Sharing in the Gains: strategies for collective bargaining A105067 ACTRAV/ITC-ILO Course Trade Union Training on Capacity Building for Promoting Decent Work Sharing in the Gains: strategies for collective bargaining

Structure of the Presentation The presentation is structured as follows: FoA and Right to CB: Pathway to Decent Work What is CBA? On what basis do unions negotiate wages? What should you negotiate for? Global Fin & Eco Crisis & Company’s response Elements of compensation Capabilities needed For effective CB, Unions need to Know Information needed for effective CB Negotiating Productivity How to improve productivity? Typical Problems in a Factory/Company Pre-requisites for Negotiating Productivity Working Time in a Day

FoA and Right to CB: Pathway to Decent Work A fundamental right and a development policy. The law can enforce compliance but not cooperation between parties. Principles of ILO C87 and C98: - Facilitate representative social dialogue - Help reach mutually agreeable solutions while respecting each others needs.

What is Collective Bargaining Agreement? CBA is like a ‘CONSTITUTION’ for a company. It is a document of rights and obligations of the parties to the Agreement. CBA serves as a means of joint regulation of workplace issues, including union right to information and negotiate ‘management policy.’ So there is need for Union Vision that encompasses the concerns of Workers and the Company as well as a Strategy and Actions to achieve that vision.

On What Basis do Unions Negotiate Wages? Wages are set taking into account: - Productivity - Profitability - Company budgets - Inflation rate - Economic growth and prospects - Comparison with wages in similar companies - Rates of unemployment and employment - Labour supply and demand

What should you Negotiate for? Issues of interest or issues of rights guaranteed by law? - What is provided for by law ideally should not be part of CB – employers are expected to abide by law. - CB is about getting more than what the law has guaranteed. Negotiate compensation system and compensation package, not just wages (some companies pay more wages, less benefits, or vice versa) – total costs of the compensation package matter and should be calculated. Employment stability versus wages question!

Global Financial and Economic Crisis and Company’s Response Case Company Management, taking advantage of the Global Financial and Economic Crisis, demanded the Union to accept wage cut of 20% or reduce workforce by 20%. Below is the cost structure as per the Company balance sheet: - Material cost 78% - Administrative cost 4% - Energy cost 10% - Labour cost 8% Reduction by 20% head count or wages meant only 1.6% savings (i.e. 20% of 8%). But targeting saving in material and 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.

Elements of Compensation Wages and Salaries in cash and in kind Allowances Employers’ Social Security contribution Pay for performance – productivity linked component Pay for time not work (paid leave, weekends, Sundays, etc.) Layoff compensation (severance pay and for temporary situation) Bonuses Health, accident and liability protection Company performance bonus

Capabilities needed For effective collective bargaining, unions need capacity for: Understanding country’s economic situation, impact of external factors and events. Financial analysis of the company – understanding balance sheets, profit and loss statements Management systems/styles and philosophy. Understanding productivity, work measurement techniques, changes in the company, in the economy. What else?

For Effective CB, Unions Need to Know The Nature of the Company: - Labour intensive - Capital intensive - Subsidiary in the supply chain - Supplying directly to market The Company’s capacity to pay Labour’s share 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 and firm will close down). Where can you obtain this information from?

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 ratio: = Sales -------------------- Value Added

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

Information Needed for Effective CB Employee cost (bargainable/unionized)per man-day Prize mark up i.e. value added per unit Trends of output prices and input prices Capacity utilization of the plant and machinery Market share of the firm

Information Needed for Effective CB Debt/equity ration Percentage of non-operational income Break even point of sales and output Balance Sheet and Profit & Loss Account of last 3 years of the Company Productivity Data for each workstation including all elements. Survey market pay and compensation practices.

Negotiating Productivity What is productivity? Productivity is the ratio of outputs to inputs. It refers to the volume of output produced from a given volume of inputs or resources. Productivity is a measure of the efficiency of production. Productivity can be: Labour productivity Total output in a given time period -------------------------------------------------- = Output per worker Quantity of labour employed Capital productivity --------------------------------------------------- = Output per capital input employed Quantity of Value of Capital

How to Improve Productivity? Productivity can be improved by: Raising the skill level of the workers through training Using more technologically advanced equipment in the production process. Improving the motivation level of the employees. By managing the available resources in a more efficient way (e.g. methods & Systems improvement, line balancing). Productivity growth is important to the firm because it means that the firm can meet its obligations to customers, suppliers, workers, shareholders, and governments (taxes and regulation), and still remain competitive or even improve its competitiveness in the market place.

Typical Problems in a Factory/Company Rigid and oftentimes outdated work norms Restrictive and narrow job descriptions Too many non-value addition activities Idle manpower on one hand and high incidents of overtime on the other hand Maladjusted production schedule Shortages of critical items on one hand and growing inventory on the other hand Unbalanced workload and bottlenecks Breakdowns Rejection and reworks Absenteeism and labour turn over Lack of accountability Discontent, low morale and responsibilities Mismatch between authority and responsibility

Pre-requisites for Negotiating Productivity Work study and line balancing – joint union-management exercise and 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 management to invest in changes needed for improving productivity. Sharing in the gains from productivity – share in value added, company performance allowance (over and above the CBA).

Working Time in a Day General Norm: Out of 480 minutes (8 hours), at best 420 minutes of working time should be there – 60 minutes are set aside for rest, lunch break (half hour) and 2 breaks of 15 minutes each for tea/coffee, etc. Out of 420 minutes available for work, following deductions from working time need to be considered: - personal needs all - fatigue allowance – differs for different job stations - hazard allowance – for certain hazardous jobs Down time (disturbance in production cycle due to material unavailability, machine break down, etc. – record should be kept of this by the workers).

The End! Any Questions?