COMMENT: Brokering a new pay deal will be difficult but gain-sharing merits attention since it has the potential to deliver non-costing wage increases, writes John Geary

Irish industry's competitiveness has deteriorated significantly in the past two years. Rampant inflation, a tight labour market and the euro's appreciation are largely to blame. A national imperative is to restore competitive advantage.

Until the late 1990s, national wage deals underpinned by tax reforms and reductions succeeded in keeping wage rises in check and in contributing to the competitiveness of the private sector. Wage drift was an isolated phenomenon.

But the recent Programme for Prosperity and Fairness (PPF) has failed to moderate wage inflationary pressures. Many economists believe centralised bargaining has outlived its natural life.

Industrial relations academics, though, tend to urge caution in any sweeping withdrawal from centralised arrangements. Certainly, experience of enterprise bargaining in the 1960s and mid-1980s would suggest "free collective bargaining" offers no obvious panacea.

Centralised bargaining may still provide for an efficient and orderly system of wage determination. The solution is to allow for "co-ordinated decentralisation" under which the broad parameters of an agreement are defined at national level with the substance of any wage-adjustment process decentralised to enterprise level.

In such circumstances, a new national wage agreement would allow for deviations in wage patterns, but within clearly stipulated parameters. The institutional architecture of wage bargaining might become more complex but would permit more flexibility to accommodate company-specific requirements and adjustment to the changing fortunes of the macro-economic cycle.

In this context, the NESC and the ESRI have advocated gain-sharing as a possible means for rendering the wage-bargaining process more flexible.

Gain-sharing operates as an incentive plan to elicit and sustain employee support for workplace innovation and continuous improvement. Where financial benefits accrue, these are distributed between the firm and its employees on the basis of predefined share ratios. Its key advantage is its ability to deliver non-costing wage gains.

There are also benefits for trade unions. Union activists often protest that the terms of national wage agreements prevent well-organised work groups from extracting additional wage gains from profitable employers. By granting employees a financial stake in the enterprise, gain-sharing may provide a release valve for these pent-up pressures in the labour market and dissuade workers from flexing their industrial muscle.

In its absence, it is difficult to see how well-organised workers might be prevailed upon to remain compliant with modest wage increases determined in national-level negotiations.

The benefits for Government are obvious. If the wage adjustment process is linked to the specific competitive circumstances of the firm, the prospect of a vicious wage spiral being unleashed in the labour market is considerably reduced. Scholarly research evidence suggests gain-sharing is associated with significant productivity rises of about 20 per cent.

It deserves emphasis that profit-sharing, which has often been promoted by commentators in Ireland, does not deliver the same efficiency gains. The reason is that, as payouts are based on a percentage of company profits, it is difficult for employees to identify how their efforts contribute to the overall performance of the business. In contrast, gain-sharing has the capacity to strengthen the "line of sight" between workers' efforts and improvements in the firm's performance.

Why then, it might be asked, is gain-sharing not more widely used in Irish industry? Unlike profit-sharing, which limits employees' involvement in the enterprise to a financial stake, gain-sharing is designed explicitly to enhance employees' voices in organisational decision-making. To this extent, gain-sharing is built upon principles of workplace partnership and joint governance.

There has been some significant experimentation with partnership-based approaches in recent years against the backdrop of a commitment by the social partners in previous national agreements to encourage the voluntary adoption of workplace partnership arrangements.

By international standards, however, Ireland lags some way behind with respect to the diffusion and depth of workplace partnership. Nonetheless, significant strides are being made, particularly in terms of the institutional infrastructure and supports available to companies.

At present, talks on the pay element to a new national agreement are delicately poised, with employers seeking a pay pause, at least in the short term, and unions looking for wage increases to match projected rates of inflation.

Brokering a deal will be difficult but gain-sharing merits attention, particularly if provision is made for pay-fixing at workplace level.

But gain-sharing is not a magic bullet. It marks a significant recasting of the management of the employment relationship. Whether Irish employers are prepared to underline the legitimacy and scope of workers' involvement in organisational decision-making so as to capture the potential benefits of gain-sharing is difficult to judge. The alternative is to concede fixed wage increases.

This may appease union and employee demands for higher wages, but it bears the cost of building in wage rigidities and generating wage inflationary pressures in difficult economic circumstances while arguably doing little to support and incentivise employees' co-operation with workplace change.

• Dr John Geary is senior lecturer in industrial relations and human resources at the Smurfit Graduate School of Business, University College Dublin.