“Wage Settlements that have redefined Paradigms for Productivity and Performance”
Dr. R. Krishna Murthy
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.
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.
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.
Paradigm Shifts:
Thomas Kuhn, who had first used this phrase “paradigm shift” in his book, The Structure of Scientific Revolutionsdefines a paradigm as what members of a scientific community, and they alone, share”. A paradigm shift was a change in the basic assumptions, within the ruling theory of science. This was in contrast to his idea of normal science. In the field of wage settlements, two major paradigm shifts have taken place that practitioners in HR would well take note of.
The first is an understanding of the role of the workers in productivity and performance. Traditionally and typically, it has always been the subject of great management interest and dialogue. How to get the workmen to improve their performance and productivity? The entire focus and emphasis was on the worker and the Unions in how much they will agree to increase their productivity. It all boiled down to ensuring that the company obtained full 8 hours of work from the workers or 480 minutes or some reduced time to provide for some fatigue and other allowances. The scientific management school of thought starting with Fredrick Taylor and now going down to Maynard’s Operational Sequence Technique (MOST) have made tremendous progress and achievement in transforming the productivity and performance in factories. Indian companies, where traditionally, labour costs were low, compared to what is prevalent in the western countries, and had two problems. Low labour costs led to having more employees than the required number. This was done because there was no sensitivity to the costs at one point of time when the license control raj operated. Monopolies thus had ingrained low productivities. The second dimension, related to this was having more employees than needed, to cushion for absenteeism, which during the festive season could touch almost 40%. More numbers also resulted in another problem. As there were more people than the work requirements, work ethic became a casualty. People hardly worked for 8 hours and even in the time they worked, they were not intensively utilised. There existed a tremendous scope for transforming the performance and productivity landscape in organisations, if the past had to be transformed. We have the twin problem of improving the productivity levels as well as period for which workers are intensively engaged in their work. In the present highly competitive environment organisations cannot afford any slackness in operations and most organisations are reaching their peak levels of performance possible through worker engagement.
While workers and unions are the targets for improving the productivity and performance in the organisation, the transformation and improvement that can take place through improvement in worker productivity and performance is only limited. What is not often understood is that managerial and supervisory productivity and performance are far more important and superior to worker performance and productivity. In many organisations, the real problems of productivity are managerial. Poor Planning, scheduling, absence of critical raw material, breakdowns, lack of finance, changing priorities, the urgent taking precedence over the important and crisis often do more havoc with the work organisation even where workmen are available and programmed to give what they had promised to give. The organisation is unable to realise this because of managerial failures. In one of the organisations that had signed a productivity linked agreement, workmen were often idle on the machines because of failure of the management to provide work and load to enable the workers to achieve the efficiency contemplated in the agreement. Labour and the Unions are in fact convenient whipping boys and in reality, where the workmen and union have cooperated and removed all bottlenecks to production, the real managerial capabilities came into sharp focus. In one multinational organisation, the boost in productivity and performance led to a glut of the products stocked in the godowns. The management belatedly realised that there was no market demand for the products and thereafter, workers were forced to idle and were paid full wages. The inability to incentives, even though full wages were paid created a lot of problems for the workmen, for whom the incentive had become an income. For the company it was a variable production cost. The management felt quite self righteously that even though the workmen were not required to work, they were paying the full wages. The workmen on the other hand did not want charity and said they were prepared to work and give even higher productivity, provided they were paid also their incentives to which they had got used to!! So, it is often convenient to portray the workers and the unions as problematic, when the problem really lies elsewhere.
There is also a mental block in respect of performance management in the Indian context. Performance is never given. It is always taken. The evoking capability and understanding has to be that of the management. However, few supervisors in organisations have a good understanding of the work organisation and can understand how much output a machine or a person working on a machine can give. If a statement is made that a trainee gives more output than a workman, it is not indictment of the worker as an incompetent performer. It is an open admission of supervisory and management failure. It is rather unfortunate when outside experts and industrial engineers are enlisted to determine how much production can be obtained in a shift on a particular machine. It is not necessarily a rocket science. One supervisor narrated how he judged the performance of the workmen. He stated that what a workman gave as output when he was put overtime or when he worked in the night shift, where the motivation was to finish the shift output and then relax, formed the basis of how much output a worker could achieve. It is entirely possible for the operations team to have a good fix on how much improvements can be made, what are the restrictive practices and problems that needed fixing.
The second paradigm shift that is now coming pertaining to performance and productivity at the shop floor is the role of the workers in improving performance and productivity. Many unions and workmen are now not unwilling to look at these issues dispassionately and also getting to a situation of telling workers that if you want to have a good lifestyle and incomes, you have to work for your eight hours in the factory. The negative and complete opposition to demands for improving productivity and performance has been replaced by a more insightful and cooperative behaviour leading to collaboration between the management and the union.Paradigm shifts in performance and productivity are also possible not just through the efforts of labour but mainly through practical and innovative ideas to improve the existing performance, removing bottlenecks and simplifying operations, automation and through systems approach. More importantly, the products, process, technology are domains of management in which neither workmen nor unions have a major say. However, introducing these onto the shop floor would require their cooperation and collaboration to help operationalise and realise the benefits of the new technology, systems or processes. This can be a game changer in the economic of operations, viability and performance. Organisations therefore look at wage settlements as an opportunity to usher in radical changes in performance and productivity and are prepared to pay some additional amounts. When we look at the type of modernisation and investments being made in plant and machinery which is to the tune of several hundred crores, the increases being given to the labour is in that context marginal. However, if the benefits of the new technology are harnessed, for the organisation, it heralds a new and bright future. Notwithstanding the wage increases which may be very generous, the labour costs could also actually come down.
Spectacular Wages Settlements:Maruti Suzuki in Manesar started a very dangerous trend that has seriously affected the manufacturing industry. They gave an increase of Rs. 18,000 p.m. to the workmen that are unprecedented in the Indian environment, particularly in the northern belt. That has queered the pitch for many of the manufacturing companies all over India and we are seeking a trend in Pune Industrial Belt, mirroring similar spectacular increases. Buckhardt in Pune gave Rs. 27,500/= p.m. jump in wages of workmen, Sulzer India Ltd. gave an increase of Rs. 25,000 p.m. to workmen who were in employment for more than 10 years, but increases in the Pune Belt are now seldom below Rs. 10,000/= p.m. per worker.
In the Pune Industrial belt, the wage settlements that some of the unions like those in Thermax, Sandvik Asia, Atlas Copco, SKF Bearings, Virgo Engineers, Sulzer Pumps, etc. have achieved are also heralding a new trend. These settlements are giving unprecedented increases in wages to the workmen. For the trade unions working in these organisations, they are singularly defining moments. However, there are a few implications that they would well realise. Companies like Volkswagon, Mercedes, General Motors, Tata Motors have all given wage increases around the Rs. 10,000 p.m. mark.
Are these spectacular five figure wage hikes, instead of the prevalent four figure wage increases merely reflecting the erosion of the value of the rupee and the result of the double digit inflation that has been seen in the food commodities for a few years now? In the long run, they certainly raise a few questions. Can the Unions, which secure this type of increase, afford not to press for similar increases in subsequent settlements? Would such spectacular settlements become a millstone around the necks of the trade unions and thus put them under serious threat when they negotiate the next settlements. The same question also begs the management. If such spectacular increases have taken place in productivity, perhaps the climate of performance and productivity that was prevailing in the oganisation was abysmal. Such spectacular increases in productivity cannot occur in every settlement. More importantly, the organisations, in a highly competitive market need to improve their performance and productivity in real time and those changes have to take place also during the tenure of the settlement. In how many organisations do these changes take place on a regular basis? For the management’s the settlements must enable them to bring about the changes in technology, process and productivity during the tenure of the settlement and not just at the time of wage settlements.
Leaders have often failed to live up to the expectations that have been raised because of the settlements. We have seen many instances where productivity linked settlements that have been defined as game-changers have created problems for the leaders or the workers. In Kirloskar Cummins at Pune, after the productivity linked settlement was signed and the benefits accepted by the workmen, the committee that signed the agreement was booted out. The new committee refused to honour the commitments of the old committee and the workers also agitated against the performance norms and standards prescribed under the settlement and wanted the increase in wages without preconditions of performance and productivity. It led to a major conflict and the company had to go through a lot of turmoil to implement the settlement. We have seen repetition of this in many companies like Mahindra, Atlas Copco, Godrej, etc where leaders who have signed settlements that have been hailed as milestones have been shown the door. In some of the companies like Godrej, the settlements have also created turbulence in the union management relationships with court cases and new unions challenging the existing and established leadership. It puts the company, where a major settlement has been signed into turmoil and after shelling out a huge amount, the company is put through the throes of conflict and confrontation. This is surely not what is expected when settlements are signed.
When organisations are in a position to give substantive wage hikes, it becomes their responsibility to also ensure that their part of the bargain in terms of improved productivity and performance. If they have not acted on it, the Union can hardly be blamed. Management must realise that the Union is a partisan interest group organisation and its primary role is to secure more and more benefits for the workmen. Its job cannot be to enforce performance of discipline, which is a management responsibility. How to achieve it is also to be decided by the management. The Unions can at best be kept in the loop. But where unions speak the management language of work ethic, more production, being disciplined at the workplace, it is given the short shrift and overnight leaderships in unions have been changed. Workmen feel that the leaders no longer represent their cause when the leaders speak the management language of more production and better discipline.
Wage settlements over the years have addressed many of the concerns of the management other than production and productivity.
Companies have chosen to reorient the way in which business is being done. While the initial opening of the International Market led to a plethora of initiatives to become quality compliant and we saw each company claiming ISO2000 and ISO14000 compliance, it soon led to a wave of initiatives in companies introducing and embracing Kaizan, 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. One of the leading manufacturing companies, Mahindra & Mahindra, in Mumbai has been a good case study for all manufacturing organisations. Located in a city with very heavy input costs that further get aggravated with Octroi and local duties, this company was confronted with the basic realities for survival. Its labour costs had become very high with periodic wage hikes and poor productivity. The company, which engaged in the manufacture of tractors as well as automobiles, is a success story. While its manufacturing plant at Nashik has written a new chapter with the success of Scorpio, the vehicle which has become the fastest selling premium vehicle in its category, the Kandivili plant has also become very efficient with a radical transformation of its manufacturing operations and acceptance of radical restructuring of operations. Workers have become more productive and more efficient, accepted multi skilling, flexibility in operations and also eliminating restrictive practices. This has led to the company’s farm sector products, primarily tractors, becoming highly competitive.