The Wave of Change
17 May 2016
The mood around the bargaining table of companies affected by the resources sector downturn is notably sombre and a far cry from the fist thumping demands of boom times. More than a swing of the pendulum, some would liken it to a tsunami that has uprooted negotiating parties from the comfortable surrounds of the board room through muddy and turbulent waters to the barren view from the waste dump. A place where the low hanging fruit is well gone, nothing left to trim from the top of the tree and those who survived the upheaval are expected to help replant for the future with their own seeds of fortune.
In our new look resources sector, pay reductions replace pay rises, cost reductions are more important than productivity, workforce planning around labour shortages disappears and innovators are now modelling the lowest cost options to support a reduced labour force. When up to 45% of operating costs can be attributed to labour in some mining operations, it is little wonder bargaining outcomes are getting leaner (1.8% for December ’15 quarter), and miners are forensically examining the affordability of pay structures put in place when the boom demanded.
Already in 2016 more than 2300 mining industry jobs have been lost and there is little faith in any headline that suggests an end to the industry woes or a return to the bullish market conditions. An occasional spike in commodity prices is not shifting the mood as industry leaders set their sights firmly on cost reductions to transition through this period and remain globally competitive. The employer of choice is no longer a feature of creative HR departments; it is made by the share price, commodity price and how low competitor wages will go to survive the savage cost cutting.
Your bargaining committee this year gathers, albeit a smaller committee who survived the 1st round cost cutting. The world has changed and you take some comfort in the fact that nobody will dispute such claim. Surely! So how do you start that conversation with your union or employee reps that you have in mind an upfront 10% pay cut? Last time you probably spoke to the same group in 2012 it was 10% over 2 or 3 years and extra benefits thrown in to attract the best people and remain competitive in the booming labour market. Do you start with an “ambit” claim – the business needs a labour cost reduction of 10% ASAP, but you know the rules of bargaining, you should start higher and expect the negotiation to lead you to a compromise? But 15% sounds incredibly harsh and having never asked for a pay cut before, sounds like you are expecting the workforce to bleed for you. If your employees know anything about how you negotiated in the past, they are likely to expect you to compromise, give more when the heat comes on. It’s what you do.
How solid is the mandate from your leaders – will 10% be enough? What if things get worse, we sign off on 10% and the goal posts change again? Change is rapid, trust is low, fear is high and the tension is palpable. It’s a very different bargaining process and not many have had the experience of navigating their way through such difficult times and emerge with the same workplace culture. Pitfalls are everywhere as you try to protect those who have been loyal and consider creating a new, second grade workforce who enter your workplace on lower conditions reflecting the market of today, not the hangover of boom time conditions.
Reductions are on the bargaining table for many in the resources sector whether it is through removing of allowances, shuffling of classifications, changes to rosters, reduced travel time, wage freezes, and being less committed to wage increase in what the Departments calls non-quantifiable wage movements. 42.6% of all EAs lodged in the December ’15 quarter had such “non-quantifiable” wage arrangements in place, with reasons including CPI linked wage increases, employee or company performance linked pay reviews, or simply using the wage movement of the Modern Award. Statistics from the Trends In Federal Enterprise Bargaining (ref: December Quarter 2015) fail to account for the multitude of EA’s varied during their term that cut significant labour costs – these variations are technically not “agreements lodged”, but variations to existing agreements. Such agreements have achieved significant labour cost reductions by reducing shift loadings, base rates of pay reduced by 10%, removal of travel benefits [AG2015/7871] reducing leave benefits (AG2016/613), meal and other allowances (AG2016/331). This little hidden gem (Varied agreements) makes for more interesting reading than published trends.
Approaching the challenge of reducing wages and conditions as part of your cost saving initiatives requires more planning than any other form of bargaining you may have tackled in the past. A wage increase makes most people happy most of the time. Achieving your goal of reducing labour cost is not likely to set your employee engagement survey on fire but with planning, a focus on strong communication and a higher level of disclosure than you may have been comfortable with in the past, it is possible to emerge with the reduction of cost you need and an accepting (rather than happy) workforce still appreciating the job they hold….until the earth rumbles again.
Christine Brown – Christine.firstname.lastname@example.org
Read her A&A bio here
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