Article (December-2017)

Articles

Negotiating wage settlements

Dr. R. Krishna Murthy

Designation : -   Director

Organization : -  Industrial Relations Institute of India & Head Consultant, S.R. Mohan Das & Associates, Mumbai

01-Dec-2017

Wage settlements are defining moments in an organisation's history, particularly for the workmen and the unions. For the Unions it is an occasion to show their leadership skills and extract their worth or their pound of flesh for the work they do in the organisation. It is also an occasion to try and address some of the major concerns and aspirations of the workmen and the only way in which they can improve their quality of life is through the income they secure from the organisation. In the Indian environment, unions go into hibernation once a wage settlement is signed for the tenure of the agreement. They again spring to life when the settlement is to be signed.
For the organisations, it is on occasion for trepidation, for taking stock and for planning how to strategise and chart a path through a period of reckoning. Additional costs will be incurred for the organisation. Some conflict may also come through and the business opportunity and growth potential will determine the future affordability. However, the workmen will already be aware of the company's financial position during the tenure of the settlement. They will also be well aware of the increases that have been given to the managerial and supervisory cadre of the company. They will also be well informed of the wage settlements that have been taking place in the region and industry and would have done their homework on what demands the company must give and what are the benefits they would like to have revised, substantially. Given the substantial hikes being given in the region and the Industry, these settlements become the talking point and how to better the wage increases gets impetus from such settlements.
Though wages settlements have been taking place and there has been always interest evinced from HR professionals as well as employees and trade unions on the amount of wage increase at the time of settlements, some changes have taken place that needs to be taken note of.
For the company, the occasion heralds a major opportunity for bringing about significant changes in the working habits (not work culture as a culture refers to positive capabilities and competencies), improving productivity, reducing waste/costs, enhancing efficiencies and if this opportunity is lost, the legal provisions in the Indian environment, particularly Section 9A of the Industrial Disputes Act, which mandates a Notice of Change is both time consuming and costly, if the Unions become litigation minded. In the manufacturing, quite a lot of changes have taken place technologically. Robotics, Artificial Intelligence, 3-D Printing, Nano - technology, Internet of Things have given the fourth revolution in transforming the workplace a heady advantage. Manning norms are now a miniscule of what they were earlier and the machines now know what export quality production is and what is likely to get rejected and alerts the worker well before he has commenced his work.  Not only do these changes mean substantial benefits for the organisation, but the gains of the share also percolate to the workers. The changes do warrant investment in technology, but companies look at it as a onetime cost and far greater efficiency and shorter pay - back periods.
These changes are now more radical than what was earlier spoken of and achieved through techniques like the Maynard's Operational Sequence Technique (MOST). Many unions have embraced these techniques and many companies in the Pune and Nashik Industrial belt have settlements agreeing to MOST.
The other development that is noteworthy to take cognisance of is the spectacular settlements taking place. When companies like Buckhardt gives workers a Rs. 27,000 p.m. hike or a company like Sulzer gives Rs. 25,000 p.m. per worker increase, it not only raises the bar, it becomes difficult to strive for a reasonable and meaningful settlement. In the Pune Industrial Belt, the settlements signed in Thermax and Bajaj Auto Ltd are as defining for the managements like the Maruti violence and settlement became a defining feature in the employer dynamics as much as Sulzer and Maruti have become inspirations for Unions. The Settlement in Bosch, where workers had to agree to international norms for working on machines and the management deducting 8 days wages for their illegal strike is also something unions now have to hear when they negotiate wage settlements.
Line managers have also become more active in the wage settlement process, which was not there earlier. Negotiations used to involve somebody from finance, the plant head and the HR head. Now negotiations are preceded by meetings with the line managers and supervisors to work out their own wish list and check lists that are a must in the wage settlement process. Such an involvement also ensures that what is contracted for and agreed to by the unions also get implemented.
Companies which focused on Kaizan, ISO2000 and ISO14000 compliance, are Total Quality Management, Small Group Activity, Operators Environmental Guidelines to make manufacturing also green. Environmentally friendly production was also a key requirement to make products acceptable internationally. Further, employment of Child Labour particularly in the carpet making and other industries traditionally employing child labour had to be made transparent and compliant with global standards, if the products were to be made acceptable in the International Markets. The compliance with fair labour standards also led to the conditions of labour, particularly in the sweatshops of China, and countries in the Far East less acceptable.
Many companies also embraced new concepts and tools to improve business. Enterprise Resource Planning and Business Process Reengineering have fine - tuned manufacturing processes along with outsourcing of non-core activities. In many of the manufacturing enterprises, sea changes have taken place to bring about radical transformation in the routine manufacturing activities. Two major industries that have been a witness to such a transformation and transition have been a major source of inspiration for many of the Indian companies. Mahindra & Mahindra and Crompton are two Indian companies that have settlements that have radically altered the outputs and ensuring that the wage hikes have led to improved competitive ability by reducing the per unit cost with substantial improvements in labour productivity.
Managements are also seeking enhanced tenure of settlements and seeking four year of five year settlements with the sop of a higher wage increase so that the three year negotiations get stretched. The Government Public Sector undertakings have five year settlements as the norm and in the government, even 10 year settlements have been there.
Unlike countries abroad, where wage negotiations take place annually and on an industry wide basis, here the bargaining is company based. The settlements are for tenures that average about three years. However, there is a major difference here in that some companies have provisions for generous Dearness Allowance payments linked to the Consumer Price Index. This gives workmen benefits that are quite substantial and are an outgo and additional cost for the employer, who finds that he cannot recover it from the market place because of the competition. Thus at the time of negotiating the Charter, apart from what was given at the time of settlement, the additional outgo by way of dearness allowance is also required to be considered. Traditionally, workmen and unions have not been willing to look at this issue. But in the changed environment, we see that the trade unions and workmen have also become sensitive to this concern of the employer. The wage settlements thus also address the concern of the Indian employer on Dearness Allowance.
In the present environment, if any adverse or radical changes are required to be made, the company cannot expect the union leaders to canvass for the changes directly with the constituency unless the benefits offered by the company justify such an initiative. Thus, if the organisation is not doing well, it is the management that must take the initiative to convey this to the constituency and this must commence well before the agreement expires. Keeping quiet during the entire tenure of the settlement and talking about it only before the settlement leads to a lot of suspicion in the minds of the constituency. Many of the workers state that the usual sob story is repeated ad nauseum every time at the time of negotiating the charter of demands. The company is not doing well; it is making losses, etc. Why not close down if it is doing so badly, is the refrain of the workers. This is also quite legitimate and this has something to do with the credibility of the communication of the management.

Submission of the management charter of demands: In the changed environment, companies find that the practice of giving a management charter of demands whenever the unions submits its own charter is not just a cosmetic exercise, but a real means of bringing about substantive changes in the working environment. Today, issues of the management focus on introduction of massive upgradation of technology and processes to make the business truly competitive. If changes in manufacturing are to take place that bring about a radically different way of doing business, then the outlook to wage negotiations has also to be completely different. Just as major investments are looked as capital investments, the concept of wage as an investment also has to be considered. If major changes are to be brought about, then like a capital costs, increase in wages has to be considered as an investment too to bring about major changes in process and performance requirements in the business.Such an investment can bring about major manufacturing changes in operations and process oriented operations, quality, reduction in cycle times, waiting times, improvement in productivity, efficiency, outputs and also reduction in waste or rejection. Once these changes are ratified and introduced, substantial benefits for the company flow and the increased labour costs are recovered through the changes that have been introduced. Thus where major changes in processes or product manufacturing techniques are involved or where there is intensive capital and technology invested companies are not averse to considering an increase in wage costs to bring about improvements in productivity and efficiency of operations. In such circumstances, the increased wage costs.

Issues that get generally addressed in the management demands pertain to flexibility and increased efficiency in operations and also attempt to reduce costs, wastage, and rejections. An overview of some of the major trends is outlined here:
Power play and playing hardball: The economic slump has compelled companies to take a hardline and also push back the leadership of the union for a more reasonable settlement. Generally, the starting point for negotiations in all union meetings is the settlement figure arrived at the last settlement and how much more the management can give over and above that figure. This is also an achievement motivation issue here as members of the new committee want to show that they were superior to the earlier committee. If companies cannot agree to this, then there is a major agitation. In Bengaluru, the wage settlements in Toyota Motors, MICO and Bosch show that companies are tightening and fighting back to make the workers realize that previous settlements have no much bearing in determining the increase. The business prospects and performance will determine the increase. In Toyota, workers went on strike and the strike was declared illegal and prohibited by the Government and the annual increase being negotiated has also been given a quite burial and the company has now reportedly signed a two year agreement, which is a major departure from the earlier practice. The annual negotiations proved to be a continuing headache for the company and every year there were agitations. MICO and Bosch have also settled their disputes after strikes were unsuccessful in getting the management to revise the offer. In MICO, the company also resorted to a penal wage cut of 8 days for the workers going on illegal strike inspite of the government prohibiting the strike. The management did not give in to the union demand to revoke the cut and is a good lesson for workers and leaders continuing the strike even after it are prohibited by the Government.
We are increasingly seeing management's taking a hard line as the economic slump has affected the company's profitability and businesses are not doing well. In such circumstances, companies are better placed to deal with the worker intransigency and take tough action. The bargaining power of the management has increased and the bargaining power of the unions and workers has decreased.
Reduction in the starting of the wage scales and introduction of new grades for new comers: As the starting salaries of the workmen have increased very substantially, the company seeks to reduce the starting of the scale to lower the wages for the new entrants and the company may negotiate with the workers for a new grade for new entrants. This reduces the wage costs and the new entrants are taken at a much lower salary. There is no need to give the new entrants a very high salary on start and the gap between the minimum wages generally applicable to the contract or unskilled workers and the starting of the company is bridged in this fashion. After a few years, these new entrants join the minimum of the grade of the permanent workmen and are a way of deferring the increased costs.
Doing away with restrictive classifications: The curse of classifications and restrictive practices that bedevil the work organization is sought to be transformed by the multiskilling and flexibility of manpower. No more specified jobs for individuals, they have to do everything and anything available. This is something very difficult for employees unless they have also been training and habituated to doing it. But this is the new game changer.
Reduction in costs of operations by improving efficiency, cutting down on waste and rejections: One major way of financing the increased wage costs from the settlements is using the existing slack and inefficiencies that exist in the form of waste, rejections and inefficient use of resources. Concepts of Quality Management, Just in Time, and Zero Defects address the problem of inefficient manufacturing at the place where it emerges. Giving workmen a responsibility and also control over the resources so that it can be used intelligently is a way of responding to the change management process. Organisations are run on team effectiveness and cost - cutting, innovation for reducing cost of operations and reducing waste cannot be the responsibility of either the Finance head, the quality head or production head.
Canteen and transport prices: Two of the Input costs have become an issue in the bargaining process. Many of the factories located away from the city had to provide the twin infrastructure requirements of transport and canteen to its employees. Some of them did not have the number required to warrant the facility of canteen under the Factories Act, yet the companies provided canteen to enable the individuals to get breakfast, lunch and dinner. It was also accepted that Indian managements were benevolent and looking after the food and belly of the worker and his family was also considered a part of welfare. In some of the companies, workmen were permitted to take home company food. All this has changed. Now companies are being very conscious of the costs of the canteen and there are no free lunches. Companies, which were providing unlimited vegetarian and non - vegetarian food, have cut down on their budgets. Some of the companies mentioned have switched over to mainly vegetarian fare. The prices have also been increased and the subsidies have also been fixed.
The same trend also is shown in transport. There is now an attempt being made to give the employees convenience of commuting in their own vehicles, with liberal cash and tax - free allowances. Employees also prefer to make their own travel arrangements and not depend on the company to provide transport. Maintaining a costly fleet and running it has given way to outsourcing and transport departments are being dismantled across different companies and workmen and unions have accepted these changes as part and parcel of the changed economic environment. In cities like Mumbai, Road Transport, particularly in areas such as Taloja, Thane, Kalyan, is still very much a reality, notwithstanding the role of local trains in ferrying passengers to work and to the home.
The Modi Government is contemplating major changes to the law on Industrial Relations. From lifting the restrictions on companies on lay-off, retrenchment and closure to 300, there is also talk of fixed term employment and further liberalization of the contract labour engagement in the factories. These will surely create more problems for the unions and employers are eagerly awaiting the "Acche Din" that this government promised. The winter session of Parliament will now see whether the actions match the intent or it was merely a poll slogan.