German Employees Exchange Wage Cuts for Equity

German trade unions are discovering part-ownership as a tool against the financial crisis. They hope that accepting wage cuts in return for a share of the profits will give their members more power and money in the future.

The recent power struggle between Porsche and the Volkswagen Group produced one loser, dismissed Porsche CEO Wendelin Wiedeking, and one winner, VW patriarch Ferdinand Piech. But a labor union leader who acted behind the scenes, Berthold Huber, the chairman of the powerful IG Metall metalworkers union, also wants to be counted among the victors.

While the two adversaries fought openly, Huber prepared his coup, quietly and in secret. His plan is to enable the more than 380,000 employees of the combined VW-Porsche Group to hold shares in Europe's largest automaker. In addition to the Porsche and Piech families, the State of Lower Saxony and the Emirate of Qatar, Huber wants employees to "hold a significant share" of the company. He is aiming for 10 percent, and he wants to see employees share in the profits of the group's many brands, from Audi to Skoda.

Much of Huber's plan is still up in the air. Where will the shares come from? Why should the remaining shareholders give up a portion of their shares for the benefit of employees? Piech, a billionaire, is the most likely to agree. Or should employees, in return for receiving shares, work longer hours for the same pay?

Union officials concede that it is unrealistic to expect to achieve their goal of a 10-percent share of VW for employees, but they believe that 2 or 3 percent is within the realm of possibility. In any case, the proposal signals that Germany's most important trade union is rethinking its strategy on a core issue of the market economy.

Until now, the majority of IG Metall members believed that shareholding was a ploy used by the class enemy to undermine proletarian consciousness. But now that the financial crisis has forced some company owners to beg for help from the government and unions, IG Metall has discovered that the issue could work in its favor, and not just at VW.

Huber has already received a commitment from Maria-Elisabeth Schaeffler, the owner of troubled auto parts company Schaeffler. The union supported the firm in its efforts to receive government bailout funds. In return, the billionaire promised, among other things, to distribute shares in the company to her employees. This, she said, would enable them to "have a share in the subsequent recovery."

At Daimler, the works council is considering the conversion of employee bonus payments, worth a total of €280 million ($400 million), into Daimler shares. Meanwhile, in return for accepting wage cuts, the employees at Opel want 10 percent of the entire company.