Labor Management under the Increasing Daily Wage

& Experiences in Dealing with

Labor Union

chamnan@blcigroup.com

Labor Management under the Increasing Daily Wage

250 B. 2 years

300 B. Now 15,000 B.

350 B. Tax Exempt.

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Obvious Impact

Chance to lose SOM. Risk for labor dispute. Impact on cost and the business bottom line.

Income Tax

Net Profit

Cost

Gross Profit

Overhead Expenses

Earning Before Tax

-7% Impact

4

Impact on Pay Scale Old New Education Min Min • Vocational High School 5,680 • Technical College 8,500 (9,000) (Monthly Paid) • Bachelor Degree - Accounting & Others 11-13,000 (15,000)

- Science 15,000 - IT 18,000 - Engineer 18,000

• Supervisor 20,000

Anticipated Problems

Pay gap issues (New hires VS Longer service). Across-the-board VS declining rate adj. Higher demands and expectations. Tougher union-mgt. contract negotiation. Manning reduction—Legal issues and court

cases. Motive for new union establishment

(131 Unions in Rayong & 68 in ESIE).

Question

Under this situation, what should we do?

Answer Continue to do a good job in total HRM—Skilled

and Motivated Workforce. Focus on “do more with less” through Cost

Offset Plan.

Evaluate other ideas on cost saving to see if they are appropriate, i.e. Monthly Paid to Daily Paid, etc.

INTEGRATED HR STRATEGY MAINTAINING

TOTAL COMMUNICATION

•LABOR/UNION RELATIONS

GENERATING

•SOURCING & SELECTION

•TNG. & DEVELOPMENT

REENFORCING

•PERFORMANCE Mgt.

•TOTAL COMPENSATION

CORE VALUES

Source: Modified from U. of Michigan, East Asia Business Program

HRM FOCUS

(Under the Increasing Daily Wage)

HR Function Focus

-Employment

-Training & Dev. -Performance Mgt.

-Compensation -Communication

-Labor Relations

-Manning Control -Training Surplus Employees

-Tighter Performance Standards -Compensation Cost Control & Incentive Schemes

-Communicating Threats

-Productivity & Cost Offset Plan with union involvement

Industrial Relations Strategy

• Do it right the first time

• Cultivate Culture

• Focus on HRM

• Cultivating Engagement

• Productivity

• Industrial Peace

• Productivity

• Engagement • Industrial

Peace • Prepare for

high competition

• Productivity

• Cost Control • Restructuring

• Flexibility • Morale on

track

Start up

Growth

Maturity Decline

Note: Developed from Business Life Cycle, Don Hofstrand Chamnan

Cost Offset Plan “Do more

with less”

10

Our Job

To maintain the same labor cost per unit without labor problem and legal implication.

Achieve a Win-Win solution through

employee and union involvement.

11

Shopping List

Increase Employee Efficiency or Reduce Man-minute - Tighter performance standards Eliminate Existing Excess Manning Rightsizing / Restructuring - Job combination - Crew size reduction - Supervisory Ratio / Layers, etc.

Shopping List (con’t)

Tighter control on other HR expenses such as overtime, etc.

Review each fringe benefit item such as health plan, etc. to see the possibility for savings.

“Cost of Total Benefit Package in Auto Industry is 80-100% of Basic Salary”

Cost of Cash, Benefits & Welfares

- Bonus (4 months) 32% - Welfare required by law 17% - Housing Allowance 10% - Medical & Health Insurance 4% - Provident Fund 5% - Shift Allowance 3% - Transportation 8-10% - Meal Allowance 4% Total : 80-100 % or 300+300 = 600 Baht!! 14

Manning Reduction

Goal: 5% reduction Strategy – Reduce w/o actual layoff - Hiring Freeze - Attrition - Training and Retaining Filling vacancies from within Voluntary Separation Program (VSP)

Why VSP First? (Legal Restriction)

Termination of employment while still making money is considered as unfair.

Potential financial problem is a matter of future and cannot be used as justification.

(Ref. Supreme Court Ruling No. 7042/2546)

Key Factors for Layoff

Must fully justified (Negative P&L). Prior attempts to avoid layoff such as

cost reduction, attrition, VSP, etc. Objective selection criterion. Transparent retention list.

(Ref. Supreme Court Ruling No. 6068-6069/2545)

Measures Prior to Layoff 1 Hiring Freeze

2 O/T Restriction 3 Training and Retraining

4 Attrition

5 Reduction of Working Days 6 Salary Freeze

7 Pay & Benefit Reduction 8 Voluntary Separation

9 Lay-off Chamnan B.

No-No Reduction

Training and education budget. Employee development budget. Employee activities or something dealing

with spirit and team work. Safety and Health—Never Compromise. Recognition for job well-done.

“Spend Money to Make Money”

Other Cost Saving Ideas (Subject to legal review and other considerations) Review type of employment contract

(Monthly to Daily -Why 30 day pay?). Review cash items that may be

included into 300 baht such as food allowance, etc.

New terms for new hires.

TO ATTRACT & RETAIN

Outsourced Labor: Potential Cost Increase

(B)

Outsourced Out

sourced

(A) (Present)

Mix Levels Sec.11/1 Applied

Diff. Levels 11/1 Not Applied

Direct Hire 11/1 Not Applied

Fixed Term

OR

Conclusion

Labor management during the increasing daily wage requires patience , under- standing, and constructive attitude.

Keep employees informed. Involve union in the change process and

work with them. Be prepared for the tougher contract

negotiation in Q4.

Collective Bargaining Calendar

4

1

4

1 1 1 1

6

1112

0

2

4

6

8

10

12

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Source: ESIE IR Club

Union Demands VS Mgt. Positions (2011 & 2012)

Union Management

- Same or higher bonus - Higher salary

increase - Across-the-board

adj.(Min Wage) - Adj. of benefit - Short term CBA

-Less bonus -Less or same salary increase -Adjustment at Mgt. discretion -Benefit freeze -Long term CBA

“DO YOUR HOME WORK”

Length of Collective Bargaining Agreement

Why not every 2 or 3 year interval? Source: ESIE IR Club

Negotiation Process

Demands

Negotiation

Settlement

Preparation for next negotiation

CBA Administration

Total Game Plan

Chamnan B.

• Positive IR Climate • Pre-Negotiation • Strategy & Tactics • Anticipated Demands • Counter Demands • Mgt. Positions & Budget • Strike Plan • Draft of CBA, etc.

How To Maintain A Nonunion Status

Be proactive and positive. Do not wait until employee demands. Make adjustment when deemed

necessary. Provide same compensation as

unionized enterprises (Your cost is still lower because no wasting time and productivity loss due to labor disputes).

28

Labor Unions in ESIE

27%

73%

(68 Unionized*)

(181 Non-Unionized)

* As of Sep 2011

ESIE – 211

H-ESIE - 38

249

Experiences in Dealing with Labor Union

“No new or magic formula.

Relax, Respect & Be friendly”

Key Critical Success Factors

Clear direction & objectives. Understanding union’s roles and their

behaviors--why do they act as they do? Positive approach to union relations. Understanding and recognizing Thai

culture.

D1-DECLINE (Ignore them and fight with them) D2-DEFER (Control their population growth

(< 20%, <50% and < two-third)) D3-DECLARE (Try to work with them) D4-DEVELOP (Develop a matured and

responsible union)

Chamnan B.

Four (4) Strategic Choices Once Union is on Board

Neutrality

To provide “Business Service” to its members.

- Better compensation & conditions of

employment.

- Prevent members from unfair treatment.

- Greater job security.

Serve as “Auditor” or “Policeman”

To defend, protect & seek for better deals.

Union’s Roles (ปกปอง คุมครอง แสวงหา)

Question & audit everything you do.

Submit a long list of unseasonable demands.

Always make noise & fight with you.

Disagree when they should have already agreed.

Take “Nothing to lose but a chance to win” attitude.

“Yes” today but “No” next morning (Everyday is a new ball game).

“Union is a Political Organization”

Why Do Union Act As They Do?

Type I Easy-to-get-along type (Reasonable or More Cooperative).

Type II Hard-to-get-along type (Authority

Hater, Rebellious, Hard-Core, etc.)

“Must learn to work with them & apply good HR/IR Practices”

Types Of Union

Behave as Family

Fairness & Justice Shared Mindset

Competitive Wages

Job Security Mutual Trust

Union Involvement

Safety & Health

Chamnan B. 1991

Good HR/IR Policies & Practices

Positive Approaches to Union Relations

Accept them as the “Spokesman” & recognize them as “MP”.

Educate and develop them (You know-They know) Involve them & Avoid “Big Surprise” Provide career opportunity (Leadership, etc.) Assist their organization, i.e. union office, etc. Some personal associations but should not “hobnob” Play “Archarn” or “Teacher” Role, not a tough lawyer

& Consultant Role during the negotiation, not a “Hard-Nosed” employer.

Get tough (Is firm) when you need to be tough. Chamnan B.

Failure to Recognize Local Way (“I will negotiate my way” Story)

His Way Local Way

- “Facts & Figures”. - “Feelings”. - Formal negotiation. - Informal negotiation.

- Not communicating with employees enough.

- Mgt. to communicate or allow union to explain.

- Use time pressure strategy. - Must make noise first. - Good faith & No strike. - Use OT ban & Slowdown.

Prolonged Dispute & Higher Settlement Cost.

Better CBA Deal & Loss Some OT Earnings.

Key Indicators for Effective Dealings with Your Union

Mutual respect & longer term CBA. No production disruption. Minimum number of court cases. High employee engagement level. Labor cost is in line. Good image & Just-in-Time Delivery.

Thank You