Instead of negotiating a stock standard annual pay rise style enterprise agreement, a major mining company has settled a deal based on performance pay principles. The new agreement, approved by the Fair Work Commission (FWC) does not include any guaranteed pay rises throughout its four year term.
The agreement instead provides a sliding scale of benefits aligned with an assessment scale. This means the company assesses the contribution of each employee to the business and, in line with the scale, the employee can receive anything from nothing up to a $7,500 performance payment. This payment is outside the annual salary and is therefore a one-off payment, not added to the annual salary.
The FWC approved the agreement on the basis that it met the ‘better off overall test’ at the test time, which is at the outset of the four yearly term. There is no obligation for employers to provide in agreements for annual increases as many companies believe. So long as, at the test time the agreement passes, what happens in the future is not relevant. The employer has a general obligation under the law to ensure that employees do not get paid less than the Federal Minimum Wage (or the safety net award benefits) during the life of the agreement.
The immediate benefit of this approach is to focus employees’ attention on productivity and the chance at the maximum bonus. The other benefit for the business is that the payments are one-off and do not feed into salaries and raise the bar on salary in the next round of negotiations. It is likely these payments would attract superannuation pay but they would not be included in annual leave or other paid leave, reducing long term business liabilities for those areas.