Workers at French window maker trade perks for pay hike to beat inflation

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OTTMARSHEIM, France, May 24 (Reuters) - When its employees started leaving in droves for better-paying jobs across the border in Switzerland, family-run French window maker Fligitter knew it needed to do something to retain staff.

With surging raw material costs leaving little room to hike wages, Fligitter's management seized on changes made in 2017 by President Emmanuel Macron to France's strict labour laws that enable companies to offer tax-free bonuses in exchange for cutting both overtime pay and length of service salary rises.

Last September the firm reached agreement with its staff representatives to change its pay structure and introduce a tax-free monthly bonus instead of overtime pay and cap its length of service pay rises to just five years, from an industry norm of 15 years.

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As record inflation erodes their purchasing power, workers like Herve Volochinoff say the pay deal has made a real difference.

The new pay structure has pushed up his take-home pay to 1,600 euros ($1,712.64) a month, from 1,450 euros a month previously, he said.

"I'm coming out short on overtime pay, but I wouldn't have turned down an increase in wages," Volochinoff, 24, told Reuters as he put screws into a PVC window frame at the company's factory at Ottmarsheim in Alsace, eastern France.

"Without this increase, I would have had a hard time making ends meet," he said, adding he planned to use the extra cash to buy furniture for a flat he has just moved into.

The agreement translated into 6-8% pay increases while lifting the firm's wage bill for its 80 staff by only 4%, according to Fligitter's human resources department.

Fligitter's deal is one example of how French firms are finding wiggle room in France's complex labour laws to meet employees' demands for higher pay while limiting the hit to profit margins squeezed by high raw material costs.

Fligitter says it was losing six or seven workers a month and struggling to find replacements, but could not afford big wage hikes.

Its new pay deal is possible because Macron gave companies more flexibility to set working conditions. Unions and many workers, however, still despise the former investment banker for what they see as sacrificing their cherished labour rights for the benefit of companies.

"We could not have increased salaries without changing the whole compensation structure. It was impossible, otherwise the factory would have to close in the medium term," said Raphael Fligitter, who runs the 54-year old company and is the son of its founder.

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WAGE PRESSURE

While costly government caps on gas and power prices have kept French inflation lower than most other European countries, it nonetheless hit a record 5.4% last month and is spurring employee demands for higher wages.

Sector-level pay negotiations have led to an average 3% wage increase for French workers this year, compared with 1% in recent years, according to the French central bank. But as inflation keeps rising, unions are pushing for new rounds of wage negotiations.

Many companies are looking for one-off solutions like tax-free bonuses to lift pay without getting locked into higher wages that could be costly to maintain long term.

Macron's 2017 reform made it possible for companies to lower pay below what is stipulated in employees' contracts during tough times in order to save jobs.

Though such agreements remain rare, nearly 200 firms used the flexibility Macron introduced into the labour laws to cope with the downturn during the pandemic, according to the Labour Ministry.

"Employers take advantage of the bad employment situation to say that there is no alternative. It's shameful," said Boris Plazzi, a top official at the hardline CGT union.

GIVE-AND-TAKE

Fligitter's deal also cuts pension and welfare contributions, making them less costly for the firm. That means employees also make lower pension contributions.

Volochinoff said he had not understood all the changes at first, including the impact on his pension. The loss of extra pay for length of service would only make a difference over the very long term, he said.

Fligitter's handful of executives had to make the biggest sacrifices under the deal, notably by agreeing to smaller potential severance packages and losing three days of paid annual leave. They are not entitled to the new monthly bonuses but in exchange their wages were increased.

Jeremy Mosak, who heads the firm's design department and has been with the company for 16 years, said that at first he had been taken aback by the deal before warming to it.

"I don't think I've come out badly from this," he said.

($1 = 0.9342 euros)

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Writing by Leigh Thomas; Editing by Susan Fenton

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