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During the performance reviews of this year, my boss told some of the developers they could have their salaries reduced.
This created some questions, he is on leave, and I am trying to figure out, how it works.
I am actually not sure about this, and that's the first time I heard about it in Germany.
Is it possible to reduce a Developer's salary based on its performance? What are the rules?
If so, isn't this something that can demotivate people?
You have left out a lot of relevant details, so there are a lot of ifs and whens:
A normal employment contract in Germany is "vollzeit, unbefristed" (full time, unlimited). That contract specifies your salary and it cannot be changed without both parties approval. So changing your salary "just because" without your consent is impossible. The only legally available option to change that contract without the other parties consent is firing/quitting. This includes the normal specified notice periods in Germany, there is no "at-will" here, nobody can be fired on the spot (except for obvious illegal activity like attacking your boss with an ax or something).
Obviously, your "consent" can be had for a price. Maybe you really want that job and they threaten to fire you if you don't "consent". Right now with the developer situation in Germany, threaten to fire a developer is equivalent to actually firing him, because he will have a new job lined up way before his notice period and just quit on the company. No sane employer would do that.
Now it can be done more easily if you are not in the default employment bracket noted above. If your contract is limited (for example for a year) they could easily give you a new contract for the year after with a lesser salary. You can accept, negotiate or decline, it's a new contract all over. Same goes for added bonus agreements. They are mostly limited in time or by conditions and if a condition is the persons performance, then sure, they might get less money. But that's not salary. The salary is unchanged from what is stated in the contract, just the bonus, probably agreed upon in a different contract and conditional, is getting less.
And in the end, those people could be contractors, consultants and/or self-employed. That's another can of worms I won't go into. They probably have non-default, limited, conditional contracts anyway and should discuss them with their lawyer.
TL;DR
To make it short, if you have a contract that says you work as X for Y money until they fire you or you quit, then there is no way that they can pay you less then Y (well, short of their own bankruptcy, that's indeed a valid excuse in court).
If they want to change either X or Y, they need your consent or they need to fire you with the legal and/or contractual notice period.
Usually, in Germany, these annual performance reviews are the time at which salaries are increased, so you don't have to switch jobs to get an increase in pay. It seems weird that salaries will be decreased there, however this is possible, even without mutual agreement.
In Germany, there is the so called "Änderungskündigung" (which is a word consisting of "Änderung" (change) and "Kündigung" (termination)), which can be given to you at any time (not only on performance reviews). This Änderungskündigung basically means that your employer terminates you but at the same time offers you a new (changed) contract with different conditions. Most of the time these changes are bad for you: less pay, less holiday, more work hours (whatever can be changed in a contract). The employee then has to react to this:
This could explain the decrease in salary that your colleagues may experience.
Needless to say, this may demotivate employees. However, employers can not just force employees into these Änderungskündigung. Some requirements must be met, i.e. deeply financial problems and so on. Otherwise, the employees could just lawyer up and remain working in a poisoned work relation.
I believe one of the most common cases of an Änderungskündigung is to prevent termination in hard times for the company. They can offer their employees to stick around at reduced pay, so that they don't have to be fired. When better times come, a pay raise back to the original salary might be expected.
If your contract says you are paid at a certain union wage level Entgeltstufe, then yes, you cannot earn less than that. However most of the time you earn more than that with a Leistungszulage. At a previous employer it was done so that on average, all employees were getting 15% more than their union level. Some top performers got 16% or 17% though, and for each one of those, there was someone earning less than 15%. So it is entirely possible that during a performance review you could move down from 15% to 14% extra. However, I do remember that they had to inform someone 3 months ahead of time that they were in danger of being lowered as to give them time to rectify the problem.
