Volkswagen and the IG Metall union have agreed a 4.2% pay rise that will affect 95,000 staff in six western German plants.

The union had threatened industrial action if the deal was not finalised on Monday.

The pay rise will come into force on 1 January and is part of an 18-month deal which runs until the end of January 2011.

The deal will also introduce performance-related pay which could be worth as much as EUR100 (US$147) a month from 2011.

It’s the first time that VW and IG Metall have agreed to performance-related pay, details of which will be worked out over the next 11 months.

The 4.2% pay rise is in line with what workers elsewhere in the German engineering sector are getting.