What must be considered for performance‑based or success‑dependent pay for works council members?

Works council members must be released from their regular duties to perform council work without being required to make up the time. This routinely complicates the determination of performance‑based remuneration paid in addition to base salary. During release periods – which cannot be forecast in advance – works council members cannot influence target achievement. Because no work is performed during these intervals, the statutory starting point that remuneration is determined by working time offers no immediate guidance. Seemingly pragmatic solutions – such as relying on average target achievements from times when the works council member was fully engaged in operational duties, using (average) values of other employees, or extrapolations – are fraught with risk.

Any remuneration that exceeds or falls short of the contractual or collectively agreed entitlement violates the prohibition on disadvantage and the prohibition on favor under section 78 sentence 2 Works Constitution Act (BetrVG). These prohibitions also carry criminal law implications. 

I. Starting point: Principle of loss of earnings

The starting point for determining “the correct” performance‑based pay is section 37 (2) BetrVG, which guarantees that performing works council duties occurs “without a reduction in remuneration.” This entails the loss‑of‑earnings principle, focusing on the hypothetical amount the employee would have earned during the absence. It must be distinguished from the reference principle, which calculates pay using historical factors. Applying the loss‑of‑earnings principle requires a hypothetical assessment: the works council member is entitled to the remuneration they would have received absent the release for works council duties. This applies both to fully and partially released works council members.

The principle raises significant difficulties if remuneration primarily depends on performance and not directly on hours worked. Variable components not tied to time but to outcomes were not contemplated by the legislature when the statute was drafted, nor were they addressed in later amendments. 

II. Calculation options

There is little high‑court jurisprudence on handling performance‑based pay under section 37 (2) BetrVG. In 2015, the Federal Labor Court outlined a few guardrails for calculating a sales‑dependent annual bonus (7 AZR 123/13), but remanded the case to the regional court. Legal literature discusses several methods, each with strengths and weaknesses.

1. Orientation to the Continued Remuneration Act (“EFZG”)

This analogy falters because illnesses usually occur in day‑ or week‑long blocks, whereas works council absences are more often hours within workdays. Moreover, continued pay serves income‑maintenance purposes different from section 37 (2) BetrVG. For provisions‑based pay, the Federal Labor Court looks to average earnings over a longer, fact‑appropriate reference period. For target agreements independent of working time, targets are to be adjusted, yet the method of calculating reductions – where targets are independent of working tim – remains unclear. Pro‑rata target reductions can produce impermissible results when workload fluctuates or when achievement depends on factors beyond individual performance. For example, if a works council member performs no work in the highest‑revenue month, a 1/12 target reduction would be inequitable if other employees achieve a large share of annual goals in that month.

2. Analogy to the Federal Vacation Act (“BUrlG”)

Relying on past earnings risks disadvantage or favor in the presence of volatility or seasonality. Aligning with section 11 BUrlG is likewise unsatisfactory, as vacation pay is based on average earnings in the thirteen weeks before vacation. If works council duties are scheduled in a low‑sales period after a peak (e. g., post‑holiday season), this could result in illicit advantages.

3. Estimation under section 287 Code of Civil Procedure (“ZPO”)

Judicial estimation would only arise if the employer’s determination/calculation is challenged in court – which should be avoided. Mere estimation by the employer, even with the works council’s involvement, would immediately raise concerns of disadvantage or favor.

4. Reliance on section 37 (4) BetrVG

Employers should determine or calculate variable pay for works council members – adjusted for work absences – based on the individual’s performance and the average performance of a defined comparator group. The reasoning should be documented to ensure transparency. Interim assessments during the year are advisable; end‑of‑year reconstructions tend to be imprecise. For partially released works council members, employers must also factor in the work that was still performed. Employers should compare each member’s results with those of the comparator group; looking only at the group is insufficient.

III. Summary and practical guidance

There is no court‑approved formula for calculating variable pay where works council members perform little or no work due to office. Each case requires attention to the specifics of the variable pay system (commission, target setting, target agreement, etc.) and the role in question, with careful documentation of the decision‑making process. Employers should record the derivation of variable pay and any balancing decisions in a way that is objectively comprehensible and reflects the underlying considerations. This is the only way to rebut suspicions of favor or disadvantage – particularly as one cannot assume that, absent office, a member would always have achieved additional goals or generated higher sales. The same applies if variable pay is based on team or departmental results and some departments have a high concentration of works council members. Where target attainment or sales figures are affected, adjustments in performance measurement may be necessary.