Sharing in the gains: strategies for collective bargaining

1. Sharing in the gains:strategies for collective bargaining Actrav-ITC-ILO, Turin

2. FoA & Right to CB: Pathway to Decent Work • A fundamental right & a development policy • Role of law v/s Collective bargaining: law can force compliance but not cooperation between parties • ILO C 87 & C 98 – facilitates representative social dialogue, help reach mutually agreeable solutions while respecting each others needs

3. So, what is Collective Bargaining Agreement? • Image v/s concept • CBA is like a ‘constitution’ for a company – it should not be a mere document for just getting some wage rise BUT a document of rights & obligations of parties to the agreement – a means of joint regulation of workplace issues, including union right to information & negotiate ‘management policy’ • So – need for union vision – for the workers, for the Company, – then a strategy and actions to achieve that vision

4. Labour rates v/s Labour costs Example: • Two companies in car Industry – for 8 hours work, Company N pays higher wages but has lower labour costs, while Company G pays lower wages but has higher labour costs. • How can this be? • Productivity plays a major role. • Company G makes 1 car in 47 hours & Company N makes 1 car in 23 hours • Focus on costs, not Wages - what are major costs in a company? What do Managers spend their maximum time on?

5. Global Financial Crisis & Company’s Response Company Management, taking advantage of Global Financial Crisis, demanded the Union to accept wage cut of 20% or reduce workforce by 20%. Cost structure as per the company balance sheet: Material Cost ......... 78% Energy Cost .........  10% Admn. Cost ..........   4% Labour Cost........     8%  • Reduction by 20% head count or wages meant only 1.6% savings (20% of 8%) BUT targeting saving in material & energy costs by 10% would give 8.8% cost savings.  Management had no answer but to accept union’s proposal and in this way Union saved the jobs as well as wages.

6. What should you negotiate for? • Issues of interest (thu CB) v/s issues of rights (as per law) - what is provided for by law – ideally should not be part of CB – employers are expected to abide by law (MW, rates of OT pay) – CB is for getting more than the law • Negotiate compensation system & compensation package, Not just wages (some companies pay more wages, less benefits, or vice versa) – total costs of the compensation package matter & should be calculated. • Employment stability v/s wages question.

7. Elements of compensation • Pay for work – 8 hours of work • Pay for performance – productivity linked component • Pay for time not worked (paid leave, Sundays, etc) • Lay off compensation (for temporary situation) • Deferred income (Bonus, social security) • Income equivalent payments (allowances) • Health, accident and Liability Protection • Company performance bonus

8. Are profits a good basis for basing wage demands? • Focus on value added – what is it?

9. Capabilities needed For effective collective bargaining, Unions need capacity for • Understanding country’s economic situation, impact of ‘external events’ • Financial analysis of the company - understanding balance sheets, profit & loss statements • Management systems and philosophy (Ex. German v/s American, Japanese, Korean, Chinese, Indian employers) • Understanding productivity, work measurement techniques, changes in the company, in the economy • What else?

10. For effective CB, Unions need to Know • What kind of company it is? Labour intensive? Capital intensive? Supplying directly to market or is in supply chain? • Capacity to Pay of the company • Share of labour in the wealth (value added) produced in the company • Return on capital invested in the company (if it goes down too much, investors will withdraw & firm will close down) • Where do you get this information from?

11. Information needed for effective CB • Total sales/turn over • Capital employed/capital size • Employment size • Value Added= Income – Non Factor Expenditure. (Here non-factor expenditure means expenditure other than employee cost, depreciation and interest). • Material intensity/input intensity sales = -------------- value added

12. Information needed for effective CB • Capital intensity/capital output ratio: capital =-------------------- value added • Value added per man-day • Return to capital per man-day • Rate of profit: Share of Capital = ------------------------ Capital employed

13. Information needed for effective CB • Employee cost (Bargainable/unionized) per man day • Prize mark up i.e., value added per unit • Trend of output prices and input prices. • Capacity utilization of the plant and machinery • Market share of the firm

14. Information needed for effective CB • Debt/equity ratio, • Percentage of non-operational income, • Break even point of sales and output, • Balance Sheet & Profit & Loss Account of Last 3 Years of the Company. • Productivity Data for each workstation including all elements. • SURVEY MARKET PAY AND COMPENSATION PRACTICES

15. Balance Sheet Analysis

16. Negotiating Productivity • What is productivity? • Productivity v/s Work Intensity • Productivity does not only mean increasing working time or speed of work; it can also mean finding ways to produce more output within the same time or same output within lesser time thru - - Technological improvement/innovations - Methods & Systems improvement - Line balancing

17. Typical problems a factory/company Rigid (and sometimes outdated) work norms Restrictive and narrow job descriptions Too many non value adding activities Idle manpower on one hand & high incidents of overtime on other hand Maladjusted production schedule Shortages of critical items on one hand & growing inventory on the other hand Unbalanced work load and bottlenecks Break-downs Rejection and reworks Absenteeism and labor turn over Lack of accountability Discontent, low morale and responsibilities. Mismatch between authority and responsibilities

18. Negotiating Productivity- pre-requisites Work study & line balancing – joint union-mgt exercise & decision making – not just consultation Deciding on allocable time in a shift, taking into account rest period, lunch, time off for personal needs, fatigue, hazardous jobs, down time and material handling time Commitment of the top mgt to invest in changes needed for improving productivity Sharing in the gains from productivity – share in value added, company performance allowance (over & above the CB agreement)

19. Group Discussion Workers want 20% wage hike – the situation facing the company is:   • The input prices (Cost of raw material, electricity, water etc) has gone up by 10 % • Due to competition the company has to reduce the product price by 10% • At the same time the share holders are also expecting 5 % more returns from the existing 15 % • How to develop a strategy to respond this situation? • What are the areas that you can explore to find an answer?

20. Increase in input cost: • Reduction in wastage • Inventory management • Change in design of the product to save more material • Energy saving • Competition in price: selling at lower margin but at a mass level. For this we need to improve productivity. Productivity improvement involves various factors such as:   • process and systems improvement • updated technology • application of various improvement tools • Culture and attitudinal change, etc Once productivity and sales increases it will generate more Revenues – that can go towards K & L.

21. Concluding Remarks • FoA & CB are not just about workers rights but are also instruments of State policy to achieve objectives of social justice & for promoting sustainable economic growth • It should also not be seen as something to be limited to industry or company level but this principle (of promoting social dialogue) should be extended to national level over issues of policies –labour, social and economic – this will promote social harmony and social stability. • Importance of understanding financial numbers for countering management • Need to move from mere collective bargaining over wages to ‘participatory rights in industry as also the economy

22. Collective Bargaining policies & Practices in your country • Do you have a law or legal framework regulating collective bargaining? • On what factors do you base your wage demands? • Collective agreement is signed at what level - at company level? Industry-wide? Do federations of unions sign agreements? Or are the agreements signed only by company level unions? • What do unions include in the collective agreement? • What are the main difficulties in exercise of collective bargaining rights for unions?