Presentation at CII Karnataka HRD Forum at Bangalore,

Sept 15th 2011

G. Y. SUHAS Head HR, IR & Administration

E-mail: gys-bw@bw.ltindia.com

The Long Term Wage Settlement In era of globalisation & competition

A success story of L&T-Komatsu Limited,

Bangalore

What is long term settlement? In the industries employing substantial number of workers wage

negotiations are held with representatives of workers and wage settlements are arrived at governing their terms of employment like scales of pay, DA points formula for neutralisation, etc. The wage settlements can be bipartite or tripartite. The bipartite settlements are binding on Union & Management but not on non-members of Union. The tripartite settlements are promoted, guided & arrived at before the authorities of Labour Department like additional Labour Commissioner, Dy Labour Commissioner etc. He is called the conciliation officer.

Traditional method of Long Term Settlement

Before 1990, i,e before the globalisation & Liberalisation pattern of wage negotiations were different. Many of the industries had monopolistic business. Even state owned industries also had substantial monopoly in the business, like HMT, ITI etc... to mention a few.

The workers demands used to be high and they used to give threats of strikes and used to adopt cohersive tactics like gherao, work to rule etc... This used to compel industries to accept their exorbitant demands and consequentially there would be price rise for their products. The market was able to give the price rise as market was restrictive. The welfare amenities like housing, transport etc provided by the company were adding to cost of product but same was absorbed in the price rise.

Wage Settlements in the era of globalisation & liberalisation

After Mr. Manmohan Singh became the Finance Minister during Govt. headed by Mr. P.V. Narasimha Rao, the era of globalisation & liberalisation started with a number of sectors virtually being thrown open for Foreign Direct Investment. The monopolistic business houses which were functioning in their own empire were subject to challenges by competitors. For eg: Air India & Indian Airlines were the only agencies operating air traffic. But the competition got set in and several players like Kingfisher, Jet Airways, Lufthansa along with low cost carriers like Deccan Aviation, Spicejet entered the market.

Similarly, Telecom players like Tata Indicom, Reliance etc entered the Telecom market. The entry of Private players and Foreign players in market and policies of Government to slash import duties has resulted into the cut- throat competition amongst players. The players make competitive and lucrative offers with better quality products. This has resulted into change of scenario in the market. The market is no more protective and everyone has to compete with others to survive in market.

Survival of Fittest in the market

Many small players in the market either closed their business or merged with the bigger players for their survival both in the Public & Private sector. For eg. The popular beverages brands like Limca, Thumbs Up etc got amalgamated with Foreign Companies, like Coca Cola, Pepsi etc. Similarly, Air India and Indian Airlines also got amalgamated to strengthen their business. The Deccan Aviation got merged with Kingfisher for its survival in market. In this changing scenario, Labour Unions also have to play their roles to help their industries survive in market.

Long Term Settlement of L&T-Komatsu Limited The L&T is an Engineering Giant in India, which started its Bangalore Operations in

1975. It had substantial market share in the excavator industry. The other main players in excavator market are Telecon, JCB, Caterpillar, Hyundai, BEML, Volvo & Kobelco. The Bangalore Plant was established in 1975 and the Long Term Settlements with the Union started right from 1976. The Company entered into a Joint Venture with Komatsu & presently it is L&T-Komatsu Limited since 1998. The L&T-Komatsu Bangalore Operation has a history of Cordial Industrial Relations from 1975 till date i,e 2011 except for a brief spell of Labour Trouble in 1984, 1997 & 2001.

The Company had earlier workmen strength of 700 and Production was 350 excavators per annum. Today, the workers strength has decreased to 400 i,e by 43% and the production has increased by more than 10 times i,e Company is now producing more than 3500 machines per annum.

High and exhorbitant demands & expectations of workers

In 2006, when the Company had entered into Long Term Settlement it had given a substantial increase of Rs. 4000/- at minimum & Rs.5400/- at maximum. The Company also had the practise of negotiating ex-gratia/ bonus before Diwali. This increase was given as a healing touch as the workers had not got a good raise in the earlier settlements of 1995 & 2002. The raise was also given keeping in view the expanding market.

Though the market was growing, still with entry of new players like Hyundai, Kobelco etc.. competition in the market increased. The Direct material cost also increased because of yen appreciation. The Company was finding it difficult to carry out its production as it was not getting price rise in the market.

Unrealistic expectations & unrelenting Union / Workmen

The Union gave its charter of Demands on June 15th 2010 as the 2006 settlement was to expire on June 30th 2010. The Management also gave its ‘Management Requirements’. The Union demanded a raise of Rs. 18000/- at the minimum and Rs.26,000/- at max apart from other demands like increase in age of retirement from 58 yrs to 60 yrs and increase of holidays etc. The infrastructure market and the production of the Company was increasing. The workers / union were not ready to consider the difficulties of Management like increase in cost, declining margins, huge competition etc. Added to this problem President of the Union while delivering speech in Annual Day at factory raised the expectation of the workmen by saying that he is aiming to get a raise of Rs.10,000/- The workers & the Union were determined to get an average raise of Rs. 7000/- to 8000/-

Negotiation Modalities It was decided in the first meeting with Union that Departmental level issues

will be discussed at departmental level along with HOD, concerned committee members and HR head will moderate the discussions. The major matters / demands covering all employees will be discussed at Apex level. This new approach was adopted to save time and also to facilitate implementation once the settlement is arrived at. This saved time of Apex group as smaller issues were discussed at lower level itself. The discussions at apex level were confined to major issues. The variable allowances were discussed and finalised with the local office bearers and the small management team.

Constraints In normal course of negotiations when there is a stalemate or no progress the

Management or the workers approach Labour department for intervention. But in this case, neither the Management nor the workers wanted intervention by Labour Department.

The workers were not even ready to give increase in productivity to offset the effect of proposed wage revision. The HR & IR Head along with the production heads met the executive committee members of the various departments and explaind the difficult situation the Company was going through. With this the workers agreed to give raise in productivity but were not agreeing to reduce their demands.

Efforts during Negotiation

Management gave the comparative statement of wages being given in comparative industries in Bangalore to substantiate its stand that the raise cannot be more than what was given in the last settlement. When discussions were on the Kobelco an another major Japanese player in market started its Plant in Andhra Pradesh / The President of Union who is an external person used to come from Delhi and meeting used to be held once in a month or once in 45 days. The Union resorted to go slow from May 3rd 2011.

Written communications The management displayed various notices on various dates clearly

narrating factual positions and tried to convince workmen that management offers are reasonable. Neither the union nor the workmen men were able to dispute any of the information that was communicated to them notices/ letters to the union.

The management enjoyed absolute credibility in eyes of both the union and workmen. Everyone was convinced that management is fair and reasonable and will not yield to exorbitant demands.

Interactions with Workmen The management at length explained to office bearers of Union that how it

is not possible to consider their high demands of wage increase to an average of Rs.7000/- The Union was having difficulty to convince the workmen about the constraints of Management. Armed with the financial data and analysis given by Head of Finance, this time Head HR & IR along with, Production Heads again met the executive committee as also the other committee members like safety, sports & fine arts, PF and canteen committees etc... This was done with a view to make everyone understand about the difficult market scenario constraints of management and likely disaster if the settlement does’nt take place on reasonable terms. The union was taken into confidence before meetings with workmen in these committees.

Efforts finally paid The continuous efforts of Management to convince workmen through

dialogue and notices finally yielded results. The workmen also impressed upon the Union to have an early settlement and not to remain adamant. The President of Union was not showing eagerness to come as he was not hopeful that workers will accept the offers made by Management. Finally, again IR strategies were formed to bring Union to negotiating table on reasonable terms. The discussions started around 6.00 PM on 29th August 2011 and were concluded in early hours at 5.00 AM on 30th August 2011. The MOU was signed. Next day the Union convinced the EC members and went for opinion poll. The workmen accepted the proposed settlement with more than 2/3rd majority.

Settlement was Signed The long term conciliation settlement was signed before the Additional

Labour Commissioner on August 9, 2011. The workmen agreed to give productivity increase of 20% and 1% reduction

in the standard hours. The Settlement is for 4 years w.e.f. from 1/1/2011 (although the settlement was due from 1/7/2010).

The atmosphere in factory now is very cordial. The production is increasing to meet the market demands and workers are also getting good incentive. The settlement has ended into a win-win situation for both Management and Workers.

The lessons from this long term settlement1. The Union/Workers always expect a raise more than what they got in the previous

settlement. Management should have a meeting with the union even before the union prepares its charter of demands so that the union can make realistic demands.

2. The Union will not be willing to inform the workers about the difficulties of management. By doing so the Union may come under clouds in eyes of workers. Therefore in such situation the management itself should address the workers in various committees and explain the situation apart from exhibiting notices. The union should be taken into confidence before this exercise. The management representatives should enjoy credibility in the eyes of union / workers so that its communication is accepted with credibility.

The lessons cont…

3. Although Union will be finding a difficult to convince the workers the necessity for accepting lower offers the management should make all out efforts by educating workmen to accept the reasonable offers which are best in the given circumstances.

4. It is easy for Union to give the call for go slow or strike but they will find it difficult to withdraw it. All efforts should be made by both management and union to ensure that the things are not precipitated.

Win –Win Situation

INKING THE SETTLEMENT

Thank you