Business Capstone 301 Labour Negotiations Capstone Business Fundamentals Dr Peter Hosie Unit Coordinator Business Capstone 301 School of Marketing Curtin Business School Curtin University Email: BC301@curtin.edu.au CRICOS Provider Code 00301J Business Capstone 301 CRICOS Provider Code 00301J Business Capstone 301 Do the Machines Rule? The twentieth century was the age of the machine; the twenty-first century will be the age of people (and information?) Rosabeth Moss Kanter Professor Business Administration Harvard Business School CRICOS Provider Code 00301J Business Capstone 301 People Problems in Business • • Most challenges in organisations derive from organisms with hair on top who talk back Employees may be businesses greatest asset but they are also usually a major cost Human Resource issues impact on Capstone® decisions and outcomes CRICOS Provider Code 00301J Business Capstone 301 Human Resources in Capstone • Human Resources  Staffing Complement decisions  Recruitment Spending  Training Hours provided CRICOS Provider Code 00301J Business Capstone 301 Human Resources Covered in Capstone Labor Negotiations • • • • CRICOS Provider Code 00301J Hourly Wage Benefits Profit Sharing Percent Annual Raise Business Capstone 301 Management Sets the Parameters for Negotiations • When the current contract expires the company sets up bargaining position for:  Starting Position  Negotiation Ceiling CRICOS Provider Code 00301J Business Capstone 301 Management Sets the Parameters for Negotiations • Starting Position  For Wages the Company Starting Position between 80%-150% of current contract  For Benefits, Profit Sharing and Annual Raise Company set 0-150% of current contract  If the Company’s Starting Position and Ceiling is within the Union’s ambit claim, then the company negotiates an agreement for a wage half-way between the Company’s starting point and the Union’s ambit claim CRICOS Provider Code 00301J Business Capstone 301 Strikes are Expensive • • • Maximum Strike Time = 84 days Both sides then agree on arbitration All strikes occur in period leading to 31 December Workers strike for approximately days for every:  $1 of difference in wage  $300.00 in difference in benefit package  % point difference in profit sharing  % point difference in annual raise CRICOS Provider Code 00301J Business Capstone 301 Human Resources and Labor Negotiations • • • Labor negotiations is organisation's approach to making decisions about employees Can result in successfully achieving short and long term goals or ceasing to exist Organisations need to develop Human Resources practices to maximise performance and productivity Need to make decisions about the terms of engaging employees CRICOS Provider Code 00301J Business Capstone 301 Union Ambit Claim • • Union will set an ambit claim calculated at 10% above average of the companies’ contract at present If ambit claim is lower than offered by company, latter’s figure becomes the union’s claim for company and base demand for all other companies CRICOS Provider Code 00301J Business Capstone 301 7.3 Overview of Labor Negotiations • Labor negotiations are entered on the Human Resources spreadsheet Negotiations can be viewed as exception events–sudden changes in operating environment • Labor opens contract offers with all companies Picks most favorable terms, and uses them as a standard for negotiation with every company This creates an opportunity for a low labor-cost company (due to automation and other investments) to impose higher labor costs upon other firms • Labor and management negotiate over four separate categories:  Hourly Wage  Benefits  Profit Sharing Percent  Annual Raise CRICOS Provider Code 00301J Business Capstone 301 7.3 Overview of Labor Negotiations When a Contract Expires • If the current contract expires during the year, your company establishes a bargaining position bounded by a Starting Position and Negotiation Ceiling • The Starting Position (first) wage offer cannot be less than 80% or more than 150% of your current contract The Starting Position for Benefits, Profit Sharing, and Annual Raise can be between 0% and 150% of your current contract • The spreadsheet automatically enters a Negotiation Ceiling that is 10% above each Starting Position • Each company will have its own Starting Position and Negotiation Ceiling for the four categories Example below shows Hourly Wages Starting Positions and Negotiation Ceilings for three companies CRICOS Provider Code 00301J Business Capstone 301 7.3 Overview of Labor Negotiations When a Contract Expires Example, Labor Negotiation Ranges 1) Company has a Starting Position of $16.00 and a Ceiling of $17.60 2) Company has a Starting Position of $23.00 and a Ceiling of $25.30 3) Company has a Starting Position of $24.00 and a Ceiling of $26.40 CRICOS Provider Code 00301J Business Capstone 301 7.3 Overview of Labour Negotiations When a Contract Expires • Labor will ask for 10% across wage and benefit increase Example • If any of the Starting Position offers is higher than 10% increase, labor will adjust its demand upward to match it • Company 3’s Starting Position for wages is $24.00, therefore labor now demands $24.00 from all companies Labor accepts Company 3’s offer of $24.00 per hour CRICOS Provider Code 00301J Business Capstone 301 7.3 Overview of Labor Negotiations Contract Agreement • If labor’s demand is within the company’s Starting Position and Negotiation Ceiling, negotiations lead to an agreement • Company 2’s negotiators have instructions to issue a Starting Position of $23.00 and a Negotiation Ceiling is $25.30 • Company Agreement: Company 2’s Starting Position ($23.00) and Negotiation Ceiling ($25.30) bracket Labor’s demand of $24.00 • Negotiators settle at a wage of $23.50, halfway between $23.00 and $24.00 – there is no strike CRICOS Provider Code 00301J Business Capstone 301 7.3 Overview of Labour Negotiations Strike • Company 1’s Negotiation Ceiling is $17.60 • If the top of the Negotiation Ceiling is below labor’s demand, labor strike • At the end of strike two sides will settle halfway between the company’s Negotiation Ceiling and labor’s demand, or at $20.80 • Strike lengths depend on the spread between positions Example: Company Strike Settlement: Company 1’s Negotiation Ceiling of $17.60 is less than Labor’s demand of $24.00 Eventually, the workers strike, a settlement is reached for wage of $20.80 CRICOS Provider Code 00301J Business Capstone 301 7.3 Overview of Labour Negotiations Strike • Maximum length of a strike = 84 days Both sides accept arbitration Workers will strike approximately days for every:  $1.00 difference in wages  $300.00 difference in benefit package  Percentage point difference in Profit Sharing  Percentage point difference in Annual Raise • Strikes always occur at the end of the year • If a strike is 46 days long, workers will picket from the middle of November to end of December • If have inventory on hand during strikes, sales continue R&D projects can continue CRICOS Provider Code 00301J Business Capstone 301 Types of Strikes (Dessler, G 2011 (11 th Ed) Human Resource Management 12e Prentice Hall, New Jersey, USA Prentice Hall ISBN-10: 013608995X | ISBN-13: 9780136089957) Economic Strike Unfair Labor Practice Strike Types of Strikes Wildcat Strike Sympathy Strike CRICOS Provider Code 00301J Business Capstone 301 7.3 Overview of Labour Negotiations 7.3.1 Tactics • Need to determine which negotiation tactics best serves companies purpose:  Companies with low automation want control labor costs  Could offer the lowest acceptable wage, 80% of current contract and eliminate all benefits  Companies with high automation might choose to be extremely generous with their workers, which will impose higher costs on their competitors (remember, labor looks at all offers and makes the highest offer part of their demand) • If a low wage/benefit tactic is employed, labor turnover rate (and therefore recruiting costs) will increase • Also, if the Human Resource Module is activated, gains to the Productivity Index might be lost • Human Resources area automatically calculates Negotiation Ceilings 10% above the Starting Positions CRICOS Provider Code 00301J Business Capstone 301 7.3 Overview of Labour Negotiations 7.3.1 Tactics Table 7.1: Example of a Negotiation Position and Resulting Strike Time (Note: Annual Raise is 0% to 0%, this is because 110% of is 0) Starting Negotiation Ceiling Demand Contract Position Approximate Strike Days Hourly Wage $18.00 $19.80 $22.00 $20.90 15 Benefits $2,500 $2,750 $2,750 $2,625 Profit Sharing 1.5% 1.7% 2.2% 1.95% Annual Raise 0.0% 0.0% 7.2% 3.6% 50 Total Days of Strike CRICOS Provider Code 00301J 69 Business Capstone 301 Differentiation Strategies Competitive advantage • Organisation able create value in production process Either by reducing costs or by differentiating a product or service to allow an organisation to charge a premium price Different strategies require different types of employees with different types of behaviours and attitudes Cost Strategies • Organisations tend to specifically define the skills they require and invest in training employees in these skill areas because of focus on efficiency • Rely on behavioural performance management systems with a large performance based remuneration component Organisations promote internally and develop internally consistent pay systems with high pay differentials between superiors and subordinates • CRICOS Provider Code 00301J Seek efficiency through worker participation and soliciting employees’ ideas on how to achieve more efficiency Business Capstone 301 Conclusion • Approach organisation takes in making decisions will result in either successfully achieving its short and long term goals or ceasing to exist • Organisations need to develop sets of Human Resources practices that maximise performance and productivity • Value and the uniqueness of human capital, or people can be considered extent the capabilities of people specific to organisation • Managing talent becomes particularly important when talent has capabilities that are unique and valuable CRICOS Provider Code 00301J Business Capstone 301 References and Acknowledgement © Capsim Management Simulations, Inc 2012 All Rights Reserved 55 E Monroe, Suite 3210, Chicago, IL 60603 USA and Canada 877-477-8787 Others 1-312-477-7200 Capstone®, Capstone® Simulation, Capstone® Business Simulation, Foundation®, Foundation® Simulation, Foundation® Business Simulation, Capsim®, Comp-XM®, Management Simulations, Inc.® and MSI® are among the many trademarks of Capsim Management Simulations, Inc.® CRICOS Provider Code 00301J Business Capstone 301 Acknowledgements and Sources Mr Adolph De Sousa, Curtin University Fellow Boxall, P., and J, Purcell, 2011 Strategy and Human Resource Management, (3rd), Palgrave Macmillan, New York ISBN 978-1-403992-10-9 Budhwar, P., and Aryees, S 2008 An Introduction to Strategic Human Resource Management, Strategic Human Resource Management, CIPD Dessler, G 2011 (11 th Ed) Human Resource Management 12e Prentice Hall, New Jersey, USA Prentice Hall ISBN-10: 013608995X | ISBN-13: 9780136089957 _Capstone Team Member Guide 2012 Capsim Management Simulation Inc® Kanter, R.M, Stein, B.A, and Jick, T.D, (1992) Challenges of Organisational change: How Companies experience it and leaders guide it, New York: Free Press Hamel, G., and Prahalad, C.K 1993 Strategy as stretch and leverage Harvard Business Review, 71(2):75-84 Porter's Five Forces Driving Industry Competition Wikipedia, the free encyclopedia http://en.wikipedia.org/wiki/Porter_five_forces_analysis (accessed August 2012) Porter, M.E 1996 What Is strategy? Harvard Business Review 74(6): 61-78 Porter, M.E 2008 The five competitive forces that shape strategy Harvard Business Review 86(1): 78-93 Wright, P., and G Machan 1992 Theoretical perspectives for strategic human resource management Journal of Management,18: 295-320 CRICOS Provider Code 00301J