had terminated another work
relationship on the basis of the awakened confidence790 or if travel costs for the job interview
had arisen.
790
Comp. Schleusner/Suckow/Voigt, 2007, sec. 15 AGG, mn. 1518
791
Comp. Bundestagsdrucksache 16/1780, p. 38
792
Comp. Schtt/Wolf, 2006, p. 69
793
Comp. Schleusner/Suckow/Voigt, 2007, sec. 15 AGG, mn. 30
794
Comp. Worzalla, 2006, p. 165
795
Comp. Bundestagsdrucksache 16/1780, p. 38
796
Comp. Worzalla, 2006, p. 165
797
Comp. Schtt/Wolf, 2006, p. 70
798
Comp. Kolmhuber/Schreiner, 2006, mn. 222
54 General Equal Treatment Act 307
54.8.1 Terms
In order to claim for damages, compensation, omission or elimination of a discrimination a
two-month term has to be respected, after whose expiration the claims under sec. 15 subs. 4
AGG and sec. 21 subs. 5 AGG expire. However, it is possible to agree on deviating
regulations in collective agreements. The term commences as soon as the employee takes
notice of the discrimination. In case of a rejected application or the rejection of professional
promotion, the legislator assumes that the affected person gains knowledge when receiving
the rejection.801 However, it is often not yet recognizable at moment that this is a case of
discrimination.802 After the expiry of the time limit the claim may only be asserted when the
disadvantaged person was prevented from meeting the deadline through no fault of their
own.803
Furthermore, there is a three month term of assertion before a court in the sense of sec. 61b
Labor Courts Act, which starts with the moment of the assertion of claims in due form and
799
Comp. Bundestagsdrucksache 16/1780, p. 39
800
Comp. Schleusner/Suckow/Voigt, 2007, sec. 16 AGG, mn. 14 et seq.
801
Comp. Schtt/Wolf, 2006, p. 71 et seq.
802
Comp. Busch/Kocher/Welkoborsky, 2009, p. 61
803
Comp. Worzalla, 2006, p. 219
308 XII The AGG and Diversity Management
meeting the terms. The period for claims only affects claims for damages in accordance with
sec. 15 AGG.804
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Bauer, J.-H. / Gpfert, B. / Krieger, St.: Allgemeines Gleichbehandlungsgesetz. Kom-
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Busch, Sebastian; Kocher, Eva; Welkoborsky, Horst: Das Allgemeine Gleichbehandlungs-
gesetz. Benachteiligung verhindern Gleichstellung frdern. 1st edition, Bund-Verlag
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804
Comp. Kolmhuber/Schreiner, 2006, mn. 275
805
Comp. Busch/Kocher/Welkoborsky, 2009, p. 61
806
Comp. Bundestagsdrucksache 16/1780, p. 47
807
Comp. Schleusner/Suckow/Voigt, 2007, sec. 22 AGG, mn. 21
808
Comp. Schtt/Wolf, 2006, p. 86
54 General Equal Treatment Act 309
Loden, M. / Rosener, J.: Workforce America!, Business One Irwin, Homewood, Illinois
1991.
Monzel, M. et al.: Personelle Vielfalt am Finanzplatz Luxemburg. in: Vedder, G. (ed.):
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XIII International/European Labor
Law
55 On a personnel resource management
approach in international, European
and national labor law
The economic and personnel management approach of this book was especially supported
by the subsequent practice-related considerations concerning international and European
Labor Law. Labor law does not only provide company internal conditions for actions. The
extent of regulations itself constitutes a reaction to economic changes on the labor market.
This means that in different economic systems and time spans, only that labor law prevails
which is best to solve issues with regard to employment law, because employees, labor
unions or employers vote only for the law which they assume to be most appropriate to solve
an employment law conflict in the above mentioned sense.809
The condition for such an evolutionarily developing labor law is that the parties are free to
choose between different rules and regulations. The national labor regulations have therefore
to open the access to other labor laws.810 At least under German law, this condition is largely
fulfilled, because in principle the parties are allowed to agree on other labor law regulations.
This freedom is limited by the fact that they have to respect the obligatory standards of the
German labor protection (Art. 30 Introductory Law to the Civil Code/EGBGB811). Secondly,
the described choice of law is only possible, if the parties have sufficient knowledge on the
other legal system with regard to labor law. Therefore, it seems to be unavoidable to
concentrate not only on the horizon of German labor law, but to look out for possible choices
of regulatory alternatives in other countries and international organizations.
809
See in detail: Krimphove, 2006, p. 10 et seq., 17 et seq. (with further references); Krimphove (a), 2001, p. 497
et seq., 509, 528
810
Krimphove, 2006, p. 10 et seq., 14 (with further references)
811
See below: Chapter III. C (with further references)
314 XIII International/European Labor Law
Companies with activities in several countries have been using this point of view into
international labor law for years. This way, they have been able to obtain considerable cost
advantages.
The following chapter shall make a contribution to this point of view and make the capacity
to choose also available to the personnel management policy of small and medium-sized
companies.
Among state duties are also the responsibilities of states to take care for the legal protection
of their citizens and to create the corresponding institutions. Such obligations exist especially
in the context of provision of a working legal protection (Art. 8,9,19 UDHR/ Art. 6, 13
ECHR).
Because the regulations under international labor law provide no claims to the individual
citizens, they are able to name such generous and comprehensive legal objects as the right
to work in Art. 23 subs. 1 UDHR.
57 International labor law 317
812
E.g.: Belgium: Art. 23; Finland: Art. 18; France: Preamble of 27th Oct. 1946; Greece: Art. 22; Italy: Art. 4;
Luxembourg: Art. 11; Portugal: Art. 53; Spain: Art. 35
813
Bavaria: Art. 168; Berlin: Art. 12; Bremen: Art. 49; Hessen; Art. 28; North Rhine-Westphalia Art. 24 I 3
318 XIII International/European Labor Law
814
European Court of Justice 14/4/1994 (Case C-329/92) Christel Schmidt vs. Spar- und Leihkasse der frheren
mter Bordesholm, Kiel and Cornshagen, ECR. I 1994, p. 1311
815
European Court of Justice 11/3/1997 (Case C-13/95) Ayse Szen vs. Zehnacker-Gebudereinigung GmbH
Krankenhausser-vice
816
European Court of Justice (Case C-450/93) Eckhardt Kalanke vs. Hansestadt Bremen
817
European Court of Justice, 19/11/1991 (Case C-6/90 and C-9/90) Andrea Francovich, et al. Italian Republic,
ECR 1991, p. I5357
58 European Labor Law 319
818
European Court of Justice 15/7/1964 (case 6/64) Flamio Costa vs. ENEL, ECR 1964, p. 1251; European Court
of Justice 13/2/1969 (case 14/68) ECR 1964, p. 1251 et seq., 12691271; Walt Wilhelm vs. Bundeskartellamt,
ECR 1969, p. 1; European Court of Justice 17/12/1970 (case 11/70) Internationale Handelsgesellschaft vs.
Einfuhr und Vorratsstelle Getreide, ECR 1970, p. 1125 et seq., 1135; European Court of Justice 9 March 1978
(case 106/77) Staatliche Finanzverwaltung vs. Simmenthal, ECR 1978, p. 629 et seq., 644, mn 17/18 ; Details:
Krimphove, 1992, p. 379 et seq. (with further references)
819
European Court of Justice 26 February 1986 (case 152/84) M. H. Marshall vs. Southampton and South-West
Hampshire Area Health Authority, ECR 1986, p. 723; European Court of Justice 19 January 1982 (case 8/81)
Ursula Becker vs. Finanzamt Mnster-Innenstadt, ECR 1982, p. 53; European Court of Justice 14 July 1994
(case C-91/92); European Court of Justice, 19 November 1991 (case C-6/90 and C-9/90) Andrea Francovich, et
al. vs. Italian Republic, ECR 1991, p. I-5357; European Court of Justice 14 July 1994 (case C-91/92) Paola
Faccini Dori, ECR I 1994, p. 3225; European Court of Justice 7 March 1996 (case C-192/94), mn 19 et seq.; El
Corte Ingls SA vs. Christina Blzquez Rivero printed in NJW 1996, p. 1401 et seq.; Ukrow, NJW 1994,
p. 2469 et seq.; Krimphove, 2001, p. 62 et seq. (with further references)
820
European Court of Justice, 19 November 1991 (case C-6/90 und C-9/90) Andrea Francovich, et al. vs. Italian
Republic, ECR 1991, p. I-5357; European Court of Justice 14 July 1994 (case C-91/92) Paola Faccini Dori,
ECR I 1994, p. 3225; European Court of Justice 7 March 1996 (case C-192/94), mn 19 et seq.; El Corte Ingls
SA vs. Christina Blzquez Rivero printed in NJW 1996; European Court of Justice 8 October 1996 (case C-
178/94, C-179/94, C-188/94, C-189/94190/94) Dillenkofer et al. vs. Bundesrepublik Deutschland; European
320 XIII International/European Labor Law
Francovich; European Court of Justice, 19/11/1991 (Case C-6/90 and C-9/90) Andrea
Francovich, et al. vs. Italian Republic, ECR. 1991, p. I5357
The Italian state had neglected its duty to implement the Directive 80/987 ECC into national
law and therefore failed to create institutions for the protection of employees whose
employers have become insolvent.
The employee, Mr. Francovich, was therefore not able to enforce his rights to remuneration
against his insolvent employer.
The European Court of Justice rejected the action of Mr. Francovich against his employer.
However, the court granted the corresponding claim for damages against the Italian state to
Mr. Francovich.821
The jurisdiction of the European Court of Justice has the most important influence on labor
relations:
Because the court interprets the Law of the Treaties as well as Regulations and Directives,
the influence of its jurisdiction reaches across all levels of European norms. With regard to
the extremely long duration of the creation of European norms (Directives, Regulations), the
way of the European Court of Justice to change law by means of case law seems far more
rapid and less laborious.
By means of the above described sources of law especially the jurisdiction of the European
Court of Justice the European legislation intervenes in many central question of company
labor law for example the equal treatment of national and foreign employees, equal
treatment of men and women at the workplace and technical and social work protection.
Court of Justice 5 March 1996 (case C-46/93) brasserie du pcheur vs. Bundesrepublik Deutschland, ECR I
1996, p. 1029, mn 31
821
Similar cases: European Court of Justice, 19 November 1991 (case C-6/90 und C-9/90) Andrea Francovich, et
al. vs. Italian Republic, ECR 1991, p. I-5357; European Court of Justice 14 July 1994 (case C-91/92) Paola
Faccini Dori, ECR I 1994, p. 3225; European Court of Justice 7 March 1996 (case C-192/94); El Corte Ingls
SA vs. Christina Blzquez Rivero printed in NJW 1996, p. 1401 et seq.; European Court of Justice 26 March
1996 (case C-392/93 British Telecommunications, ECR I 1996, p. 1631; European Court of Justice 3 May 1996
(case C-5/94) Hedley Lomas, ECR I 1996, p. 2553; also: European Court of Justice, 10 April 1984 (case 14/83)
Colson and Kamann vs. Land Nordrhein-Westfalen, ECR 1984, 1891; European Court of Justice 10 April 1984
(case 79/83) Doris Harz vs. Deutsche Tradax GmbH, ECR 1984, p. 1921; European Court of Justice 9
November 1993 (case C-132/92) Birds Eye Walls Limited vs. F. M. Roberts
58 European Labor Law 321
Scholz; European Court of Justice 23/2/1994 (Case C-419/92), ECR I 1994, p. 505
The plaintiff applied for a job in the canteen of the Cagliari University. When asked about her professional
experience in public service, the plaintiff could refer to her activities with the Deutsche Bundespost. The Italian
employer did not want to take her professional experience into account, because Ms. Scholz had gained it in
German public service and not in the Italian one.
The European court of justice considered the negation of the Italian employer to take the
professional experience Ms. Scholz had gained in Germany into account to be an
inadmissible discrimination of the plaintiff in accordance with the right of free access to
employment in the sense of Art. 39 subs. EC.
If the employer bases employments, classifications, especially tariff classifications and
professional advancement of the employee (promotion) on the circumstances of existing
professional experience, professional experience gained in another European country has to
be considered just as experience gained in a national context.
822
The state has to refrain from anything which obstructs the employees right to move within Europe; e.g.
obstructing entry procedures: European Court of Justice 27 April 1989 (case 321/87) Commission of the
European Communties vs. Kingdom of Belgium, ECR 1989, p. 997; visas: European Court of Justice 14 July
1977 (case 8/77) Concetta Sagulo, Gennaro Brenca and Addelmajid Bakhouche, ECR 1977, p. 1495; European
Court of Justice 3 July 1980 (case 157/79) Stanislaus Pieck, ECR 1980, p. 2171, 2184 mn 6 et seq.; employment
instruction for lack of language knowledge: European Court of Justice 28 November 1989 (C-379/87) Anita
Groener vs. Minister for Education and the City of Dublin Vocational Education Committee, ECR 1989,
p. 3967; refusal to grant work permit: European Court of Justice 27 March 1990 (case 113/89) Socit Rush
Portugesa Lada vs. Office National dImmigration (ONI), ECR I 1990, p. 1417; European Court of Justice 14
July 1977 case (8/77) Concetta Sagulo, Gennaro Brenca and Addelmajid Bakhouche, ECR 1977, p. 1495
322 XIII International/European Labor Law
The case Ugliola makes clear how much influence the European Labor Law and the
jurisdiction of the European Court of Justice have on the content of the individual labor
relation: for that reason the employer has the obligation to treat employees in the same way
as their national colleagues with regard to each individual part of the labor relation from its
creation over questions regarding holidays and rights to continued remuneration to the
termination of the labor contract by dismissal or cancellation agreement.
An especially controversial example of this jurisdiction is the case Paletta:
Paletta; European Court of Justice 3/6/1992 (Case 45/90) Alberto, Vittorio, Raffaela and
Carmela Paletta vs. Brennert AG [1992], n C 166/10823
All four members of the Italian family Paletta were simultaneously reported sick by an
Italian doctor subsequent to their holiday in their home country Italy. Thereby their annual
vacation was extended.
Their joint German employer refused to continue payment of their wages in case of illness.
There were serious doubts with regard to the illness-related incapacity to work of the four
employees in question: Almost every year the members of the Italian family had reported sick
for several years when they spent their joint family leave in Italy.
823
Comp. also European Court of Justice 2 May 1996 (case C-206/94) Paletta II Brennet AG vs. Vittiorio Paletta
58 European Labor Law 323
Firstly, the European Court of Justice determined that the payment of benefits under the
Lohnfortzahlungs-Gesetz (German Act on Continued Payment) in case illness to an
employee, forms part of the social security scheme of the employee in accordance with Art. 4
Regulation 1408/71. Regulation 1408/71 must for that reason not only be applied to public
institutions of the social security system, but also to private employers.
Then, the court interprets Art. 18 subs. 1-4 of the implementing regulation (Regulation
574/72) such that the employer is bound by the declarations by a doctor of another member
country with regard to the start and duration of incapacity to work.
The court stated the promotion of the right to free movement of workers as reasons for its
result of interpretation, as well as the sense of Art. 18 Regulation 574/72, which is meant to
avoid difficulties of evidence for an employee whose capacity to work has been reestablished
in the meantime and therefore to support the highest possible freedom to move.824
824
Similar in European Court of Justice 12 March 1987 (case 22/86) Giuseppe Ridone vs. Allgemeine
Ortskrankenkasse Bad Urach-Mnsingen, ECR 1987, p. 1339
825
Neri-Sperl, Trait instituant la communaut conomique europenne. in: Smit Herzog: The Law of the
European Economic Community, Art. 119; Jansen in, Grabitz, Kommentar zum EEC-Vertrag, Art. 119 mn 3.
Jansen, in: d. Groeben et al., Kommentar zum EEC-Vertrag Art. 119, mn. 4
826
Art. 119 EC
-Council Directive of 10 February 1975 on the approximation of the laws of the Member States relating to the
application of the principle of equal pay for men and women (75/117/EEC) (OJ 1975, N L 45, p. 19)
324 XIII International/European Labor Law
-Council Directive 76/207/EEC of 9 February 1976 on the implementation of the principle of equal treatment
for men and women as regards access to employment, vocational training and promotion, and working
conditions (OJ 1976, N L 39, p. 40)
-Council Directive 79/7/EEC of 19 December 1978 on the progressive implementation of the principle of equal
treatment for men and women in matters of social security (OJ 1978, N L 6, p. 24)
-Council Directive 86/378/EEC of 24 July 1986 on the implementation of the principle of equal treatment for
men and women in occupational social security schemes (OJ 1986, N L 225, p. 40)
-Council Directive 86/613/EEC of 11 December 1986 on the application of the principle of equal treatment
between men and women engaged in an activity, including agriculture, in a self-employed capacity, and on the
protection of self-employed women during pregnancy and motherhood (OJ 1986, N L 359, p. 56)
- Commission Proposal of 27 May1989 for a Council Directive on the burden of proof in the area of equal pay
and equal treatment for women and men (Com [88] 269 fin.) (OJ 1988, N C 176, p. 3)
- Council Resolution 12 July 1982 on the promotion of equal opportunities for women (OJ 1982, N C 186,
p. 3)
- Resolution of the Council and of the representatives of the Governments of the Member States meeting within
the Council of 6 December 1994 on equal participation by women in an employment-intensive economic
growth strategy within the European Union (OJ 1994, N C 368, p. 3)
- Council recommendation of 13 December 1984 on the promotion of positive action for women (OJ 1984, N
L 331, p. 34)
- Second Council Resolution of 24 July 1986 on the promotion of equal opportunities for women (OJ 1986, N
C 203, p. 2)
- Council Resolution of 29 May 1990 on the protection of the dignity of women and men at work (OJ 1990, N
C 157, p. 3)
- Resolution of the European Parliament of 22 October 1990 on the protection of the dignity of women and men
at work (OJ N C 305, p. 30)
- Commission Proposal 92/131/EEC 27 November199l on the protection of the dignity of women and men at
work (OJ 1992, N L 49, p. 1)
- Commission Proposal 87/567/EEC of 24 November1987 on vocational training for women(OJ 1978, N L
342, p. 35)
58 European Labor Law 325
The European Court of Justice ruled this rejection to be a direct discrimination in the sense
of Art. 3 of Regulation 76/207/EC. A woman has a sex-related disadvantage to access an
employment in case of consideration of an existing pregnancy as reason for rejection
The Federal labor court interpreted the judgment of the European Court of Justices such that
the question about pregnancy is inadmissible in a job interview at all:827 The non-
consideration of pregnancy for the selection leads to the general inadmissibility of the
employers question about pregnancy during the job interview. This applies irrespective of
whether men and women apply simultaneously for the position. This meant that the
corresponding jurisdiction of German High Courts on the admissibility of the question about
pregnancy, which made a difference depending on the circle of applicants,828 had become
obsolete with this judgment.829
The jurisdiction of the European Court of Justice in the Case Dekker has the result for the
individual employer that under German law already the question on an existing pregnancy
may not be asked in a job interview.
A further important consequence for the employer is the penalty which the jurisdiction of the
European Court of Justice connects to sex-related discrimination in the selection process: In
order to underline the effect of Regulation 76/207/EEC, the European Court of Justice
requires in its judgment in the case Dekker for any case of inadmissible sex-related
discrimination in the job selection process a civil law penalty for the employer. This penalty
arises even regardless of the responsibility of the employer or the justification by national
statutory exculpation reasons.830
The amount of the penalties for the employer is still unclear. Originally, the German labor
law (sec. 611 a BGB) granted a fidelity guaranty claim to the discriminated person. In the
cases Colson831 and Harz832 the European Court of Justice modified the content of sec.
611a BGB. The German legislator had in correspondence with the European Regulation
827
BAG 15 October 1992, 2 AZR 227/92; Hanau, EG-Recht und deutsches Arbeitsrecht, Brennpunkte des
Arbeitsrechts 1993: Thesen und Ergebnisse der 4. Arbeitsrechtlichen Jahrestagung, p. 37 et seq., p. 18
828
In accordance with the German High Court judgment the prohibition of discrimination was only violated when
men and women applied jointly for a vacancy (applicants of mixed sex). If only women or exclusively men
applied for a vacancy, the prohibition of discrimination could not be violated from the point of view of the
former jurisdiction. The question about and existing pregnancy would therefore be admissible.
829
On the effect of jurisdiction of the European Court of Justice on the courts of member states; especially on the
effect of jurisdiction of the European Court of Justice on German labor courts, Schiefer, NJW 1995, p. 160 et
seq., 162 et seq.
830
European Court of Justice 8 November 1990 (case C-177/88) Elisabeth Johanna Pacifica Dekker vs. Stichting
Vormingscentrum vor Jong Volwassenen (VJV-Centrum) Plus, ECR I 1990, p. 3941, mn 2325; also European
Court of Justice, 10 April 1984 (case 14/83) Colson and Kamann vs. Land Nordrhein-Westfalen, ECR 1984,
1891
831
European Court of Justice of 10 April 1984 (case 14/83) Colson and Kamann vs. Land Nordrhein-Westfalen,
ECR 1984, 1891
832
European Court of Justice of 10 April 1984 (case 79/83) Doris Harz vs. Deutsche Tradax GmbH, ECR 1984,
p. 1921
326 XIII International/European Labor Law
76/207/EEC introduced sec. 611a GBG into German law. The court, however, came to the
conclusion that the penalty which was originally provided in sec. 611a BGB, i.e. the
compensation for a mere breach of faith, was not sufficient to avoid sex-related
discrimination in the forefront of labor relations.
An effective implementation of the Regulation 76/207/EWG requires a considerable
penalty to be imposed on the discriminating employer. The jurisdiction of the European
Court of Justice in the case Birds Eye Walls Limited833 makes clear when the requirement
of a considerable penalty is met: The European Court of Justice ruled that the Regulation
76/207/EEC had not been effectively implemented, even if national law provided a
compensation of 6.250 GBP.834
The European Court of Justice made the decision that the equal treatment of sexes does not
always have to be applied for the purpose of supporting women:
Kalanke; European Court of Justice (Case C-450/93) Eckhardt Kalanke vs. Hansestadt
Bremen
Mr. Kalanke applied simultaneously with a female applicant for a position with the Hansestadt
Bremen. As both applicants had the same or equivalent qualifications, the Hansestadt Bremen took its
decision in correspondence with sec. 4 of the Landesgleichstellungsgesetz der Hansestadt Bremen
(Act on Equal Treatment of the hanseatic city of Bremen) in favor of the employment of the female
applicant. Art. 4 Landesgleichstellungsgesetz regulates that in cases of same or equivalent
qualification of applicants women should be favored.
Mr. Kalanke felt discriminated due to his sex by the choice of the female applicant based
on the Landesgleichstellungsgesetz of Bremen.
833
European Court of Justice of 9 November 1993 (case C-132/92) Birds Eye Walls Limited vs. F. M. Roberts
834
The Jurisdiction of the European Court of Justice prompted the German legislator to fix compensation claims of
the employer in sec.611a BGB (Civil Code) sec 61b of the Arbeitsgerichtsgesetz (Labor Act). The amount of
compensation exceeds the possible amount for breach of trust by far. However, the German legislator has
determined caps for the compensation claims on the grounds of sex-related discrimination in the selection of
applicants. This cap amounts to 3 monthly salaries (611a subs. 2 BGB), to 6 monthly salaries (sec. 611a subs. 2
BGB, in connection with 61b subs. 2 ArbGG), as far as several employees are discriminated against or for
simultaneous advertisement of several vacancies 12 monthly salaries (sec. 611 a subs. 2 BGB in connection
with 61b subs. 2 ArbGG). With regard guidance value in the case Birds Eye Walls Limited one can have
doubts on whether the cap of 3 months is a serious punishment in the sense of the European Labor Law. The
limitation of damages with the help of caps encounters the purpose of the punishment in any case, Krimphove,
2001, p. 184 (with further references); European Court of Justice 2August1993 (case C-271/91) M. H. Marshall
vs. Southhampton and, South-West Hampshire Area Health Authority. The norms of the German legislator
encounter therefore the European Labor Law and are unlawful.
58 European Labor Law 327
Jenkins; European Court of Justice 31/3/1981 (Case 96/80) J. P. Jenkins vs. Kingsgate
(Clothing Production) Ltd., ECR 1981, p. 911
Ms. Jenkins worked part-time for the company Kingsgate. Mostly women have a part-time labor
contract. Ms. Jenkins earned as all part-time employees a salary which was 10 percent lower than
the one of their male full-time colleagues.
835
On the special issues of social security and the different determination of age limits for pension entitlement see:
Krimphove, 2001, p. 226 (with further references)
328 XIII International/European Labor Law
Therefore, indirect discrimination could only be assumed if it was proved that especially
small companies employ considerably more women than men. This does not apply to the
underlying case.
Taking a closer look on the consequences of the point of view presented in the Opinion, this
means for any person taking care of another that the employer has to take the care services of
the employee into consideration. Also less flexibility and availability of the caring person
may not be used as criterion for discrimination or harassment by the employer just like in
836
OJ C. 223 of 30 August 2008, p.6
837
Opinion oft he Advocate General 31 January 2008 (case C.-303/06) Coleman/Attridge Law, in: OJ C, N 237
30September2006, p. 6 et seq.
58 European Labor Law 329
the case of handicapped persons themselves. This view leads to a considerable valorization
of care services for handicapped people. This principle, however, has certain limits: The
caring person is only subject to protection against discrimination if he has an especially close
connection to the handicapped person.
838
See in detail: Krimphove, 2001, p. 110 et seq., 289 et seq. (with further references)
839
European Court of Justice 14 July 1994 (case C-32/93) Carole Louise Wepp vs. EMO Air Cargo (UK) (Ltd),
ECR I 1994, p. 3567
840
European Court of Justice 8 November 1990 (case C-179/88) Handels-og Kontorfunktionaerernes Forbund i
Danmark vs. Dansk Arbejdsgiverforening, ECR I 1990, p. 3979
841
European Court of Justice 29 May 1997 (case C-400/95) Handels-og Kontorfunktionaerernes Forbund i
Danmark representing Helle Elisabeth Larsson vs. Dansk Handel & Service as representative of Ftex
Supermarked A/S
842
European Court of Justice 30 June 1998 (case C-394/96) Mary Brown vs. Rentokil Ltd., ECR I 1998, p. 4185
843
European Court of Justice 9 February 1999 (case C-167/97) Regina vs. Secretary of State for Employment, ex
parte: Nicole Seymour-Smith and Laura Perez, ECR I 1999, p. 623
330 XIII International/European Labor Law
case Coleman844. However, this jurisdiction is not based on general dismissal protection, but
on the prohibition of discrimination of female workers in the sense of Art. 141 EC and Art. 5
of the Regulation 76/207/EEC.845 This means that the current jurisdiction of the European
Court of Justice is based on only one aspect of dismissal law.
Because of the lack of uniform, European dismissal rules one has to recur to the national
dismissal law for the individual case. This has very different forms:
For example the dismissal law in Great Britain, but also in France and Belgium is coined
by the duty of employer to comply with a formal procedure for dismissal (written
dismissal notice including reasons, previous hearing of the person to be dismissed,
determination of a financial settlement etc.).
Further systematic differences of national dismissal rules result from the fact like in
the case of Austria, Italy and Belgium that some legal systems are based on the
differentiation between workers and employees with regard to dismissal law, while in the
European Labor Law system this differentiation has only historic significance.
Generally the terminological and content-related categorization of the northern member
countries of the European Community deviates considerably from the one of southern
members. While the northern member states mostly distinguish between the terms
ordinary and extraordinary (and only afterwards categorize the dismissal into groups
conduct-related, person-related and business-related), the legal systems especially
in Italy and Portugal distinguish between objective and subjective dismissal.
Southern European legal systems know also dismissals to discipline employees. This
sounds like the extraordinary dismissal under German law, but in fact the content of this
dismissal law is very different to German dismissal law.
Especially the Spanish and Portuguese labor law knows the extraordinary dismissal only
formally and for the purpose of a disciplinary measure, while in other legal systems, for
example in German law an extraordinary dismissal can also be issued for person and
business-related reasons.
Portuguese labor law provides a comprehensive dismissal protection. This is connected
with the fact that even Art. 53 of the Portuguese constitution gives the employees an own
basic right for the protection of their workplace and thereby constitutionally guarantees
the dismissal protection846 A similar constitutionally guaranteed right exists in Art. 22
subs. 1 of the Greek constitution.847
844
OJ C. 223 of 30 August 2008, p.6
845
Directive 76/207/EEC of the Council of 9/2/1976 on the implementation of the principle of equal treatment for
men and women as regards access to employment, vocational training and promotion, and working conditions
[1976], N L39, p. 40.
846
Art. 53 Constitution of the Portuguese Republic (2/4/1976): The right of workers to job security is safeguarded.
Dismissals without just cause or for political or ideological reasons are forbidden.
847
Art. 22 Subs. 1 Constitution of the Greek Republic (9/6/1975): Work constitutes a right and shall enjoy the
protection of the State, which shall seek to create conditions of employment for all citizens and shall pursue the
moral and material advancement of the rural and urban working population
58 European Labor Law 331
Because of the special labor law-related and economic importance of dismissal law for the
employers as well as employees, the most important national dismissal conditions of the
individual legal systems will subsequently be presented.
The labor law systems of the members states partially also know the termination of the labor
relation by:
mutual understanding,
expiration of the temporary work contract,
fulfillment of a condition,
completion of a task,
death of employee,
force Majeure and
special court termination.
848
2 employees for companies with 50 or less employees, 5 employees in companies with 51 or more employees
(Art. 16 GD 64-A/89)
332 XIII International/European Labor Law
For practical reasons the following part only presents the legal conditions in the normal
case of termination of a labor relation, i.e. of ordinary and extraordinary termination of the
labor relation by an employer or employee in a unlimited labor relation.
1. Germany
Rule Civil Code = Brgerliches Gesetzbuch/BGB; Protection against Unfair
Dismissal Act (25/8/1969) = Kndigungsschutzgesetz/KSchG;
Workplace Protection Act (14/4/1980) = Arbeitsplatzschutzgesetz/
ArbPlSchG; Maternity Protection Act (17/1/1997) = Mutterschutzgesetz/
MuSchG; works constitution act (23/12/1988) =
Betriebsverfassungsgesetz/BetrVG
Admissible ordinary (sec. 620 BGB), extraordinary (sec. 626 BGB)
grounds for extraordinary: compelling reason = taking all interests into account, further
termination employment and compliance with the period of notice cannot be reasonably
expected (sec. 626 BGB)
conduct-related: culpable misconduct of the employee; [necessary: warning
by the employer] (sec. 1 subs. 2 KSCHG)
person-related: objective reasons outside responsibility of the employee
(e.g. reduction of capability to perform, lack of eligibility, capability to
adjust); permanent illness, [necessary: negative prognosis (= unforeseeable
impossibility to use employee)] (sec.1 subs. 2 KSCHG)
business-related: urgent economic reasons (e.g.: lack of work, lack of
revenues, rationalization, limitation of production); [necessary: correct
social selection by the employer] (sec. 1 subs. 3 KSCHG)
Period of sec. 622 BGB (to the end of a calendar month)
notice 2 years 1 month
5 years 2 months
8 years 3 months
10 years 4 months
12 years 5 months
15 years 6 months
20 years 7 months
otherwise: collective agreements possible.
limited possibility of shorter periods in individual contracts (sec. 622 subs.
4, 5 BGB)
Extraordi- members of the work council: ordinary termination inadmissible: sec. 15
nary KSchG;
dismissal pregnant women/mothers: ordinary termination inadmissible: sec. 9
protection MuSchG; extraordinary (sec. 9 subs. 3 MuSchG): termination only with
consent of state authority
military/civil service: ordinary termination inadmissibly: sec. 2 subs. 1, 2
ArbPlSchG; sec. 2 subs. 3 ArbPlSchG
severely handicapped: ordinary termination inadmissible: sec. 21 SchwbG;
58 European Labor Law 333
2. Austria
Rule Labor Constitution Act= Arbeitsverfassungsgesetz/ArbVerfG; Maternity
Protection Act = Mutterschutzgesetz/MuschG; Labor Market Support Act
= Arbeitsmarktfrderungsgesetz/AMFG; Vocational Formation Act =
Berufsausbildungsgesetz/BArbeitgeberG
Admissible written form only sec. 19 Guts-Angest.G; sec. 30 SchauspG, sec. 32
grounds for VertragsbedienstetenGBG (sec. 863 ABGB)
termination conduct-related: culpable violations of work or fidelity duties (e.g. insult,
assault against employer and/or colleagues)
person-related: lack of qualification and (physical) aptitude; illness;
permanent loss of employability by employer with (negative) prognosis of
continuance of limitation exceeding foreseeable time.
business-related:
verifiable permanent business incidents which obstruct further
employment (e.g.: economic difficulties, drop in orders); rightful social
selection by the employer (sec. 105 subs. 3 ArbVerfG)
Notice Generally sec. 1159 ABGB
period blue-collar workers:
employment < 3 months: 1 workday to end of week
tenure > 3 months: 4 weeks
extension possible; equal period of notice for blue-collar and white collar
workers sec. 1159 c ABGB
White collar-workers. 6 weeks to end of quarter
2 years 2 months
3 years 3 months
15 years 4 months
25 years 5 months
334 XIII International/European Labor Law
up to 5 months for 25
(sec. 20 AngG); other agreements for employer and employees with
different periods of notice possible
Special regulations:
[e.g.: sec. 8 InvEinstG 4 weeks; sec. 10 HausbO 1 months;
sec. 4 JornG, 3 months; 5 years 4 months; per further year 1 month; up
to 12 months;
sec. 77 GewO, sec. 17 RegieBArbeitgeber, sec. 201 ABG, sec. 15
HGehG, LandAO = 14 days
contractual extension possible
special inadmissible for reasons of membership in labor union (sec. 105 subs. 3
dismissal ArbVerfG); works council member up to 3 months after loss of position
protection without consent of labor court inadmissible (sec. 122 et subs.
ArbVerfG); dismissal for company constitution law-related activity ((sec.
130 et subs. 4 ArbVerfG)
pregnant women / mothers: 4 months after birth, or 4 weeks after end of
maternity leave dismissal inadmissible (sec. 10 MuschG; Adoption: sec.
15 subs. 5)
military service: (sec. 6 subs. 1 ArbPlSichG) from military draft to 1
month after termination of military service inadmissible
trainees: sec. 15 BArbeitgeber: dismissal only possible in first 2 months
(probation period)
handicapped dismissals: (employees whose earning capacity is reduced by
50 percent) dismissal only with consent of invalidity committee (12
InvEinstG); min. 4 weeks period of notice (sec. 8 InvEinstG)
collective redundancies: dismissal in 30 days
5 employees in company 20100 employees; 5 percent employees in
company 100600 employees; 30 employees in company 600
employees; or 5 employees over 50 years
(depending on Regulation sec. 45 a AMFG: VO BGBl. 1982/543 = in 4
weeks 5 percent of > 500 employees; in company > 1.000 employees = 50
employees)
dismissal void without consent of Employment Office
Participa- Information and hearing
tion Works consent = dismissal not rescindable
Council objection = possibility of works council to rescind dismissal before court
no statement = rescission by employee (sec. 105 ArbVerfG)
Procedure rescission of termination before labor court within 1 week (sec. 105
ArbVerfG)
58 European Labor Law 335
3. Netherlands
Rule Burgerlijk Wetboek (BW)
Act on Flexibility and Security 1/1/1999 (FlexAct)
Buitengewoon Besluit Arbeitsverhoudingen 1945 (BBA)
Admissible Art. 7a: 1639g BW ordinary; Art. 7a: 1639o BW extraordinary
reasons for ordinary (Art. 7a: 1639g BW)
termination conduct-related: culpable violation of duties of labor relation
person-related: permanent impossibility of employment of employee;
illness: general prohibition of ordinary termination on grounds of illness
in first 2 years; not if: illness caused by employee; no application to
consent to termination (see below) before start of illness and no
emergency hospitalization of employee.
business-related: (FlexAct) necessary: consent to dismissal by state office,
Art. 6 BBA
extraordinary (Art. 7a: 1639o , 1639p; 1639q BW)
compelling reasons which make further collaboration impossible
in principle: consent necessary before dismissal by supervisor, regional
employment office.
possibility: dissolution of contract by court (Art. 7a: 1639x BW) for
compelling reasons (extraordinary reasons; business-related/economic
reasons [e.g.: necessary to save remuneration] 7a: 1639w BW, FlexAct,
court dissolution shorter than termination procedure, no special dismissal
protection: but compensation of employee
Period of employee: 1 month, (collective) agreement for shorter period of notice
notice possible, for employer twice as long as for employee
employer: (Art. 7a: 1639g BW)
< 5 years 1 month
510 years 2 months
1015 years 3 months
> = 15 years 4 months
(collective) agreement on extension possible
for weekly remuneration at least 1 week or
from 50 years 3 weeks
Special works council members: generally inadmissible with the exception:
dismissal winding up of company area in which works council member is
protection employed; formerly ordinary dismissal only with consent of judge;
labor union member: prohibition of dismissal for execution of labor union
activities (FlexAct)
pregnant women /mothers: (Art. 7a: 1639 subs. 4 BW) 12 weeks after
birth, dismissal inadmissible (if no objection by employee), right to
compensation
military service: dismissal inadmissible on grounds of military service
collective redundancy: (more than 20 employees): information and
336 XIII International/European Labor Law
4. France
Rule Code du Travail = Labor Act 1973 = CT
Act of 13/7/1973; Act of 3/1/1975; Act of 7/1/1981; Code Pnal = CP
Admissible Art. L 122-14-3 CT (factual compelling reason); ordinary
reasons for extraordinary (Art. L 122-9 CT = serious, culpable intentional/gross
termination negligent, damaging action)
person-related: Incapacity, in principle permanent disease only in case of
necessity of employee replacement (Special case for work-related causes
of disease or accident (see below))
conduct-related: culpable, serious violation of work duty (e.g.
inobservance of instructions by employer; responsibility for absence,
insobriety, concealment of material)
business-related: (Art. L 321-1 et seq. CT, Act of 3/1/1975) company
reorganization on grounds of economic or company-internal difficulties;
For all terminations: (Art. L 122-14-2 CT; Art. R 122-2-1 CT) compliance
with procedure: invitation to prior talks with employer, after min. 5 days,
or 2 months after knowledge of conduct-related grounds for dismissal
with statement of reason, possibility to bring assistant; requirement for
validity of dismissal procedure: notification of reasons for dismissal if
required by employee (within period of 10 days) (Art. L 122-14-2; R 122-
3 et seq. CT);
especially in case of business-related redundancy: hearing by
representative of employee (Art. L 321-2/3; Art. 432-1 CT); consent to
dismissal by authority (after expiration of 7 day-period dismissal is
deemed to be consented; reference to duty of reemployment of employer
within 4 weeks after dismissal (Art. L 321-14)
Period of Art. L 122-6 CT
notice < 6 months provisions of collective agreement or existing local habits
624 months 1 months
> 2 years 2 months
collective contracts and labor contracts regulating extension possible
58 European Labor Law 337
Special members of the works council (Art. L 425-1 et seq.; L 436 et seq. CT):
dismissal hearing by the works council and consent of the commercial regulatory
protection authority (after information on decision by works council) (aftereffect 6
months after termination of employment)
pregnant women/mothers: Art. L 122-25 et seq. [equiv. adoption Art. L
122-27]: exclusion of any kind of termination (also in probation period). 6
weeks before and 10 weeks after birth (equal rights for fathers of 3
children and in case of death of pregnant woman (Art. 122-25-2);
exclusion ordinary dismissal. Pregnancy and 4 weeks after return to work
(effect only after end of maternity leave.). Suspension of labor relation
during maternity leave = 2 years (for 1 year employment in company with
100 employees) (Art. L 122-28); violation: compensation or penalty
10.000 to 20.000 EUR (Art. 131-13 CP)
handicapped persons: employee-termination-period max. 3 months with
possibility of collective agreements (Art. L 323-29 et seq. CT); penalty (2
years and/ or 30.000 EUR) for dismissal for grounds of handicap. (Art.
225-1/2 CP)
anomalies in case of work accidents or illness due to work (Act of
7/1/1981). Exclusion of illness-related dismissal (Art. L 122-32-2 CT); in
case of certification by company physician of incapacity of employee
offer of new workplace. For certified impossibility of reintegration of
employee dismissal possible.
military and civil service: (Art. L 122-18 et seq. CT) employees born
before 31/12/1978; otherwise termination of labor relation, claim for
reemployment
trainees: only in first 2 months possible with limitation. Afterwards
unanimously or by court order.
Participa- Information and hearing
tion of for business-related redundancy: Art. L 321-2/3; Art. 432-1 CT
works collective redundancy: Art. L 321-2 CT (10 employees in 30 days)
council consultation works council and state labor administration.
(violation: penalty per dismissal 3750 EUR Art. L 321-11 CT)
Dismissal Procedure before labor court (Art. L 516-1, R 516-0 CT);
protection conciliation hearing (Art. R 516-12)
procedure Exclusion period of dismissal-protection-clause only in case of abuse of
legal rights or 2 months in case of dispute on remuneration calculation
(Art. L 122-17)
unjustified and formally deficient dismissal compensation (Art. L 122-2 et
seq. CT
penalty in case of discriminating dismissal 2 years, 30.000 EUR (Art. 225-
1/2 CP)
dismissal without necessary consent by authority (per dismissal 3750 EUR
(Art. L 321-11 CT)
338 XIII International/European Labor Law
5. Belgium
Rule Labor Contract Act 3/7/1978, Company Constitution Act = Act of
20/9/1948 and Collective Agreement of 9/3/1972)
Admissible Ordinary
Reasons for conduct-related: violations of duties from labor relation
termination person-related: incapacity, missing or lost adequacy; illness: over 6
months (start of period of notice after recovery (compensation))
business-related: economic difficulties, dissolution of company,
reorganization of company, rationalization (as Force Majeure: war, natural
catastrophes) without dismissal and compensation. Work relation
dissoluble)
extraordinary: severe culpability and impossibility of working together.
(Art. 35 Labor Contract Act)
notification of extraordinary reasons for termination
written only dismissal of white-collar employees (Art. 37 Labor Contract
Act)
Period of BLUE-COLLAR WORKERS (Art. 59 Labor Contract Act):
notice employee-termination 14 days
employer-termination 28 days
in case tenure > 20 years:
employee-termination 28 days
employer-termination 56 days
employee less than 6 months in company agreement on period of
notice, not less than 7 days and notification period not shorter than half of
employer-dismissal period of notice
employee / WHITE-COLLAR WORKER (Art. 8284 Labor Contract
Act):
employee yearly income < 22.000 EUR, (1/5/1995):
< 5 years tenure 3 months
for each further 5 years tenure further 3 months
yearly income of employee > 22.000 EUR agreement or determination
by judge (generally dependent on tenure and age)
for 1. and 2.: employer-dismissal not below above mentioned terms;
employee-termination: income 22.00044.000 EUR max. 4 months;
> 44.000 EUR max. 6 months
Purpose: retirement (65 years):
employee-termination 3 months employer-dismissal 6 months;
shorter periods for termination for new workplace:
< 22.000 EUR 1 month;
22.000 EUR44.000 EUR 3 months
> 44.000 EUR determination by judge (see above)
Special member of works council.: in principle dismissal inadmissible: (Act of
dismissal 19/3/1991); in time: 30 days before notification of election assumption
protection of office by other member of works council (4-years period); dismissal for
58 European Labor Law 339
6. Italy
Rule Codice Civile = CC; Codice di procedura Civile = CPC; L 223/91;
Costitutione della Repubblica Italiana = Cost.;
Employee Statute = Stat. Lav
Contratto Collettivo Nazionale di Lavoro per i Dipendentio di Aziende
Commerciali 1/2/1983 = Collective Agreement; 1983; Contratto
Collettivo Nazionale di Lavoro per i Dipendentio di Aziende Commerciali
22/12/1981 = Collective Agreement 1981; L 604/66; L 108/90; L 533/73;
TV 29/4/1965
Admissible Ordinary, extraordinary 2118 CC
reasons for Employee termination: ordinary: voluntary termination (personal
termination reasons) 2118 CC; extraordinary: compelling reasons (= employer
violation of duty e.g. belated payment of remuneration or social security
contributions, insult, request of work performance contra bonos mores)
Employer termination: (Art. 2118 et seq. CC, L 604/66, Art. 18 Stat
340 XIII International/European Labor Law
7. Spain
Rule Codigo Civil = CC; Estatuto de los Trabajadores (employee statute) 1980
= ET; Ley de Contrato de Trabajo (Employment Contract Act) = LCT;
Ley de Procedimiento laboral (Labor Procedure Act) = LPL
Admissible Art. 49 ET no differentiation ordinary/extraordinary termination; but
grounds for differentiation (employer-dismissal): disciplinary = subjective Art. 49
termination subs. 11; Art. 5456 ET culpable serious violation of work duties [work
performance, disciplinary violation, breach of fiduciary duty] ( conduct-
related); (conduct related extraordinary)
objective Art. 52, 53. = economic, technical, organizational, work
342 XIII International/European Labor Law
8. Portugal
Rules Art. Constitution, Decreto-Lei 49.408 = Labor Contract Act; Decreto-Lei
64-A/89 27/2/1989 in connection with Decreto-Lei 400/91, 403/91
16/10/1991; DL 64/89 = Dismissal Protection Act
Admissible Employee-termination
Reasons for ordinary (Art. 38 DL 64-A/89);
termination extraordinary (Art. 35 DL 64-A/89) culpable violation of labor contract
duties of the employer
Employer-termination
No differentiation ordinary/extraordinary dismissal only for serious reason
and compliance with dismissal process, differentiation subjective (
conduct-related) and objective ( person-related/ business-related)
reasons:
business-related: Art. 26 DL 64-A/89 proved reduction of sales, necessary
technical reforms or necessary change of business activity
person-related = dismissal for non-adjustment of employee to necessary
change of workplace; (temporary illness = suspension of labor relation)
generally compensation of employee 27 DG 64-A/89)
extraordinary dismissal: Art. 10 Nr. 1 DG 64-A/89 conduct-related reason:
impossible continuation of labor relation (e.g. counteracting work
instructions; violence; opposition against employer; repetitive conflicts
with colleagues, unauthorized absence causing damage (in one year 5
continuous days or 10 days in total); considerable reduction of
productivity of employee, deception on reason for absence)
conduct-related dismissal without warning!
Procedure: written with reasons and preliminary talks with employer;
notification of employer, works council and supervisory authority by
employer within 5 days after intervention employee and/or works council;
dismissal: date of termination, reasons for dismissal, evidence for
impossibility of further employment, compensation amount and further
payment conditions.
Notice Employee termination
period Art. 38 DL 64-A/89
< 2 years = 30 days;
344 XIII International/European Labor Law
9. Greece
Rule Art. 22 Constitution, Act 3198/1955; Act 21/12/1920, Royal Decree
16/18.7.1920
Admissible Written (Art. 5 subs. 3 law 3198/1955);
reasons for Notification of termination at local labor office and police within 8 days
termination (no requirement for validity, but omission punishable) Art. 9 Act
3198/1955)
ordinary termination
person-related: incapacity, in case of illness suspension of labor contract,
notice period (depending on tenure) 1 month (for 4 years) 6 months
(for 15 years)
conduct-related: (Art. 673 ZGB) compensation by damaging person
business -related: serious, provable economic reasons in the sense of
change of financial circumstances of employer; social selection (in acc.
with jurisdiction no prerequisite for validity of dismissal);
appropriate compensation of employee by employer (Art. 674 ZGB)
extraordinary dismissal for especially serious reason for conduct-
related termination (sentence for crime, considerable culpable violation
of duty) or for Force Majeure ( company related)
collective redundancy: company with more than 50 employees. Monthly
dismissal for economic/ company-related reasons exceeding percentage
determined by employment ministry (2-3 percent); max. 30 employees.
Notification to employees and employment ministry (reason, number of
employees, selection), attempt to negotiate with employees. If
negotiations fail confirmation of dismissal by employment ministry
within 10 days (law 1387/1983; 1767/1988); simultaneous dismissal of
more than 30 employees inadmissible
Period of Employer termination: Art. 1 Act 2112/1920:
Notice 2 months 1 year 1 month
24 years 2 months
46 years 3 months etc.
max.: 28 years 24 months
agreements on longer periods possible
for employees: no notice period in case of compensation payment
2 months 1 year 1 monthly salary
12 years 2 monthly salaries
23 years 3 monthly salaries etc.
28 years 24 months
Employee termination
notice period of employer termination, max. 3 months
Employee compensation ( usual compensation (see below) for
termination over 15 years activity and/or pension age (Art. 5 subs. 1 Act
435/1976)
346 XIII International/European Labor Law
Special labor union members (anal. for members of works council): inadmissible
dismissal ordinary dismissal during office and 1 year after. Extraordinary dismissal
protection with consent of special committee (1 judge, 1 representative employee +
1 representative employer) Art. 15 Act 1264/1982
inadmissible any unlawful discriminating dismissal Art 281 ZGB; Act
1767/1988; concerns:
activity in labor union,
employees: demanding support by labor union/ works council
pregnancy/maternity: inadmissible dismissal during pregnancy and
maternity (up to 1 year after birth)
military service: after 6 months tenure principally inadmissible also 1
year after resumption of work (dismissal admissible if special
committee consents (Art. 7 Act 244/1936)
war veteran and handicapped ex-service person and family members of
persons killed in war : dismissal only for defamation or incapacity for
certain work position and impossibility of employee to continue to
employ person (Art. 7 Act 244/1936)
Participation Notification by employer
works council (as substitute for lack of labor union:
information and counseling)
Procedure claim (exclusion) period
against termination= 3 months;
for compensation = 6 months (Art. 5 subs. 3 Act 3198/1955)
claim to compensation of the dismissed employee (Art. 2 subs. 1 Act
3198/1955) (to be made available by employer in fund) except conduct-
related dismissal or unlawfully provoked compensation; Force Majeure,
possible 2/3 insurance sum; after bankruptcy (Art. 2, 6 Act 3198/1955)
compensation different for white-collar employees (Art. 4, 5 subs. 1 law
3198/1955) and blue-collar employees Art. 5 subs. 1 Royal Decree 16/18
7. 1920
10. England
Rule Employment Protection (Consideration) Act 1978) = EPA;
Trade Union and Labor Relations (Consolidation) Act (1992) = TULRA;
Employment Rights Act. (1996) = ERA;
Employment Relations Act (1999) ErelA
Admissible ordinary, extraordinary dismal (Summary Dismissal)
reasons for [as long as dismissal not discriminating; no dismissal protection for
dismissal employment under 2 years]
person-related: sec. 57.2, 57.2 EPA: loss of capacity, incapability,
disease (in case of repeated absence from work and no other employment
possibility)
conduct-related: (e.g.: theft, acceptance of bribe money, insobriety and
drug abuse at workplace, defamation, betrayal of company secrets,
unauthorized access to data bases, unauthorized absence from workplace,
58 European Labor Law 347
11. Ireland
Rule Unfair Dismissal Act (1977)= UDA;
Minimum Notice and Terms of Employment Act (1973) = MNTEA;
Maternity Protection of Employees Act (1987) = MPEA; Protection
Employment Act (1977) = PEA;
Parental Leave Act = PLA;
Worker Protection Act = WPA
Admissible ordinary, extraordinary (Summary Dismissal)
reasons for sec.6.4 a-d UDA
termination person-related: incapacity, permanent disease sec 2.4 a UDA
conduct-related: culpable violation of duty to work and ancillary duties
business-related: e.g.: use of capacity too low, rationalization,
restructuring
duty to pay compensation if employee min. 2 years continuously
employed
Also breach of law in case of further employment of employee if
employer cannot legally continue to employ employee.
Condition dismissal = compliance with special procedure by employer
Fairness of Procedure
Hearing of employee, if necessary with assistance, equal treatment,
consideration of all circumstances (constitution of employee and former
activity); in case of conduct-related new misconduct despite warning and
alternative disciplinary measures exhausted
collective redundancy: (dismissals in 30 days: 5 employees for 2050
employees; 10 employees for 50-100 employees; 10 percent for 100300
employees; 30 > 3000 employees) sec. 6.1 PEA: 30 days before
dismissal notification to Labor Ministry (sec. 12 PEA) and information
to and counseling of employee representative (generally labor union) and
consultation works council
Period of sec. 4.2. MNTEA
notice 13 weeks 2 years 11 weeks
25 years 2 weeks
510 years 4 weeks
1015 years 6 weeks
> 15 years 8 weeks
Special Dismissal for membership and activity in labor union inadmissible (sec.
dismissal 14 UAD)
protection pregnancy: sec. 6 PLA maternity leave (14 weeks); exemption of
dismissal (sec. 2.2 UDA)
58 European Labor Law 349
13. Sweden
Rule Work Protection Act 1982
Admissible employee termination, ordinary.: sec. 11 Work Protection Act;
reasons for extraordinary employee termination serious misbehavior by employer
termination (e.g. insult, sexual assault, default of payment of salary employee only
right to refuse work)
employer dismissal: written notice (sec. 8, 16, 19 Work Protection
Act) and on demand by employees objective reasons (sec. 7 Work
Protection Act):
person-related: incapacity, alcohol: danger to safety and/ or image of
employer; disease only permanent, essential reduction of capacity to work
58 European Labor Law 351
14. Finland
Rule Tysopismuslaki (320/1970) Labor Contract Act
Laki ammatillisesta koulutusesta (630/1998) Training Act
Laki palvelukseen kutsutun asevelvollisen ty tai virkasuhteen
jatkumisesta (570/1961) Workplace Protection Act
Co-Determination Act
Admissible ordinary Art. 38 Labor Contract Act; extraordinary Art. 43 Labor
reasons for Contract Act
termination person-related (Art. 37 subs. 2 Labor Contract Act)
[disease: considerable durable deterioration of work results; jurisdiction
duration of disease 1 year]
conduct-related (Art. 43 Labor Contract Act)
deceit when entering into labor contract,
culpable endangering jeopardizing at workplace
Gross violation, violation non-competition clause or company secrets;
mal-performance, after corresponding warning by employer
company-related (Art. 37 a, 40 et seq. Labor Contract Act)
essential permanent reduction of work and impossibility of employment
of employee at other workplace (employer duty consideration of
dismissed person in planned new employments Art. 42 a Labor
Contract Act)
company restructuring: as far as compulsory to avoid bankruptcy
(termination period 2 months)
Extraordinary Art. 43 Labor Contract Act. If serious reasons make
compliance with notice period impossible
Period of Dependent on agreement in individual contract otherwise (employer-
Notice dismissal min.) up to 1 year
up to 1 year. 1 months
15 years. 2 months
68 years 3 months
911 years 4 months
1214 years 5 months
> 15 years 6 months
Special Employees of works council: Art. 53 subs. 2 Labor Contract Act:
dismissal dismissal only with consent of majority of staff possible
Protection Pregnancy/ Maternity Art. 37 subs. 5 Labor Contract Act: inadmissible
dismissal on grounds of pregnancy or to avoid maternity leave
handicapped persons: Art. 37 subs. 2, 17 subs. 3 Labor Contract Act:
Only special consideration in case of selection of several employees to
be dismissed
58 European Labor Law 353
849
Details in: Krimphove, 2001, p. 231 et seq. (with further references)
850
Comp. Council Resolution of 7 May 1985, OJ C1985, N 136, p. 1; Joerges, Festschrift fr Steindorff, p. 1252
et seq. (with further references)
851
Wlotzke, NZA 1990, p. 418 (with further references)
852
Comp. BVerfG (Federal Consitutional Court), NJW 1979, p. 359
354 XIII International/European Labor Law
853
OJ L 404 of 31/12/1992, p. 10 et seq.
854
OJ 1989, N L 183, p. 1
855
The following rules are based on these General Provisions:
-Council Directive 89/654/EEC of 30 November1989 concerning the minimum safety and health requirements
for the workplace (first individual directive within the meaning of Article 16 (1) of Directive 89/391/EEC) (OJ
1989, N L 393, p. 1)
- Council Directive 89/655/EEC of 30 November 1989 concerning the minimum safety and health requirements
for the use of work equipment by workers at work (second individual Directive within the meaning of Article
16 (1) of Directive 89/391/EEC) (OJ 1989, N L 393, p. 13)
-Council Directive 89/656/EEC of 30 November 1989 on the minimum health and safety requirements for the
use by workers of personal protective equipment at the workplace (third individual directive within the meaning
of Article 16 (1) of Directive 89/391/EEC) (89/656/EEC)
-Council Directive 90/679/EEC of 26 November 1990 on the protection of workers from risks related to
exposure to biological agents at work (seventh individual Directive within the meaning of Article 16 (1) of
Directive 89/391/EEC) ( OJ 1990, N L 374, p. 1)
-Council Directive 93/88/EEC of 12 October 1993 amending Directive 90/679/EEC on the protection of
workers from risks related to exposure to biological agents at work (seventh individual Directive within the
meaning of Article 16 (1) of Directive 89/391/EEC) (OJ 1993, N L 268, p. 71)
- Council Directive 92/57/EEC of 24 June 1992 on the implementation of minimum safety and health
requirements at temporary or mobile constructions sites (eighth individual Directive within the meaning of
Article 16 (1) of Directive 89/391/EEC) (OJ 1992, N L 245, p. 6)
-Council Directive 92/58/EEC of 24 June 1992 on the minimum requirements for the provision of safety and/or
health signs at work (ninth individual Directive within the meaning of Article 16 (1) of Directive 89/391/EEC)
-Council Directive 92/85/EEC of 19 October 1992 on the introduction of measures to encourage improvements
in the safety and health at work of pregnant workers and workers who have recently given birth or are
breastfeeding (tenth individual Directive within the meaning of Article 16 (1) of Directive 89/391/EEC) (OJ
1992, N L 348, p. 1)
-Council Directive 92/91/EEC of 3 November 1992 concerning the minimum requirements for improving the
safety and health protection of workers in the mineral-extracting industries through drilling (eleventh individual
Directive within the meaning of Article 16 (1) of Directive 89/391/EEC)
-Council Directive 92/104/ EEC of 3 December 1992 on the minimum requirements for improving the safety
and health protection of workers in surface and underground mineral-extracting industries (twelfth individual
Directive within the meaning of Article 16 (1) of Directive 89/391/EEC) (OJ 1992, N L 404, p. 10)
-Council Directive 93/103/EC of 23 November 1993 concerning the minimum safety and health requirements
for work on board fishing vessels (thirteenth individual Directive within the meaning of Article 16 (1) of
Directive 89/391/EEC) (OJ 1993, N L 307, p. 1)
856
Directive 89/391/EEC is not yet implemented into national labor law by the German legislator. The
implementation by a Work Protection Act is being prepared, see below, part II. Fig. XVI a
58 European Labor Law 355
857
OJ 1980; N L 327, p. 8; revised version: OJ 1995, N L 1, p. 1
858
OJ 1988, N L 356, p. 74
859 The following rules are based on these General Provisions:
-Council Directive of 28 July 1982 on the protection of workers from the risks related to exposure to metallic
lead and its ionic compounds at work (first individual Directive within the meaning of Article 8 of Directive
80/1107/EEC) (82/605/EEC (OJ 1982, N L 247, p. 12)
-Council Directive 83/477/EEC of 19 September 1983 on the protection of workers from the risks related to
exposure to asbestos at work (second individual Directive within the meaning of Article 8 of Directive
80/1107/EEC) (OJ 1983, N L 263, p. 25)
-Council Directive 91/382/EEC of 25 June 1991 amending Directive 83/477/EEC on the protection of workers
from the risks related to exposure to asbestos at work (second individual Directive within the meaning of
Article 8 of Directive 80/1107/EEC)(OJ 1991, N L 206, p. 16)
- Council Directive 88/364/EEC of 9 June 1988 on the protection of workers by the banning of certain specified
agents and/or certain work activities (Fourth individual Directive within the meaning of Article 8 of Directive
80/1107/EEC) (OJ 1988, N L179, p. 44)
-Commission Directive 91/322/EEC of 29 May 1991 on establishing indicative limit values by implementing
Council Directive 80/1107/EEC on the protection of workers from the risks related to exposure to chemical,
physical and biological agents at work (OJ 1991, N L 177, p. 22)
860
The German legislator implemented Directive 80/1107/EEC with the Gefahrstoffverordnung (Regulation on
Hazardous Material) of 26/8/1986 BGBl (German Federal Gazette) I, p. 1470) and the Second Regulation on
the Amendment of the Regulation on Hazardous Material of 23/4/1990 into valid German law; see above, part
II. Fig. XVI a
861
OJ 1978, N L 197, p. 12
862
OJ 1990, N L 156, p. 9
356 XIII International/European Labor Law
- Council Directive 86/188/EEC of 12 May 1986 on the protection of workers from the risks
related to exposure to noise at work 863
- Council Directive 92/29/EWG of 31 March 1992 on the minimum safety and health
requirements for improved medical treatment on board vessels864
- Council Directive 92/57/EEC on the implementation of minimum safety and health
requirements at temporary or mobile construction sites (eighth individual Directive within
the meaning of Art. 16 (1) of Directive 89/391/EEC)865
- Council Directive 83/477/EEC of 19 September 1983 on the protection of workers from the
risks related to exposure to asbestos at work (second individual Directive within the meaning
of Article 8 of Directive 80/1107/EEC)866
- Council Directive 91/382/EEC of 25 June 1991 amending Directive 83/477/EEC on the
protection of workers from the risks related to exposure to asbestos at work (second
individual Directive within the meaning of Article 8 of Directive 80/1107/EEC))867
or
to the existence of special dangers from the tools:
Council Directive 90/270/EEC of 29 May 1990 on the minimum safety and health
requirements for work with display screen equipment (fifth individual Directive within the
meaning of Article 16 (1) of Directive 89/391/EEC)868
Council Directive 89/392/EEC of 14 June 1989 on the approximation of the laws of the
Member States relating to machinery 869
Council Directive 91/368/EEC of 20 June 1991 amending Directive (89/392/EEC) on the
approximation of the laws of the Member States relating to machinery870
Council Directive 93/44/EEC of 14 June 1993 amending Directive 89/392/EEC on the
approximation of the laws of the Member States relating to machinery871
Council Directive 93/68/EEC of 22 June 1993 amending Directive 89/392/EEC
(machinery)872
863
OJ 1986, N L 137, p. 28
864
OJ 1992, N L 113, p. 19
865
OJ 1992, N L 245, p. 6
866
OJ 1983, N L 263, p. 25
867
OJ 1991, N L 206, p. 16
868
OJ 1990, N L 156, p. 14
869
OJ 1989, N L 183, p. 9
870
OJ 1991, N L 198, p. 16
871
OJ 1993, N L 175, p. 12
58 European Labor Law 357
Council Directive 82/605/EEC of 28 July 1982 on the protection of workers from the risks
related to exposure to metallic lead and its ionic compounds at work (first individual
Directive within the meaning of Article 8 of Directive 80/1107/EEC)873
The European legislator currently pays special attention to work protection in road traffic
and transportation of dangerous substances in road traffic:
- Amending Commission Proposal (Com [93] 421 fin. SYN 420) of 1 October 1993 for a
Council Directive concerning minimum standards for safety and health protection in
transport activities as well as at the workplace in vehicles874
- Commission Proposal (Com [91] 4 fin.) of l9 June l991 for a Council Directive on the
appointment of an officer for the prevention of the risks inherent in the carriage of
dangerous goods in undertakings which transport such goods875
Also international treaties determine European rules on the technical work protection on
roads in this context:876
The directives of the European danger protection law are, however, only reluctantly
implemented into national law by the national legislators.
- Council
Directive 75/129/EEC of 17 February 1975 on the approximation of the laws of the
Member States relating to collective redundancies 878
872
OJ 1993, N L 220, p. 1
873
OJ 1982, N L 247, p. 12
874
OJ 1993, N C 294, p. 4
875
OJ 1991, N C 185, p. 5
876
On the position of European Labor Law in the system of public and private international law see above, Part I.
Chapter D. I.
877
BGBl (German Federal Gazette) II 1985, p. 889
358 XIII International/European Labor Law
Christel Schmidt, European Court of Justice of 14 April 1994 (Case C-329/92) Christel
Schmidt vs. Spar- und Leihkasse der frheren mter Bordesholm, Kiel and Cornshagen,
ECR I 1994, p. 1311
The Spar- und Leihkasse dismissed Ms. Schmidt who was employed as only cleaning worker
in the subsidiary in Wacken. The Spar- und Leihkasse stated as reason for the dismissal that
a constructional enlargement of the subsidiary in Wacken was planned and that after that,
the necessary cleaning work should be transferred to an independent cleaning business.
The cleaning company offered Ms. Schmidt the conclusion of a labor contract after
termination of construction works in the Spar- und Leihkasse Kiel und Cornshagen. There
should not be any essential changes with regard to the working tasks of Ms. Schmidt. Ms.
Schmidt was meant to fulfill the same cleaning tasks in the premises of the Spar- and
Leihkasse Kiel and Cornshagen for her new employer.
Ms. Schmidt rejected the offer, because the cleaning area in the subsidiary Wacken had
grown after the reconstruction and turned against her former employer Spar- und Leihkasse
because of her dismissal. Ms. Schmidt referred to the prohibition of dismissal in connection
with transfers of undertakings.
The European Court of Justice assumed a transfer of undertakings if (only) partial functions
(here: cleaning tasks) which were carried out by an individual employee are contractually
transferred to another employer.
878
OJ 1975, N L 48, p. 29
879
OJ 1992, N L 245, p. 3
880
OJ 1977, N L 61, p. 26
881
OJ 1980, N L 283, p. 23
882
OJ 1977, N L 61, p. 26
883
Comp. Krimphove, 2001, p. 363 et seq., 373 et seq. (with further references)
58 European Labor Law 359
As the transfer of Ms. Schmidt to the cleaning company was a case of transfer of
undertakings in the sense of Art. 1 of Directive 77/187/EEC, the European Court of Justice
affirmed the prohibition of dismissal in favor of Ms. Schmidt.
Ms. Schmidts former employer, Spar- and Leihkasse, was not allowed to dismiss Ms.
Schmidt because of the transfer of cleaning work to a cleaning company in accordance with
Art. 4 subs. 1 Directive 77/187/EEC.
With this judgment the European Court of Justice recognized the so called functional
succession as element of change of company identity and therefore as individual form of
transfer of undertakings in the sense of Directive 77/187/EEC.884
This jurisprudence of the European Court of Justice would have the consequence that any
company transfer of tasks to other, individually managed and organized company units,
would constitute a transfer of undertakings (outsourcing).
Now the European Court of Justice limits this broad interpretation in its decision in the case
Ayse Szen again:
Ayse Szen, European Court of Justice 11 March 1997 (Case C-13/95) Ayse Szen vs.
Zehnacker-Gebudereinigung GmbH Krankenhausservice
The Zehnacker Gebudereinigung GmbH used her employee Ms. Ayse Szen for cleaning a
secondary school. As the operator of the secondary school terminated the cleaning contract
between the Zehnacker-Gebudereinigung GmbH and the operator and assigned the
cleaning tasks to another company instead, the Zehnacker Gebudereinigung GmbH
dismisses Ms. Szen.
Ms. Szen assumed her dismissal to be ineffective because the change of cleaning companies
constitutes a business transfer, which would give her a special dismissal protection in the
sense of Art. 4 subs. 1 of directive 77/187/EEC.
The European Court of Justice rejected a transfer of undertakings in the sense of Directive
77/187/EEC and therefore a special dismissal protection. Charging another company with a
certain task would constitute a change of contractual partners. In principle, this would not
affect the identity of the business. Therefore this would not be a case of transfer of
undertakings.
884
See also already: European Court of Justice 12 November 1992 (case C-209/91) Anne Watson Rask, Kirsten
Christensen vs. ISS Kantinenservice A/S, ECR I 1992, p. 5755 mn 15
360 XIII International/European Labor Law
up to now only questions regarding European law on collective contracts886 and the works
constitution of European-wide operating companies887 could be bindingly clarified:
Subject of norm Norm
Formation of Art. 11 of the Convention of the Protection of Human Rights and
coalitions Fundamental Freedoms888, Art. 5 of the European Social Charter of
18 October 1961889, N 11 of the Community Charter of the
Fundamental Social Rights of Workers of 9 December 1989890.
Workers from another European member state may participate in
the works council activities of their place of employment actively or
by making use of their voting rights. Art. 8 of Regulation
1612/67/EEC on the freedom of movement of workers in the
Community.891
Entering into Art. 6 European Social Charter892; Art. 4 of the Agreement on
commitments Social Policy
from collective
contracts
Freedom of strike Art. 6 N 3 of the European Social Charter (of 18 October 1961)
and N 13 of the Community Charter of Social Fundamental Rights
of workers (of 9 December 1989)
885
See in detail: Krimphove, 2001, p. 387 et seq., 407 et seq., 412414, 421423 (each with further references)
886
Ibid, p. 390 (with further references)
887
Ibid, p. 395 et seq. (with further references)
888
BGBl (German Federal Gazette) II 1952, p. 686, 953; comp. European Court of Human Rights 27 October
1975 (file number 1/1974/12/19 Syndicat national de la police belge vs. Belgian State; Publications de la Cour
Europenne des Droits de l Homme, Srie A, Vol. 19.; European Court of Human Rights 13 August 1981 and
18 October 1982 (file number 2/1980/33/49-50) Young, James and Webster vs. United Kingdom, Publications
de la Cour Europenne des Droits de lHomme, Srie A, Vol. 44
889
BGBl (German Federal Gazette) II 1964, p. 1262
890
Com [89] 248 fin.
891
OJ 1968, N L 257, p. 1; on the function of this regulation see above.
892
On the problems regarding European collective agreements comp. Krimphove, 2001, p. 390 et seq. (with further
references)
58 European Labor Law 361
893
See Krimphove, 2001, p. 39 et seq. (with further references); 390 et seq. (with further references)
894
See Krimphove, 2001, p. 390 et seq. (with further references)
895
Ibid, p. 390 et seq.
362 XIII International/European Labor Law
Select Committee
The European Works Council is above all an information and advisory board.896 There are
no own, real co-determination rights of the European Works Council at all.
The establishment and organization of the European Works Council is primarily a matter of
negotiation between the employer and the employees. If the negotiations do not come to any
conclusion, the minimum requirements on the organization of the European Works Council
in accordance with the European Works Council Directive apply. Often the establishment of
896
Comp. Krimphove, 2001, p. 396 et seq. (with further references)
58 European Labor Law 363
the European Works Council resorts to the existence of diverse national regulations.897
Especially the combination of negotiation rules, national Works Constitution Acts and the
European Works Council Regulation opens the possibility to strategically influence the
functionality of the European Works Council.898
897
See Krimphove, 2001, p. 406 (with further references)
898
See Krimphove, 2000, p. 505 et seq.
899
On the general comprehensive duty of notices comp. also: sec. 8 TVG (collective agreements); sec. 11
(minimum labor conditions). These obligations apply independent from the number of employees in a company
900
Comp. Krimphove, 2001
364 XIII International/European Labor Law
Concerning 1): In principle the number of employees of the business in question is decisive
for issues concerning works constitution law and individual labor law. If questions arise with
regard to organizational areas of work relations; e.g. for existence of the co-determination
right of employees in the supervisory board or executive board of a legal person (corporation
or association), the number of active employees is decisive.
Concerning 2): In principle the number of employees comprises also those employees who
are employed as part-time employees, external workers, home workers or trainees901 by the
undertaking or business.
901
Comp. sec. 5 subs. 1 BetrVG (Works Council Constitution Act)
59 Conclusion 369
Exceptions, however, are possible. For example sec. 622 subs. 5 sentence 2 BGB and sec. 2
subs. 3 sentence 3 ArbPlSchG limit the necessity to attribute part-time workers to the group
of employees, in the sense that part-time employees with regular weekly working hours of
not more than 20 hours are counted as 0.5 employees and those working not more than 30
hours are counted as 0.75 employees.
59 Conclusion
Especially labor law aspects of personnel policy confirm the coherence and consequence of
the economic personnel cost approach. In this context it is less international labor law, but
rather European and national labor law which has considerable influence on personnel
management practice and cost advantages. Especially the jurisdiction of the European Court
of Justice makes the immense influence clear which the European Labor Law has these days
on managerial practice.
The significance of European Labor Law will grow because of the efforts of the European
legislator to approximate the laws and harmonize the economic and competitive
circumstances in order to establish a uniform European Economic Area. Also the changing
structure of European companies promotes the development of European Labor Law: groups
with cross-border activities need uniform law already for organizational reasons. At the same
time a Europe-scale enterprise entails a Europe-wide coalition of employees to secure and
exercise employee rights.
With the advancement of the above mentioned trends. the pressure for innovation of labor
law increases. It has to be adjusted in order to be able to do justice to the current and future
requirements. Not only questions regarding the financial and economic crisis, but also
problems of growing unemployment point the necessity of a cost-economic personnel policy
out. Not only the European legislator and the jurisdiction of the European Court of Justice
have to offer adequate instruments for cost-efficient personnel management. Also the
employers, employees and their associations need to know the instruments in order to be able
to make an independent choice of the most efficient alternative.
XIV Conclusion
With the book International Human Resource Management and International Labor Law a
trilogy in the competence and research field Finance-oriented Personnel Management has
been developed. This trilogy has started with the book Finance-oriented Human Resource
Management and as subsequent volume with the book Controlling and the Berlin Balanced
Scorecard Approach. The authors wanted to prove that personnel management, practiced
and taught under managerial aspects, is a functional instrument. The theoretical crisis of
the last 25 years can neither be overcome by borrowings from economics (labor economic
and human resource economic approach) nor from psychology (behavioral personnel
management). It can only happen with its own strengths which are obtained from classical
business management especially from accounting, financing and investment theory in
connection with jurisprudence. Since more than 100 years the German business management
theory is coined by professors like Schmalenbach, Gutenberg, Kosiol, Whe, Baetge,
Coenenberg, Haller, Kting/Weber, Pellens, Weber/Schffer to mention only some. On their
fundaments and from their basic understanding the instruments of finance-oriented human
resource-management were created. Examples are the personnel management logic, the
Berlin Balanced Scorecard Approach, the Innovation Success Calculation, International
Human Resource Controlling and the Berlin Human Capital Assessment Model as elements
of the remuneration management systems with and without stock-option programs. The basic
philosophy is the shareholder-value approach with the basic model of company assessment
as an application of the decision-oriented company management theory.
372 XIV Conclusion
Fig. 59.1 Field of competence and research of Finance-Oriented Human Resource Management
To say it in Kants words: each academic research and each partial discipline needs to have
fundaments from normative-ethics and economic theory and to give theoretical evidence in
form of stable models as well as empiric support. As business management is to be
considered as applied science, it has to provide both statistic-empirical proof and the
applicability of the models in companies as organizational recommendations.
Thanks to the Muehlhan AG, as reference company with its Financial and Human Resource
Manager Carsten Ennemann and the Head of HR Olaf Drewicke, we succeeded to do so.
Therefore, it is obvious that the second book of the trilogy Controlling and Berlin Balanced
Scorecard Approach is also published in our names by the Oldenbourg Wissenschaftsverlag
in English language. The book Corporate Finance und Risk Management shall equally
provide basics for finance-oriented human resource management, because in the bank and
insurance sector, in the health sector and in innovative industry such models will be more
requested in future.
We have been improving the Berlin Balanced Scorecard Approach for years and prove that
any perspective of the Balanced Scorecard can be calculated either with instruments of
XIV Conclusion 373
internal and/or external accountancy. Moreover we demonstrated that all perspectives can be
connected and that the Berlin Balanced Scorecard can be dynamized for Strategic
Management in the course of years with help of company assessment.
The Berlin Balanced Scorecard Approach renders e.g. strategy calculations equally as
possible as innovation success calculations and the calculation of Human Capital. From the
learning and potential perspective of the Balanced Scorecard the Berlin Balanced Scorecard
Approach, the Berlin Human Capital Assessment model is deducted. It proves in theory and
practice with an example from the Federal Soccer League and the Bank sector how human
capital can be calculated with and without utility analysis.
The Berlin Human Capital Assessment model gives a first instruction how to manage
international subsidiaries with regard to personnel management and controlling. Business
management research, financial personnel aspects and analogies in practical application are
combined under this approach.
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Subject Index
A disclosures 113
absolute performance target 78 dislocation agreement 130
AGG 281, 287 disposition rights 252
application layer 205 diversity management 281
architecture 197 Diversity Management 281
Ausstrahlung 138 double tax agreements 134
authorized capital increase 92
E
B e-administration 195
bank human capital assessment model EEC regulation n1408/71 38
165, 172 Electronic Recruiting (E-Recruiting) 212
base price 76 elements of discrimination 294
binomial options pricing model 109 equity classified awards 116
Black Scholes model 109 equity-settled share-based transaction
Business Process Reengineering 195 107
e-recruiting 195
C e-relationship management 196
central strategy 10 ethnocentric 7
checklist 29 European Labor Law 313, 318
collective European Labor Law 360 European Works Constitution Law 361
communication of culture 248 exercise period 85
company culture 243 External personnel selection procedures
conditional increase in capital 90 235
convertible bonds 68 external selection of personnel 233
Corporate Governance 57
Country Culture 243 F
country research at the example of South fair value 108
Africa 255 federal strategy 10
free movement of workers 321
D
data management layer 204 G
data protection 200 GCGC 57
delegation agreement 31 General Equal Treatment Act (AGG) 287
delegation and its social security aspects geocentric strategy 8
137 German Corporate Governance Codex
delegation and mobility bonus 21 57
digital interview 238 global model 6
dilution effect 88 globalization 1
direct discrimination 294
378 Subject Index
H O
harassment 295 online recruiting games 218
holding periods 85 ordinary capital increase 94
Human-Resources-Websites 215
P
I passive contract 131
IFRS 105 performance conditions 108, 110
indirect discrimination 295 performance shares 73
instruction to discriminate 296 performance units 73
Instruments of Electronic Recruiting 212 personnel leasing 226
integration system 207 Personnel selection process 229
international information systems 193 phantom shares 72
International Labor Law 315 polycentric strategy 7
international personnel controlling 175 positive action 297
International personnel recruitment and presentation system 207
selection 211 principal-agent theory 46
internationalization strategies 6
Internet job boards 213 R
intrinsic value 108 real equity settlement 107
IT systems 195 relative performance target 80
repurchase 95
K restricted stock 73
key figure based performance targets 82 restricted stock units 73
KonTraG 175
S
L SAR 72
labor contract 127 scouting 222
labor contract abroad 34 Scouting 222
Labor Law 318 sexual harassment 296
layer model 197 SFAS 123 (R) 115
liability classified awards 116 shareholder value 43
limited tax duty 132 social work protection 357
local strategy 10 stock appreciation rights 100
lock-up period 84 Stock Appreciation Rights 72
M T
market conditions 108, 110 technical work protection 353
Monte-Carlo simulation 110 telephone interview 238
multinational model 5 territory principle 138
transnational model 6
N
naked warrants 70 U
national model 5 unlimited tax duty 132
newsgroups 219 US-GAAP 115
Subject Index 379
V W
virtual equity instruments 111 warrant bond 69
virtual recruiting fairs 217 work contracts abroad 34
VorstAG 65
VorstOG 63