PROBLEMS OF WAGE ARREARS

ROLE OF UNIONS IN RESOLUTION OF THESE PROBLEMS

Introduction

SITUATION WITH WAGE ARREARS IN THE SAMARA OBLAST(statistical data)

The Samara Oblast is one of the few oblasts - donors and is considered an advanced region in relation to reforming the economy. The following industries are located in the Samara Oblast: machine-building (mainly enterprises of the former military industrial complex), oil and gas production and procession, automobile industries. The largest cities are Samara and Tolyatti.

The number of residents is 3,304.4 thousand people. The number of economically active population is 1.6 million people. Approximately 70% of them are employed in the area of material production. The level of unemployment increased since early 1997 from 3.1% to 4%. 30,700 people were sent on forced vacations on the initiative of administrations in 1997; 1,200 people of them were sent on forced vacations without payment of wages. The average monthly nominal wage (calculated) of employees of large and medium enterprises is 1,034 thousand rubles.

In March 1997, the Samara Oblast Tripartite Agreement on regulation of social and labor relations was signed (between the Oblast Administration, Federation of Unions and Union of Employers) for one year. The Union of Employers unites only several representatives of largest enterprises. The work of the Tripartite Commission on 77 points of mutual obligations, part of which were related to timely payment of wages, was acknowledged satisfactory.

However, the timeliness of wage payments is one of the most difficult problems. Lately, the tendency towards decreasing the arrears formed: in the first half of 1996 the maximum amount of wage arrears was 842.5 billion rubles; in the first half of 1997 it was not higher than 507.4 billion rubles. The overall amount of overdue wage arrears as of September 1, 1997, was 446 billion rubles. Approximately one half of them is related to the industry, approximately 19% - to agriculture, 15% - to construction, 7% - to transportation and 7% - to budgets of all levels.

1

The number of enterprises which have the largest amount of overdue wage arrears: 42 industrial enterprises (2 of them - due to the lack of the federal budget financing); 207 agricultural enterprises (3 budget enterprises); 22 transport enterprises (5 of them - due to the lack of local budget financing); 28 construction enterprises (5 of them - due to the lack of budget financing); 32 health care organizations (all are financed from the local budget); 11 education organizations (8 are financed from the federal budget, 2 - from the local budget); 10 culture and art organizations (all are financed from the local budget); 15 science and scientific servicing organizations (8 are financed from the federal budget).

Approximately 2,000 suites were lodged by unions of the Samara Oblast for 9 months of 1997 (10 of which were collective suits). 104 billion rubles were received through courts.

Analysis of the Situation at Enterprises

SHAR Joint-Stock Company

1. Enterprise Characteristic

The Ball Bearing Plant SHAR (former GPZ-4) has been one of the largest enterprises of Samara for a long time. The history of the plant started from October 1941 when a ball bearing plant was evacuated from Moscow to Samara (former Kuibyshev).

In 1991, the plant produced approximately 200 million ball bearings annually, i.e. 20% of all ball bearings produced in the former Soviet Union and 80% of all ball bearings produced for military purposes. Therefore, the plant was practically a part of the military industrial complex. The range of products produced at the plant made it the largest plant in Russia and CIS: the plant produced 40% of the range of ball bearings in the former Soviet Union.

Its production was exported to 40 countries of the world.

The number of employees of the plant in early nineties was approximately 30,000 people.

In the end of 1992, the plant was privatized in accordance with the second variant of privatization and was renamed “Samarskaya Podshipnikovaya Korporatsia SHAR” (Samara Ball Bearing Corporation SHAR).

2

Since 1992 the plant has been experiencing serious problems like the majority of large Russian machine-building enterprises. First of all, this was connected with the sharp decrease in military orders for high-accurate ball bearings. Destruction of links with old clients and suppliers of raw materials (many of them were at the territory of Ukraine and the system of bank settlements with Ukraine became very complicated), introduction of the pre-payment system and increase in prices for energy carriers negatively affected the plant.

In 1992-1993, the plant repeatedly was at the verge of stoppage. A limited work week was introduced in July - September 1992 (4 days 6 hours each); some divisions worked 18 hours per week for a month (3 days 6 hours each). Forced vacations of employees became a widely-spread practice.

According to the Deputy General Director for Production, actually “the plant was thrown back to the 1965 level in relation to final products production volumes and to the level of fifties in relation to the range of products”.

The plant repeatedly conducted redundancies; however, the major part of employees left the plant voluntarily due to low wages and first of all due to long wage arrears. At present (as of September 1997), the overall number of employees of the Corporation including subsidiaries is approximately 7,500 people.

Therefore, the SHAR Joint-Stock Company shared the fate of many Russian machine-building plants: high-rocketing crisis practically without any periods of temporary or relative stabilization. Each new change at the level of the macro-economy of Russia immediately most negatively affected the situation at the enterprise.

Problems of the SHAR Joint-Stock Company were aggravated due to relations within the management team. In the beginning of 1995, a new Director was appointed; at the same time, in May 1995, the Director of another Samara similar profile plant - the major shareholder of the SHAR Joint-Stock Company (former GPZ-9, nowadays it is called “Samarsky Podshipnikovsky Zavod” Joint-Stock Company (Samara Ball Bearing Plant)) - was appointed the Chairman of the Board of Directors of the SHAR Joint-Stock Company. For some time he did not interfere directly in the production management, but by the end of 1995 there was issued the order “On Re-Distribution of Management Authorities” and he actually became the Director of both enterprises. The SHAR management team found itself in a latent opposition. The situation itself did not facilitate stabilization of the economic situation at the enterprise; the arbitration court repeatedly

3

considered the issue of declaring the SHAR Joint-Stock Company bankrupt.

This was the background for restructuring of the enterprise. Four subsidiary enterprises (general purpose ball bearing plant, special ball bearing plant, device ball bearing plant - former affiliate, and ball bearing repairs plant) were divested March 1996 from the Corporation. Later, in May 1997, the fifth division - the Social Center, which included remaining social assets of the plant: housing, hostels, a tourist center and a children summer camp - was created.

These subsidiaries are not formally included in the Corporation because the reason for their creation was to transfer huge debts of SHAR to the Corporation so that enterprises did not have any debts at the moment of divestiture. The Corporation is the founder of these enterprises, and in accordance with the Charter it has the right to appoint Directors and Deputy Directors at all plants. The managers of the Corporation intend to transform it in the future into a holding company due to the fact that the Corporation possesses the required number of shares.

Therefore, at present there is no united SHAR and the economic situation at four enterprises formed on its basis differs significantly. No general statistics are maintained in relation to them, and this prevents from tracking the changes in the personnel of the Corporation. We considered it advisable to focus mainly on surveying the largest subsidiary enterprise - the General Purpose Ball Bearing Plant (GPBBP). This is connected with the fact that this enterprise, which was in the past the main division of SHAR, had most significant wage arrears; the most principal aspect is that only employees of this plant participated in protest activities provoked by these arrears.

Actually, GPBBP did not function for one and a half year from the beginning of restructuring (from December 1, 1995, to March 18, 1997). In April, the number of employees of GPBBP was 2,500 people; 300 employees were recruited during half a year. The average age of employees is 46 years. At present, GPBBP shows graduate and slow increase in production volumes. The average wage as of September 1997 is 460,000 rubles (workers’ wage is 600,000 rubles) which is significantly lower than the average wage in the town and sector.

Two unions exist at GPBBP: the “official” Avtoselkhozmash Union and the alternative independent workers’ union Solidarnost. Formally, Solidarnost was established in May 1992; however, its core was created during the strike of workers of the ball workshop in December 1991. This is a purely workers’ union; administration starting from the

4

level of foreman are considered “representatives of owner’s interests”.

2. Situation with Wages

Wage arrears at SHAR started simultaneously with the general economic crisis of the enterprise. Gradually, wage arrears became longer and longer and reached 8 - 9 months in 1995 - 1996. For example, wages for October 1995 were paid in July 1996 not in the full amount.

As was pointed out earlier, from December 1995 to March - April 1997 the largest division of SHAR - the General Purpose Ball Bearings Plant - was not functioning; its employees partially went on forced vacations and partially were made redundant (the overall number of employees made redundant from GPBBP in 1996 was 2,500 people; according to the Chairman of the GPBBP Union Committee, approximately 7,000 people were made redundant from the entire SHAR).

From the mid-March the plant resumed its work and employees returned from forced vacations. From this moment to the moment of the survey (September 1997) there were no significant wage arrears at GPBBP (and in all other divisions of SHAR). Therefore, the situation at SHAR and GPBBP is interesting not just as an example of considerable wage arrears and accompanying labor conflicts, but also as an example of relative stabilization of wage payments. Correspondingly, the reason for arrears, resources which enabled to overcome them as well as the position of both unions at each of these stages will be surveyed.

The interviewed employees and specialists gave approximately similar reasons for arrears - they are typical for a large heavy industry enterprise. In 1992, a sharp decrease in production occurred in the machine-building sector; correspondingly, the demand for ball bearings and sales volumes decreased. Military orders practically phased out. The enterprise administration did not take any active measures to overcome the crisis and implemented the “balancing conservatism” policy (as it is defined in scientific literature). Working capital including necessary wage payments was replenished mainly at the expense of credits received from commercial banks under high interest rates. The enterprise failed to pay taxes - in the result, taxes and payments for power supply in 1994-1995 were transferred from the enterprise account under collection orders, i.e. without signature of the account owner. According to the Chairman of the Board of Directors, “sales returns practically did not cover tax payments and

5

payments for power supply and prevented from payment of wages and procurement of material resources for renewal of production”.

Therefore, the first reason for wage arrears at SHAR was reduced production sales and large debts to the State, social funds and especially to commercial banks (according to the President of the Joint-Stock Company, “we received 18 billion rubles, returned 25 billion rubles and still owe 40 billion rubles”). Apparently, this reason is typical for similar enterprises.

The second reason which is also characteristic for large machine-building enterprises was the passive personnel policy which led to employment of large numbers of employees despite the disastrous reduction of production volumes. In April 1993, the number of employees at SHAR was still 25,937 people. Naturally, there were no funds sufficient for payment of wages to such a large number of personnel.

The third reason may be the size of the enterprise which incurred high non-production costs of maintaining in the normal conditions of its territory, paying for power, water and heat supply for its numerous workshops even if they practically ceased operation. Operation and maintenance of huge social sphere (kindergartens, housing, etc.) were a heavy burden for the enterprise budget.

Finally, the fourth reason in our opinion may be the passive management policy and serious internal problems within the management team. According to the Head of the Planning and Economic Department of SHAR, “while we were fighting for power, we gave no attention to the plant. It did not operate for a year and a half; moreover, even the package of orders was not formed for this year”. During 1996, the GPBBP management was shuffled several times; the question was even raised about the owner due to the fact the Director of the Samara Ball Bearing Plant intended during some period of time to buy out the plant for the shares which belonged to him. “We did not know who will be the owner,” - explained the Chairman of the Avtoselkhozmash Union Committee.

Therefore, the crisis of non-payments was the direct consequence of the general deterioration of external conditions of enterprise operation and mistakes of the management which failed to overcome the problems.

Nevertheless, from late March 1997 a certain stabilization of the situation with wage payments occurred. This became possible in the result of restructuring of the SHAR Corporation which enabled the

6

subsidiaries to avoid debts blocking the settlement account; simultaneously, the restructuring was followed by selling the considerable part of the Corporation property. Two first wages at GPBBP were paid for property sales returns. The personnel number was considerably reduced (though the major part of personnel left voluntarily the enterprise which did not pay wages). Only self-sustainable social assets (the tourist center, summer children camp and stadium) were left under the enterprise; housing which was in the process of the transfer to the municipality was financed only partially. The considerable number of workshops was frozen, their power and water supply was stopped.

Finally, a certain balance was reached within the management team: the Director of the Samara Ball Bearing Plant was not re-elected the Chairman of the Board of Directors and stopped intruding in the management of the joint-stock company. A new GPBBP Director was appointed; he focused on creation of the sale structure.

Regular payments were guaranteed by the fact that wages at GPBBP were frozen at a very low level and costs were minimized. Half of 8 billion monthly incomes GPBBP receives in kind (in the result of barter transactions) with which it pays for 70% of power supply and 70% of raw materials. The management opened a shop at the plant where it is possible to buy barter products at the expense of personal accounts of employees; according to the plan of the administration, this should enable to substitute some part of wages with barter products.

Nevertheless, according to the administration and representatives of both unions, new arrears may occur due to the fact that the plant just commenced to restore its financial balance and depends on any delays in payments. Often, insufficient funds are received for simultaneous payment of wages to all employees; in this case, wages are paid first of all to employees of main production (assembly) workshops, then to employees of auxiliary workshops and only after this - to employees of departments and services. But nevertheless, delays in payment of wages to all categories of employees do not exceed one month.

According to the common opinion of interviewed, the main factor which will influence the regularity of payments is the tuned production sale structure. In this sense, the problem of wage arrears is more an economic problem which cannot be completely resolved at the level of union strategies. At the same time, activities of unions and employees may directly influence the policy implemented by the management and through this - on the economic situation at the enterprise.

7

3. Labor Conflicts

Wage arrears at SHAR were accompanied by a series of labor conflicts which periodically became known in the town. The specificities of this enterprise are in the fact that in 1991-1992 the first division of the Independent Workers’ Union Solidarnost was created at this plant; then its units were established at many enterprises of the town. Practically all protest activities of SHAR employees were either organized by Solidarnost or Solidarnost participated in them. The Independent Union has never had the majority at the enterprise (at present, the number of its members at GPBBP is approximately 700 people) but it is extremely active and implements fighting tactics. At the same time, Solidarnost is characterized by the intention to act strictly within the frames of legislation.

There are no differences in understanding the reasons for arrears between Avtoselkhozmash and Solidarnost; at the same time, their approaches to behavior patterns under these circumstances radically differ.

In essence, the position of the Chairman of the Plant Avtoselkhozmash Committee coincides with the position of the administration. The reasons for wage arrears are completely linked to the macro-economic crisis and elimination of arrears is interpreted as a personal merit of the Director. Only the former management is criticized. All rising contradictions are resolved via personal negotiations between the Chairman of the Plant Committee and the management. Of course, such a position has certain grounds: the current administration actually did a lot to overcome the financial collapse which the plant faced in 1993-1996. According to the opinion of the Chairman of the Plant Committee, any pressing on the administration under such circumstances may lead to deterioration of the situation at the enterprise in general. The main aim of the Avtoselkhozmash strategy is to revive the plant and maintain the number of jobs; any strikes or other protest activities in his opinion lead to cutting jobs. Therefore, this union plays the role of a buffer. For example, in May 1996, when wage arrears were maximum, the Avtoselkhozmash Union Committee assisted employees in drawing up personal suits in relation to wage arrears. The suits were satisfied in courts, but a large strike took place June 26, 1996; after the strike wages were paid independent of these suits.

Legal relations between Avtoselkhozmash and the administration are stipulated in the collective bargaining agreement which envisages payment of wages two times per month. They failed to introduce the provision for indexation of wage arrears in the collective bargaining

8

agreement. The collective bargaining agreement for 1997 was concluded only in September and it was not concluded in 1996 due to the fact that the plant did not actually operate. Before the stoppage of the plant the bargaining agreement was signed by leaders of both unions; however, this year Solidarnost has not yet signed the collective bargaining agreement and did not participate in its development.

Therefore, Avtoselkhozmash activities can be best of all described by the words of the Chairman of the Plant Union Committee: “We do not put spokes in wheels”.

The position of Solidarnost in relation to wage arrears was much more active. Activities of Solidarnost developed in two directions: organization of strikes and application to courts. Solidarnost commenced to organize strikes caused by wage arrears since 1993; the form of strikes was improved all the time. At first, leaders of Solidarnost attempted to conduct strikes in accordance with the Law on Labor Conflicts, but it envisages very long negotiations (it took 1-1.5 months from the date of submission of the strike notification to the strike itself). During this period wages were sometimes paid (in 1993, wage arrears were 2-3 weeks). Naturally, this approach tuned to be insufficiently effective.

The second type of strikes was used at the ball workshop where the leader of Solidarnost works and Solidarnost has a confident majority of supporters. According to the Labor Code of Russia, the penalized absence from workplace starts from 3 hours. In order to avoid violation of the law but insist on fulfillment of their demands regarding timely payment of wages, members of Solidarnost stopped work each day for 2 hours 59 minutes. According to the leader of Solidarnost, this type of strike is advisable only in those divisions which are completely loaded with work - in the opposite case, it will have no impact on the administration.

Then, after analyzing labor legislation once again activists of Solidarnost came to a conclusion that if one of the parties did not meet the conditions of the labor agreement (undoubtedly, non-payment of wages may be viewed as such a violation), employees had the right to go on strike without drawing it up in accordance with the procedures envisaged by legislation. In this case, the strike may be interpreted not as a collective protest activity (in this case it will violate the law), but as a complex of individual activities (the Solidarnost leader refers to the court proceedings commenced upon the suit of the administration regarding the illegal strike which was

9

won by one of the Lipetsk labor collectives as a precedent). In this case, it is not necessary to draw up the strike legally.

Of course, not all stoppages and suspensions of operation in workshops of SHAR were organized by Solidarnost - many of them commenced spontaneously. They mainly were not long and took not more than 1-1.5. days.

In 1995-1996, the situation with wage arrears was the most difficult, strikes at SHAR became mass, three of them were transformed in meetings (organized by Solidarnost) outside the territory of the plant near the administration building. One of such meetings, which took place June 26, 1996, was accompanied by blocking the Moscow Highway - one of the main transportation roads of Samara. This activity received a wide publicity in the town and after it the Chairman of the Board of Directors of SHAR together with the Solidarnost leader visited the city administration. Under the guarantees of the local administration SHAR received a loan and wages were paid. Of note, blocking of the highway was not planned - it was spontaneous (a group of workers did not manage to cross the highway under the green light of the traffic lights, did not stop under the red light and in the result a traffic jam and conflict with drivers occurred - then workers decided to block the highway).

The second direction of Solidarnost activities aimed at fighting wage arrears was court proceedings. 11 collective suits were lodged since 1994 - all of them were satisfied (though not always in the full amount). The total sum won under Solidarnost suits was 2,777 million rubles and only 1,700 million rubles of them are paid as of the moment. They had to change the motivation of suits several times. The first suit was lodged in the end of 1994 and won in early 1995 (after several appeals lodged by the administration to superior courts); five SHAR workers were plaintiffs including the Solidarnost leader - this was a «pilot» court proceeding for them. The provision for compensation of moral damage was satisfied - 1 million rubles were adjudged to each of the plaintiffs. Then Solidarnost commenced to draw up mass collective suits including several hundreds of people in each. They succeeded to receive the moral damage compensation one more time (plaintiffs received compensation first in the amount 500,000 rubles, then in the amount of 300,000 rubles). Then, a new Civil Code of Russia was adopted in 1995 which prevented from interpreting property damage as moral damage and courts stopped to satisfy suits under this article. Solidarnost suits were re-addressed to Article 395-1 of the Civil Code which prohibited to use someone else’s property or funds and envisaged compensation for such use in the amount of the monthly discount rate of the Central Bank of Russia.

10

This article was successfully used by Solidarnost until 1997; however, February 1997 an explanation of the Supreme Court of Russian was issued which eliminated the possibility to use this article in relation to wage arrears. It became possible to compensate only inflation in accordance with the Labor Code of Russia, but due to the fact that in 1997 the inflation was low it was not advisable to use this article. Fighting for wage itself in contrast to various compensation became more important. Last Solidarnost suits were application to the court simply in relation to the fact of non-payment of wages; according to current legislation, if documents are submitted, a court order may be issued to pay it (in this case the sum is taken from the enterprise account upon the writ of execution). A special court proceeding is not needed to issue such a court order - it is necessary simply to draw up an appropriate order in the court. Due to the fact that Solidarnost suits were collective, the union leaders had to prepare texts of court orders and even to calculate the State duty themselves in order not to overload the court personnel.

According to the opinion of the Solidarnost leader, collective suits are better than individual because they do not require an individual to participate in unknown bureaucratic procedures - the union not just helps an employee to draw up a suit, but fulfills all necessary operations instead of him.

It would be even easier to transfer wages under writs of execution with the help of the Labor Conflict Committee, but after reorganization of the enterprise the Committee has not been created.

In order to avoid redundancy of participants of strikes and court proceedings, Solidarnost included the most active of them in the list of active members of the Union (active members of the union cannot be released on the initiative of the administration). Solidarnost also objects to redundancy of the union ranks, but there has practically never been such a problem due to the fact that under conditions of long wage arrears many employees left the enterprise voluntarily or did not object to redundancy.

At present, Solidarnost does not conduct any protest activities because GPBBP pays wages regularly.

4. Evaluation of the Situation by Different Categories of Plant Employees

Therefore, four categories of participants of conflicts connected with wage arrears at SHAR may be identified: plant administration, Avtoselkhozmash Union, Solidarnost Union and employees. We

11

interviewed those employees who are not Solidarnost members and are not active members of Avtoselkhozmash (because Avtoselkhozmash members are the majority at the enterprise). Positions of all parties are almost similar regarding the explanation of reasons for non-payments which are caused by the general economic crisis in Russia which especially affected large machine-building enterprises. The majority of interviewed also agree that the enterprise itself is not ready for the market situation: it is too cumbersome, overloaded with numerous non-production costs and excessive number of personnel. The majority of SHARE employees mentioned also mistakes of the former management which «fought for power» and «drove the last Volvo model» instead of dealing directly with plant issues (this focus is more stressed in the interview with the Avtoselkhozmash leader and plant employees and less - with the administration representatives - but this opinion was always mentioned). Huge debts and poor sales were mentioned as the principal economic problems of the plant. Participants of the conflict gave different opinions regarding other aspects of the crisis (we will consider them in detail). These differences are included in the table below:

12

Aspects of the

Situation

Participants of the Conflict

with Wage

Arrears

Administration Avtoselkhozmash Union

Solidarnost Union Employees

1. Position of the Administra-tion

Regular payment of wages is one of the primary priorities. «The enterprise must not have debts to its employees».

The former administration promised a lot but did not do anything. The new administration does practically everything which is necessary, though the union should exercise some control.

If the enterprise has huge debts, the administration objectively is not interested in spending money on timely payment of wages because banks impose penalties for delays in debt payment and there are no penalties for delays in payment of wages.

The change for the better is connected with changes in the enterprise management. «After the new administration came, they commenced to pay wages in time».

2. Legislation

There should be envisaged tax benefits for production enterprises; in the opposite case, they will fail to survive.

Legislation envisages too many reservations in relation to different types of enterprises. Unified and clear laws should be adopted.

For the last several years changes are consequently introduced in legislation which limit capabilities of employees to fight for their rights. A law should be adopted envisaging penalties for each day of delays (like article 51 - disability payments).

Not discussed.

3. Strikes Absolutely destructive activities which ruin the enterprise.

Strikes have no prospects because there are no sources of funds and they also lead to job cuts.

Strike are radical but effective means of fighting (if we manage to avoid violations of the laws). However, long strikes are not advisable because they affect employees (wages are not calculated for downtime).

They consider strikes useless and not leading to actual results.

4. This should be This is the main Under conditions of long wage arrears this is Jobs must be kept

13

Keeping the number of jobs

determined by actual production requirements.

priority, jobs must be kept at any cost.

not a priority. These jobs are «unreal» because are not supported with wages. Employment of excessive labor force will not provide the enterprise with the possibility to pay the wages.

under any conditions.

5. Effective means of fighting against wage arrears

Developed sale structures, elimination of debts, unblocking of accounts.

State investments in the heavy production, State orders, pre-payment. It would be great to include in the Collective Bargaining Agreement the provision for indexation of wage arrears, but we failed to do this.

Adoption of rigid laws on fines for delays in payments. We are not afraid of bankruptcies which these laws may lead to. Bankruptcy, appointment of an external manager, sale of some part of the plant are the less evil compared to wage arrears.

This issue is not discussed.

6. Methods of putting the plant administra-tion under the pressure

- Only negotiations. In the case of very long arrears - application to the court.

It would be better to re-establish the Labor Disputes Committee at enterprises which resolution would be obligatory for fulfillment the same way the court resolution is obligatory for fulfillment. Then all wages may be transferred to writs of execution without application to courts. But this is possible if the enterprise has an active union supported by the majority of employees. If there is no such a possibility, the most efficient way is to draw up court orders (without court proceedings) plus strikes. In the most critical situations decisive social activities may be organized (outside the enterprise - blocking of highways).

No activities can influence the administration.

7. Social partnership

This is the most important condition for

This is a necessary condition for work with the

Partnership with the administration is possible only under conditions of the regular payment of wages and normal labor conditions - this is the

Not reflected in this category.

14

stable operation of an enterprise. «We should not undermine the plant with the help of court proceeding under such hard circumstances». At present, relations with both unions are viewed as satisfactory and constructive.

administration. The administration managed to stabilize the payment of wages. Unions should execute control, but it is also necessary to find the common language. We do not have any contacts with the second union, «though we wished to - we could unite on a number of issues, for example during conclusion of the Collective Bargaining Agreement».

situation at SHAR. «Then we are companions and I am concerned with their problems (decreased sales of ball bearings) and do not rise the issue of the loan debt - they owe us approximately 11 million rubles». But if this is not the situation, then there is no talking about «understanding the situation». «What a human being is always thinking about? First of all he/she thinks about him/herself, and only then - about global problems (about the enterprise, policy, State and world). But first of all he/she thinks about his/her children and him/herself». Organization of regular payments is the problem of the management, and if they fail to implement this task, then other managers should be appointed.As for the other union, Solidarnost members think that in principle it cannot provide effective protection of employees due to the fact that it is too closely connected with the administration. We see no point in coordination of activities with it.

15

The Table shows the differences in views of different parties and points of possible coordination. Interesting enough that positions of two unions differ more than the position of each of them compared to the position of the administration. For example, Avtoselkhozmash is obviously ready to support the administration in relation to State agencies and in everything that will help to «support the enterprise and jobs», and Solidarnost could support market initiatives of the administration connected with sales of assets and securities and in certain cases connected even with adjustment of the number of jobs to the actual workload of the enterprise. The main difference between the unions is in the fact that Avtoselkhozmash representatives consider that there is no sense to put the administration under pressure because it does everything possible and the rest does not depend on it; at the same time, Solidarnost members are sure that «interests of production development», even if they assume that managers have no personal interests or do not do any mistakes, do not always comply with interests of employees. Solidarnost clearly divides its competence and the competence of the administration; Solidarnost considers that they cannot coincide in principle though a certain balance can be achieved.

At present, SHAR, which experienced long wage arrears in the full amount and faced all forms of fighting against them, is an example of achieving such a probably temporary balance.

16

CLOSED JOINT-STOCK COMPANY «KRASNAYA ZVEZDA»

History of the Enterprise

The clothes factory was established in 1917 on the basis of a private clothes workshop «Parizhsky Shik». Then two more clothes workshops and several employees working at home were included in it. The factory was created for production of overcoats and soldier blouses for the Red Army. The town authorities provided the factory with one of the best at that moment buildings in Samara - the building of the former church school.

The status of the factory - the creation of the Soviet State established in 1917 - determined its further development. In 1927, after the factory won within the frames of the socialist competition, it was officially named «Krasnaya Zvezda». In 1929, two clothes factories - Krasnaya Zvezda and Factory named after Volodarsky - merged. The number of employees increased up to 800 people; the production became flow-line. During first five-year plans the factory produced special clothes: padded jackets, wide trousers, etc. In the beginning of 1935, the transfer from standard types of products to production of clothes in accordance with fashions occurred: first, coats for men, then coats for women and children. During the World War II, the factory resumed production of overcoats, padded jackets, cotton and cloth uniform. After the war, new structural transformations took place. The factory was renamed into trust uniting clothes enterprises and then - into clothes association.

By the beginning of nineties, Krasnaya Zvezda was one of the largest enterprises in the sector. The factory has always been considered one of the best: new forms of labor and new equipment have always been implemented at the factory, the best specialists worked at this factory.

Products and Production Specificities

The factory produces outer-clothes: heavy and light coats for women. One workshop manufactures suits for men. Lately, the range of manufactured products increased via manufacturing of small lots. In the past, the factory specialized on clothes for women; at present, the factory produces suits both for men and women, trousers, clothes for children, raincoats, jackets, shirts for men, special clothes. Production of new items does not require global changes and reconstruction. Usually, the technological cycle is changed and some machines are substituted.

17

The factory has flow-line production, i.e. it is oriented on large volumes. The «human-machine» labor structure envisages a large number of employees (one employee works with one machine and carries out one operation, for example, makes one seam). Such a production can survive only due to large orders. Production capacities may manufacture 200,000 items per year. In the past, one item (for example, coat) was produced each two minutes.

Ownership

In 1991, the enterprise was privatized and at present it is a closed joint-stock company Krasnaya Zvezda. Shares were distributed for free amongst the members of the labor collective in proportion to the number of years of work with the enterprise and wage amount. At present, the enterprise has 570 shareholders. 75% of shares belong to employees (a significant part belongs to pensioners, former employees). 25% of shares belong to the Director (or rather to the former Director). Approximately one half of employees working at the factory at the moment do not have its shares.

Labor Collective

The overall number of personnel decreased approximately two times compared to early nineties (despite the fact that the enterprise hires each year 100-120 graduates of the clothes school). At present, the number of the factory personnel is 700 employees. 70% of them are workers and 30% are engineering and technical employees. The collective practically completely consists of women (only 10% of the total number of employees are men: electricians, repair-workers, loaders, several men work in the administration). The average age of employees is 35-40 years.

The work is mostly by the piece. The main specialty is «electric sewing-machine operator». The average wage at the factory is approximately 500,000 rubles; the main personnel receives 200,000-300,000 rubles.

The number of employees decreased mostly due to the natural decrease: retirement and voluntary departures, especially during the last year. There were no mass redundancies. The number of workers by the piece was not cut at all. However, the number of the management decreased approximately three times (37 people). In spring of 1996, due to reorganization of production one-year contracts were concluded with many managers and after expiration of this term (in 1997) contracts with some of them were not re-concluded. This also plaid its role within the frames of the conflict.

18

One union is represented at the factory - the Union of Light and Textile Industry. The Collective Bargaining Agreement was concluded in 1995 and was prolonged for the next two years.

Economic Situation

In 1998, a new Director, Ms. Galina Monastyrskikh, was elected on a bidding basis (prior to this she worked as the Director of the Syzran Clothes Factory). Experts evaluate rather high activities implemented by the new administration in the area of searching for new sales markets and implementation of new technologies: «Krasnaya Zvezda always tried to operate under market conditions, its managers perceived everything new and only due to its management the factory managed to survive» (extract from an interview with the Head of the Labor Department of the Samara Oblast). For some time the factory survived due to large orders from the Ministry of Interior Affairs, Ministry of Defense and State Customs Committee. «The orders were very large: 100,000 pieces, 60,000 pieces, 55,000 pieces. Funds were provided with 50% pre-payment (extract from an interview with the Director). This enabled to make turnovers and support the entire enterprise including social assets. During the Gaidar’s reforms, when a new taxation mechanism was introduced, turnover funds were taken away by inflation. There were no funds to purchase materials for work. The administration found a new form of survival - work on the provided materials, i.e. when the client provides materials and accessories: «They provide us with 100% of all materials - we only work and they pay us for it» (extract from an interview with the Director). The factory worked in accordance with this scheme under contracts with Spain, France, USA. Practically all orders which they managed to find were fulfilled. However, all these contracts were for production of small lots which did not ensure complete workload of all capacities. Actually, all these orders could be performed by the experimental workshop. The major in the past clients - the Ministry of Interior Affairs and Ministry of Defense - did not have funds for placing orders. By 1996, the factory had only one large contract with the State Customs Committee for the total amount of 62 billion rubles.

2. Reasons for Delays in Payment of Wages

In the first half of 1996, the State Customs Committee failed to pay for work fulfilled by the factory. The reason was that the Srednevolzhksy Commercial Bank which had funds of the State Customs Committee

19

became bankrupt. The client repaid the debt with small amounts during the next half a year, but due to the fact that taxes are paid in advance, penalties and fines commenced to quickly increase. Delays in payment of wages connected with these circumstances started from the second half of 1996. All funds that were transferred to the enterprise account were automatically transferred to the Tax Inspection. In December, the administration managed to receive a loan for payment of wages. It was not transferred to the enterprise account in order to avoid the transfer to the Tax Inspection, but it was directly transferred to personal accounts of employees from the account of the bank-creditor. In the end of December, wages were paid for four months. It was expected that in the beginning of the year the State Customs Committee would continue the contract and make the pre-payment but this did not happen.

Wages were not paid from January to May 1997. Actually, one workshop operated. Employees went on periodical vacations (and received 2/3 of their wages); correspondingly, debts of the enterprise increased. By the end of May wage arrears were equal to 1.5 billion rubles and debts to the Tax Inspection were 16 billion rubles. In May, the factory managed to conclude a contract with the Ministry of Internal Affairs for production of shirts for men. The contract was small - for 2.1 billion rubles. The administration planned to pay wages in accordance with the old scenario - directly through personal accounts of employees. In order to do this, the contract was drawn up through a third firm. The firm-intermediary received a loan for procurement of fabric. However, the work was not commenced due to the fact that the strike started.

At present, the factory still has to transfer all received funds for repayment of the general debt which as of the beginning of September 1997 was equal to 20 billion rubles. The sum of fines exceeded the amount of the debt itself six times. The total price of orders of the factory is less than 500 million rubles (an order from the Ministry of Internal Affairs and a rather prestigious order of a French firm). However, they cannot ensure significant workload of production capacities and considerably influence the bank accounts; moreover, due to a labor conflict which lead to an open-ended strike, fulfillment of these contracts was actually undermined. The outstanding wage arrears as of September 1, 1997 were 1,542 million rubles.

Administration Efforts to Overcome the Crisis at the Enterprise

There were three possible ways out of the situation: conclusion of a large contract, sales or lease of real estate or a bank loan guaranteed by real estate. Due to the fact that they failed to implement the first

20

variant (though the Director several times visited Moscow and tried to find a client with the help of the local administration - «territorial order»). They had to either take a loan guaranteed by fixed assets or sell one of the buildings. The administration approached six Samara banks with a request to provide loans for payment of wages, but the banks refused to cooperate due to the fact that the land on which the factory buildings were located was not transferred to the factory’s ownership. At this point we should go back to another story which indirectly provoked the present critical situation. This is the story about incorporation and privatization of factory social assets. As of the moment of incorporation (1991), the factory had a huge social sphere: Biryusinka After-Work Sanatorium, three kindergartens, Rassvet Club, one hostel and seven apartment houses. Due to the fact that the enterprise was a pioneer of privatization and at that moment there were no provisions for social assets, the Oblast Privatization Committee (the factory had the federal status) permitted to privatize these objects. However, after issuance of explanations in relation to enterprise social assets, the factory social assets were transferred into the ownership of municipalities together with conclusion of a contract for «business management». The contract envisaged that the Krasnaya Zvezda Joint-Stock Company should bear responsibility for, operate and utilize these assets. Nevertheless, the City Privatization Committee leased these buildings to other organizations. Amongst these organizations was the Biryusinka Joint-Stock Company which was headed by Ms. Marina Sedova, Chairman of the Light Sector Union (32% of shares). The same situation is with the Rassvet Club. The Fortuna Cafe and a business center work in the building of the Rassvet Club: «... the City Property Committee and the district distributed these buildings and received rent payments. Krasnaya Zvezda received nothing. And we provided 2.3 billion rubles for operation. We applied to many agencies, we have huge correspondence. For example, the Sandra Restaurant and a sports center are located in the building of the second kindergarten. Mr. Sidorenko (Chairman of the City Property Committee) concluded a contract with them for 20 years. They did not even want to talk with us. We have a contract for business management and cannot use the buildings. They are included in our balance sheets, we pay the property tax, we pay for electricity, heating and water. At present, the amount of funds spent on these purposes reach billions of rubles because this situation started in 1993. They live at our expense, we pay all the taxes and they receive payments from clients and leasers» (extract from an interview with the Director). The buildings have not been correctly legally transferred, all of them are included in the balance sheets of the Krasnaya Zvezda. The

21

criminal case in relation to the unlawful use of these objects was commenced after the tax police check-up.

The conflict with local authorities in relation to social assets results in the fact that the district administration during several years has not been permitting to unreserve the land on which the factory buildings are located.

The administration cannot sell, lease or put in pledge its property without this step. It is necessary to point out that these buildings are located in the center of the town and the land there is expensive. «Due to fact that we did not resolve completely the issue with the Rassvet Club, the city and especially district administration took repression measures against us: «due to the fact that you do not transfer your social assets the way that we want to do it, we will punish you - we will not permit you to unreserve the land». For three years we were dealing with legal drawing up of the land. The Land Committee invited me to take part in administrative meetings and imposed fines on me for that we did not draw up the land. We commenced to draw up the land, then they approved the resolution, submitted it to the district administration and the district administration blocked the process. We started the process once again and they continued to impose fines. And this led to the fact that we failed to transfer the land into the property of the factory. We bought out the property in 1991 and drew up the land ownership only one month ago. The resolution was approved the day employees of the factory blocked the railway. This day Mr. Dovbysh (former Head of the Samara District Administration) waived his questions (stupid questions) and signed the Resolution for reservation of the land» (extract from an interview with the Director). Then they went through the draw-up procedures (technical expertise, etc.) which took time. The landed property was drawn up only in the beginning of September. «... And only now we received the right to use the property which we have been owing since 1991. If the landed property was drawn up immediately, maybe we could have avoided the current situation via leasing property or putting it into pledge (we have a lot of property - practically for the amount of 47 billion rubles). We certainly could find the way to pay the wage arrears in the amount of two billion rubles» (extract from an interview with the Director).

Therefore, despite all efforts of the management, they failed to overcome the crisis at the enterprise and promises which the Director made to the collective in July were actually not fulfilled.

22

3. Conflict Chronology

Till the end of April 1997, the situation was calm despite long wage arrears. Sometimes employees voiced their discontent but everybody was waiting because at many enterprises the situation with money was worse. In May, the preparation for fulfillment of the contract for shirts for men concluded with the Ministry of Internal Affairs commenced. Accessories were procured, fabrics was prepared for cutting up, etc. - the flow was loaded (it takes 20 days to load the flow). Those people who were on vacations were searched for and invited to resume work. It was planned to commence work in the beginning of June. The first portion of funds was expected to be received after the first lot was loaded (2 thousand pieces). It would have taken two weeks under conditions of standard workload.

The situation aggravated by the end of June. The experimental workshop (it is also called the modeling shop) was the initiator of the conflict. Employees of this workshop are the elite of the factory. The most highly-qualified employees work there (technologies, modelers, tailors, etc.). They commence fulfillment of any new order. They design models, conduct calculations in relation to the fabrics, develop the sewing technology and prepare models of production. Then everything is submitted to the workshop where electric sewing-machine operators and workshop technologists commence the work. Their average wage is approximately one million rubles. The conflict started due to the fact that employees learnt about the intention of the administration to revise the output standards (models under the order of the Ministry of Internal Affairs were already developed and were simple and did not require efforts during preparation for mass sewing). This fact revolted employees of the workshop. «They are located at another territory, they have always been their own bosses. Output standards are small, they perform them for several hours and then sew for themselves, under personal orders. This takes electricity, threads, machines and finally work-time. Moreover, they started to take collective orders not through the factory administration. Once, all this came to light when an uninformed client came to the Director to resolve some problems - he was sure that he was dealing with the factory and not with a group of employees» (extract from an interview with the Economist). The Economic Analysis Group which was set up in the beginning of 1997 was interested in the high percentage of fulfillment of assignments in this workshop. From January the workload was incomplete, in all workshops the percentage of fulfillment of assignments decreased and in experimental workshop it was still at the level of 175%. The check-up showed that

23

assignments were fulfilled at 60-70% in the experimental workshop (as in other workshops), the rest was the upward distortion of achieved results. In May-June the term of one-year contracts with some of the employees of the workshop expired (technologists, foremen). In connection with the above circumstances the administration refused to extend the contracts. Naturally, these employees did not agree with the resolution of the administration. The situation became uncontrollable after the employees again did not receive their wages though the Director promised that all wage arrears would be paid together with May wages. All these events resulted in open indignation. Workshop employees commenced to demand payment of wages and decreasing unit prices for work. They almost ceased work beginning from early of June. The Director of the factory was announced to be the main person to be blamed for everything. Activists quickly submitted complaints to all agencies about financial violations of the Director and that wage arrears were caused by these violations. Letters with attached lists for signatures were submitted to workshops where employees overwhelmed with emotions of the arising conflict signed them (sometimes they did not know what they signed, they only understood that this was against the Director who did not pay wages). Employees of other workshops quickly joined the conflict.

The role of the chairman of the factory union committee, Ms. Nadezhda Dementieva, should be discussed separately. She and the new Director of the factory have been disliking each other for a long time. In the past, under the old administration, she was welcome and participated in all meetings. The new Director commenced to implement a strict policy and did not allow the union to participate in resolution of issues not included in its competence. “Mutual misunderstanding transformed into distrust... The union did not understand a lot of things: the indicators were good but they were dissatisfied with the independence of the administration in resolution of issues; we did not complain, we did not coordinate our steps with them, so they commenced to look for something wrong in my activities. They commenced to submit complaints to all agencies saying that I build cottages for myself” (extract from an interview with the Director of the factory).

Under the conditions of the spontaneous conflict, Ms. Dementieva completely supported the indignation of employees. She actively talked with people in workshops, called employees to re-elect the objectionable Director. The factory was literally overflown with rumors about “unlawful” actions of the Director and her personal life: “They build dachas and purchase apartments for our money” (the

24

Director has one-room apartment and does not have a dacha); “The Director and other managers have salaries in the amount of 5 million rubles each (according to the Economist, salaries of managers are 1 - 1.8 million rubles). It does not matter that they do not receive them too - they will receive it someday. They should have decreased their salaries for now when there are no money to pay wages. They live on the account of employees”. “ The Director told us about debts and taxes, but everybody can make up anything. She should have better paid the wages” (extract form an interview with employees of the factory).

All attempts of the administration to explain the situation led only to distrust and irritation. The election campaign (of the City Mayor) played a significant role in aggravation of the conflict. Populist speeches of one of the candidates at Krasnaya Zvezda (whose program focused only on one word: “Down with!”) actually provoked employees to public activities. The union called everybody to stop work starting from June 18 and the strike began at the factory. Almost every day the Chairman of the Light Industry Union, Ms. Irina Sedova, visited the factory. All employees came to their workplaces and sat, slept on tables, went for a walk (unless there was issued an order not to let in those employees who went out of the factory building). During summer when people spend their free-time working in small gardens in the country, factory employees “sat” during working Saturdays (the factory works in accordance with the 12-hour schedule). The union presented by Ms. Dementieva actively supported employees and stirred up the situation by calling for the discharge of the Director. And only after the notification that she personally would be fined for 1.9 billion rubles for organization of a non-approved strike, the union leader called the union meeting in late June. The legal drawing up of the labor conflict commenced with this meeting. The factory lawyer made a speech during the meeting and explained the responsibilities for non-approved activities. He explained that the strike was a penalized collective absence from workplaces. The Strike Committee headed by Ms. Dementieva was created at this meeting. They submitted their demands to the administration: immediate payment of wages; increase in rates by 40%; abolition of fixed-term contracts; provision of subsides for transport; provision of the collective with work orders, etc. The representative of the client made a speech at the meeting and asked not to go on strike because the client lost huge money. He asked to wait for loading of the first lot, then funds would be provided and wages would be paid - but people did not listened to him. People were not influenced by threats of fines for violation of the contract. The collective overwhelmed with the fight with its Director did not want to hear about any fines (later, the main part of the order

25

was transferred to another factory and Krasnaya Zvezda added penalties for non-performance of contract conditions to its debts).

In accordance with labor disputes rules, conciliatory procedures commenced. There was created a conciliation committee which included representatives of the administration, factory employees who went on strike, the Head of the Samara Oblast Labor Department, Chairman of the Union Committee of the ZIM Plant, leading specialist of the Production Department of the City Administration and Head of the Payroll Department of the Oblast Administration. In the result of work, the Committee made its decision: demands of the factory employees were acknowledged lawful, it was decided to give the administration time till August 11 to take measures in order to resolve the conflict including revision of rates (the administration increased rates by 40% in accordance with this decision) and payment of wages. However, the Strike Committee did not agree with this decision and instead of August 11 the term was set August 8.

From the beginning of June the strike was conducted on lawful grounds. Wages to employees for days when the non-approved strike took place was not calculated. Employees of the experimental workshop indignant at this fact took the following steps: they invited the sanitary and epidemiological inspection to their building which found out that the conditions of work in the workshop were unsatisfactory. This boosted extraordinary steps. July 11, irritated and angry employees blocked the street traffic. The Director was that day in the City Administration - right at the moment when the issue with drawing up the land was resolved. When she returned to the factory and found out its employees in the street, she started to persuade them to return to workshops: “When I saw my employees in the street I was terrified. I started to beg them: “Girls, please return to your workshops, it is our internal affair”. I showed them the permit to use the land and tried to persuade them that due to the fact that the land was finally drawn up we could receive a loan. But they did not listen to me” (extract from an interview with the Director). Appeals of the Director to return to work simply aggravated the situation. “We just came out to the streets and the land issue was resolved” - the crowd cried out. The Chairman of the Union Committee was not with the people at that moment. She was in the entrance check-point and monitored the situation development. Approximately in an hour people returned to workshops but decided not to commence work until their wages were paid. They yielded to no persuasion.

The meeting of shareholders was conducted July 21. The Board of Directors was re-elected at this meeting. Ms. Dementieva was elected

26

the Chairman of the Board of Directors. Besides her, 10 people were included in the Board of Directors: Deputy Director, Chief Mechanic fired last year, Head of the Workshop, Chief Technologist, the rest were simple employees. “Such a composition of the Board of Directors was absolutely unworkable, it was simply incompetent. They were elected to ensure the majority of votes for purposes of Ms. Dementieva but not to make a decision” (extract from an interview with the Deputy Director).

According to numerous complaints (including anonymous complaints), 10 agencies conducted check-ups at the factory: tax inspection, tax policy, arbitration commission, prosecutor’s office. etc. A complete audit of financial and economic activities was conducted. “This was terrible, we were checked by everybody who had the right to do it ... even the sanitary and epidemiological inspection checked whether everything was fine in our canteen. We were tired, we just prepared various notes and searched for figures. We had no time for work. But they found nothing. No violations of the administration were found... We had to prepare notes on wages for the court - many people applied to courts. It is the right thing to do, but it does not matter due to the fact that there are no funds on the account. If we concluded some contract, people would have received their wages without any court procedures...” (extract from an interview with the Chief Accountant).

Over 300 individual suites in relation to wages were lodged to courts. The strike continued, only three days before the meeting of shareholders employees (including the experimental workshop) commenced work under the contract with the Ministry of Foreign Affairs.

An extraordinary meeting of shareholders was conducted August 27. There were two issues included in the agenda: report of the Director on the work carried out in 1996-1997 and introduction of amendments into the Charter of the enterprise. The day before the meeting the Director found a contract in the overall amount of 29 billion rubles. Very profitable conditions of the contract (100% pre-payment during 3 banking days from the day of signing) enabled not only to pay all debts but also to work stable during some time. But the collective did not trust the Director and she was discharged by the majority of votes (60%). Of note, there are a lot of pensioners amongst shareholder who were offended (those with whom contracts were not prolonged) and those pensioners who failed to develop working relationship with Ms. Monastyrskikh - they considerably influenced the voting results. It was be logical to assume that the union committee after it managed to

27

discharge the Director would propose its candidate to this position. However, this did not happen. When employees commenced to talk about elections of a new Director, Ms. Sedova told participants of the meeting that “it was not ethic to conduct voting at the moment”. Then there was an attempt to introduce changes in the point of the Charter related to “the procedure for election of the Director of the enterprise”. According to the Charter, this issue should be resolved by the general meeting of shareholders; the amendment envisaged to substitute the general meeting of shareholders with the Board of Directors in this respect which would enable to appoint a new Director within the narrower circle of people. But employees agitated by the events were unpredictable. The majority voted against introduction of changes into the Charter.

After the meeting some part of employees commenced work. By the end of September the factory sent two last truck with products under the French contract and some part of production for the Ministry of Internal Affairs. They sewed cut out fabrics which was lying on their tables during the whole summer. The factory does not have any other orders.

In order to prove to the collective that the contract brought from Moscow is real and in order to save the situation, Ms. Monastyrskikh invited the representative of the Client to the factory. The former General Director of Rosresursinvest (former division of the Light Industry Ministry) made a speech at the meeting of the collective of Krasnaya Zvezda. He told about the terms of the contract, demonstrated the bills, promised that in three days after signing the contract the factory would receive funds. He told that he is ready for cooperation but only with the lawful director. However, the collective was so overwhelmed by the fight that even money failed to convince them. It seemed that everybody forgot that wage arrears were the primary reason of the conflict: “...Employees were rude with the client, spoke out their opinion about the contract and himself personally, they blamed him for forgery. Of course, he was struck, left the enterprise and promised to wait for two weeks until the collective resolved its issues. In the opposite case, it would not take much time to search contractors for this contract (employees of Ivanovo clothes factories do not receive their wages for 2 years). People behaved themselves completely unreasonably, they told that would do fine without this client and that they would not stand any threats and dictate” (extract from an interview with the Head of the Labor Dispute Commission).

28

After the director was removed, the period of diarchy began. According to the Charter, the deputy director was to become the acting director and assume all the responsibility. However, the new Board of directors has appointed its own director who earlier was a chief mechanical engineer. Besides, the Board of directors has taken on a number of previously laid-off managers. The order on appointment was signed by Mr. Nikitin and Ms. Dementieva. All decisions and resolutions of the legitimate administration are being blocked. “But that was a true breakage of law. According to the Charter, if the director due to any reason is not able to exercise his duties, his deputy shall be his successor, and they knew well about it. Nevertheless, they have appointed their own director and taken on some additional personnel with wages exceeding the one of the director himself. Why on earth did they do it? They came to me, called me a saboteur and ordered to give them the key from the director’s door. Here it is! But this does not make their actions legitimate. They ordered the chief accountant to give them the seal. It looks absurd. She is the only person who bears financial responsibility until the new accountant is appointed”. (From an interview with the deputy director.) A letter to the Office of Public Prosecutor was sent requesting to estimate the legitimacy of the Board of directors (the diarchy issue). Recently the answer from the Office of Public Prosecutor was received: the actions of the Board of directors were illegal, and it has exceeded its authority. It was prescribed to remove all violations in a monthly term and cancel all illegal orders and resolutions. In accordance with the Charter, the duties of the director (until a new one is appointed) shall be exercised by Mr. Sorokin.

The split among the enterprise employees has widened. The supporters of Ms. Monastyrskikh who lost their hope to come an agreement with other employees decided to leave the Joint Stock Company and establish a separate enterprise. They include a major part of the administration headed by the director (they own 33% of shares). They addressed the Board of directors with a request to conduct a meeting of the shareholders to discuss the reorganization through separating a certain number of shareholders: “We wish to separate taking with us not only the property but also the enterprise debts in proportion to the number of shares. We will leave the trade mark to them”. (From an interview with the deputy director.) “They may follow the path of bankruptcy if they like. But we know that we are capable of working and have a chance to survive”. (From an interview with the director.) The Board of directors has refused to conduct a meeting. After that the supporters of Ms. Monastyrskikh addressed the arbitration

29

commission. The commission has considered the problem and made its verdict: the above shareholders had no right to separate because due to separation of a part of property the factory would not be able to pay to the creditors (although the fixed assets of the factory were estimated at Rb 47 billion, and the total debt was about Rb 20 billion). Now the problem of separation with division of property will be studied by the arbitration and civil courts.

Meanwhile, Ms. Dementieva and her supporters wrote an application to the Committee on bankruptcy requesting to introduce external management at the factory. On the basis of this letter an all-Russian external manager bidding was announced, and US$ 40,000.00 were allocated for that purpose. The external manager shall be appointed by October 27.

The struggle goes on. Realizing that only the legal appointment of a new director may help to take control over the enterprise, the Board of directors was intensively looking for a candidate to be charged with duties of a director. Finally, that honor was given to the former director of Krasnaya Zvezda who in 1989 was replaced by Ms. Monastyrskikh upon the initiative of the labor collective. He is rather well-known by the employees, many of them worked under his management. The discontented part of the labor collective did not attend the meeting with that new candidate. Other employees took it as an insult. The employees decided to block the factory entrance check-point next day, so as not to let the administration employees reach their workplaces. At 7 a.m. next morning a crowd of fully resolved female employees gathered at the factory entrance check-point. To avoid further problems, the deputy director ordered not to admit any outsiders to the factory. He also called the police which watched what was happening without interfering in it. When police came, Ms. Dementieva immediately called a local TV brigade which made a brief reporting and left. The acting director Mr. Sorokin approached the female picketers and read to them the verdict of the Office of Public Prosecutor which called the actions of the Board of directors and Ms. Dementieva illegal, and added that in case the women do not calm down and impede the work, he may bring them to trial. After that the women broke up. The representative of the sectoral union (an ex-employee of the factory with whom the contract was not extended) who came to support the strike committee was not admitted to the factory, and the rebellious activists and the chairman of the union immediately appeared near the factory entrance check-point. And the deputy director again had to calm them down and explain the illegal character of their actions. The crowd of indignant female employees headed by Ms. Dementieva and Ms. Petrova declared that they were going to the Office of the Public Prosecutor

30

and left the factory entrance check-point. The order at the entrance check-point was restored for a short time.

At present, the conflict at the factory continues. Probably, in order to have an adequate notion of the effectiveness of union’s struggle with the administration it would be necessary to follow the events to the end.

4. Evaluation of the Situation by Different Parties of the Conflict

Position of the administration: Objective circumstances have made it impossible to pay wage. The check-ups showed there were no abuse. The chairman of the factory union has no opinion of his own and obeys completely to the will of the chairman of the sectoral union. The struggle is not for the employees’ rights but for power and property. They have provoked the strike and sabotaging of the French contract and the contract of the Ministry of Home Affairs, because otherwise the wage could be paid to the full and there would be no reasons to remove the director. “I just can’t understand what they were doing, because some day they would have to answer for it... We could earn our wage if we worked just for another month, I’m sure of that. At other plants managers negotiate with the union and try to find a solution. They even advise employees to appeal to court. And I had to come to workshops and persuade our people to do the same... People here did not work for a whole month, from June 18 to July 16. They did not perform what was planned, while we had a contract with the Ministry of Home Affairs for Rb 2.1 billion. The production line was stopped, and people refused to work. Surely, the wage should be paid to them. But considering that those who protested had 75% of shares and they were the owners of this company, they should understand that no one from without would give money to them. We are not a State subdivision. Had they worked for another month, they would get the Rb 2 billion and their wage, too” (from an interview with the director).

Position of the union: No specific anti-crisis program was proposed, moreover, the actions which could even aggravate the economic situation at the factory were provoked (the contract with the Ministry of Home Affairs was wrecked, the possibility to sign a contract with Rosresourceinvest Company was practically lost). Everything was done only in order to remove the director. “No compromise with these managers is possible. For how long can people wait for their wage? They just don’t believe the management is effective” (from an interview with the chairman of the sectoral

31

union). Now when the situation is at a deadlock, the only way out seems to start the bankruptcy procedure.

Position of employees. The labor collective has split into three camps. A small number of employees (mainly, managers, engineers and technical employees) support the former director and are ready to follow her to the end up to establishing an independent enterprise. According to them, the reason for the conflict was that the local administration intended to start the bankruptcy procedure against the enterprise. “Mr. Titov [the Governor] has openly declared that he wanted to assimilate the “bankruptcy experience” through Krasnaya Zvezda factory” (from an interview with the chairman of Labor Dispute Commission), and the union is charged with execution of this strategy.

The majority of female employees support the union. Their opinion is usually based upon personal estimate of major participants of the conflict: “The union battles for workers’ interests, Ms. Dementieva is a good person, she stands together with the workers. She does not travel abroad all the time like our director” (from an interview with an electric sewing-machine operator). They have rather an obscure notion of the actual situation: “Well, we’ll have a new director, this may be a good person and everything will go right. Where will he take money? I don’t know. He’ll probably sign some contracts with the help of the city administration” (from an interview with an electric sewing-machine operator).

Some female employees who previously supported the union now have doubts in effectiveness of its activity. It is partly due to the information that the director has signed some new contract and the union refused to find a compromise. Certainly, the management is being criticized for wage arrears. But, on the other hand, the union is criticized, too, because it did not propose any positive way out. “I’m sure the management is to blame, for the Russian proverb says that a fish starts to rot from the head. Well, I think even the managers are unable to do anything, they depend completely on Government Resolutions... Can the union be useful in any way? Who knows? It does too much noise by agitating people, instead of coming to a certain compromise” (from an interview with a compressor department employee).

Position of local authorities: The administration gives its support to stimulate production and not to “make” money to pay wage: “The administration is not a fire brigade for the Oblast”. Krasnaya Zvezda factory is a Closed Joint Stock Company with its owners who

32

should deal with their problems independently. The Conciliatory Commission determined that the administration did everything possible and acted without any violations. The conflict was largely initiated by external forces.

* * *

As a result of the conflict, the factory is in a deadlock: no contracts, no funds on its account, huge debts. At present, the labor collective has two alternative possibilities. First: to support the director, get a profitable contract and improve the economic situation at the factory. Second: to follow the union, but this means bankruptcy and complete vagueness.

Three major aspects stand for the conflict and its aggravation:

1. Specific features of the enterprise. They are, firstly, the actual absence of a real owner because shares are dispersed among small owners. Secondly, the production process which remained the same in spite of the changes in the market (mass line production which is profitable only under large contracts). Thirdly, specific features of the labor collective. It mainly consists of low-educated female employees. The labor at the factory is monotonous including the simplest operations which require not intellect but skills. That’s why among female employees there are many women who studied at the so-called special school (a school for backward children). “When Ms. Monastyrskikh became the director, some employees left, then they were followed by some others who managed to find a new job and thus get some income. Only those who have no alternative and are not able to retrain (pensioners included) stay at the factory”.

2. Management mistakes. By making every effort to find new markets, the director has underestimated the role of the so-called human factor. Austere management style made some managers her opponents because she gave short shrift to every disagreeable employee. Ordinary female employees are clearly in favor of the paternalistic management style. The social and psychological situation at the factory is clearly against the director. The feelings of the employees are expressed in the way like this: “Our previous director visited the workshop every morning, talked to the employees, congratulated them on the red-letter days. And there was always much work to do, and now... Well, at first the director behaved properly and paid the wage, but power has spoiled her. She never visited the workshops. She did not even congratulate anyone with our professional holiday”. Another

33

reason for the conflict with payment of wage were the relations with the chairman of the factory union committee which led to open hostility which is rather personal, and the struggle of the union against the director looks like squaring of accounts with her.

3. The clear presence of external powers in the conflict including a number of physical persons and organizations interested in the ruin and subsequent sale of the enterprise. This allows to suppose that the actual reasons for the conflict situation are connected with property issues rather than with labor relations.

34

NOVOKUIBYSHEVSK OIL AND CHEMICAL INTEGRATED PLANT (PUBLIC JOINT STOCK COMPANY)

1. Description of the enterprise.

Novokuibyshevsk oil and chemical integrated plant (Public Joint Stock Company) was established in 1964 for large-capacity production of monomers (butadiene, isoprene, etc.) which are semi-finished products used in production of synthetic rubber. Due to the fact that the enterprise does not produce final products ready for sale, it is dependent on consumers, i.e. chemical enterprises which produce rubber. During the Soviet period, that production and technological chain was under rigid control including both suppliers of raw materials and consumers of semi-finished products. Production of monomers was highly profitable and paying. Transfer to market economy, as well as the collapse of the USSR, destroyed that chain. Many consumers found themselves outside the Russian Federation. Meanwhile, Russian enterprises largely decreased the production of rubber, and some of them (mainly such enterprises which could produce a limited volume of monomers independently) practically stopped to cooperate with suppliers of semi-finished products, thus, the number of consumers of the products of Novokuibyshevsk oil and chemical integrated plant decreased several times. The grave financial and economic situation of the Joint Stock Company was even more aggravated by the actual loss of working assets during the inflation leap in early 1990s together with high prices for raw materials and high tariffs for energy services. Since 1992 the Joint Stock Company found itself in a kind of a debt trap due to the fact that it did not produce final products. Delays of payment for the production from the part of consumers made it impossible to make timely payments to the budget, to suppliers of raw materials and energy services, and as a result the amount of debts grew rapidly due to imposing a fine upon the Joint Stock Company (the fine is often exceeding the debt itself several times).

Privatization, property structure. The Joint Stock Company was privatized in 1993 in accordance with the second possible version. During the privatization process, the union actively participated in selecting the way of privatization and urged the employees to support the second version. As a result, the labor collective received 51% of shares but the employees did not seem enthusiastic about purchasing the shares of their company because its economic conditions were very difficult. The union made every effort to increase the activity of employees (“to conduct educational and agitation work”). The privatization fund was established which, according to the chairman of the union committee, reached the amount large enough to repay 80% of shares of the labor collective. At the conference of employees, the

35

conditions of distribution of those free shares (the shares of Employees’ Shareholding Fund (ESF)) among workers depending on their qualification and years of service were adopted. The possibility to receive shares of the company was given to male employees with more than 10 years of service at the company and female employees with more than 7.5 years of service.

In the autumn of 1994, when the situation was so difficult that even the closure of the Joint Stock Company was under discussion, there appeared the emissaries of the Moscow Group of Companies Maxim which commenced the purchase of shares. By May 1996, 48% of shares belonged to Maxim, 37% of shares - to Sibur Joint Stock Company and only 6% of shares - to the company employees. Today about 60% of shares belong to Maxim, and the remainder of shares are being purchased. Announcements at the company propose to sell a share for Rb 110,000 (with its face value equal to Rb 1,000?). The annual meeting of shareholders in May 1997 proposed to include in the Board of directors of the Joint Stock Company 5 representatives of Sibur Joint Stock Company, 5 representatives of Maxim, and the former General Director of Novokuibyshevsk oil and chemical integrated plant was nominated to the position of the Chairman of the Board of directors by the members of the Board of directors. However, the new General Director was appointed by Maxim, and he was a Muscovite and an economist. He visits the City of Novokuibyshevsk weekly to manage the Joint Stock Company. At present, the issue is being solved on participation of Novokuibyshevsk oil and chemical integrated plant in the Neftekhimprom Financial and Industrial Group and establishment of the new Closed Joint Stock Company Butamex which Novokuibyshevsk oil and chemical integrated plant shall make a part of together with a number of other companies and Maxim which shall be the borrower from commercial banks with guarantees of the Neftekhimprom Financial and Industrial Group.

Volume of production decreased 8-10 times compared to 1990. Of the three gas fraction plants only one is now operational, although it utilizes only 60% of its capacity. In 1996 Novokuibyshevsk oil and chemical integrated plant managed to survive financially without gaining any profit. In the total volume of produced commercial products the major part (72.2%) was constituted by production of condensed gas. Compared to the previous year, the volume of industrial production in the first half of 1997 decreased by 37.8%. That was due to cessation of production of isoprene and decrease of production of condensed gas (by 30.5%) due to decrease of delivery of local hydrocarbon raw materials. 29.8 tons of fuel for house-keeping purposes were sold, losses from its realization were equal to more than Rb 5 billion. But simultaneously production of diphenyloxide and

36

one of the catalysts increased by 48.9% and 38.4% respectively. The cost of commercial products was decreased by 0.4% compared to the plan for the first half of 1997, cost of 1 ruble of commercial production decreased by 30.5%. That was due to cessation of production of loss-making isoprene, increase of production of profitable catalyst and commencement of production of vapor at one of the modernized plants.

Number of employees. Novokuibyshevsk oil and chemical integrated plant takes the second place in the number of employees in the City of Novokuibyshevsk (after the oil refining plant).

The number of employees of Novokuibyshevsk oil and chemical integrated plant in 1990 was 5,000 people, for the first half of 1997 the average list number of employees was 3,085 including 2,615 of production personnel. According to the management of the Joint Stock Company, the number of employees could be reduced by another 50% with the current volume of production. According to the economic and financial director, the number of employees necessary to ensure the existing volume of production is about 1,000 people. However, there are no such plans for the nearest future. There were no mass redundancies at the Joint Stock Company. The total number of employees made redundant during several years was 300 people. The largest redundancy covered 144 people including 70 who were again employed by the same company. In 1995 550 people were excluded out of the company personnel due to the transfer to municipality of the trolley-bus administration and utility services department, and in 1996 another 350 employees were made redundant due to transfer of kindergartens to municipality. The number of personnel in the first half of 1997 compared to the first half of 1996 reduced by 13.8% due to conservation of isoprene production, and labor productivity reduced by 29.6%. But the main reason for reduction of personnel was a voluntary resignation of employees who found jobs at more prospective enterprises (the oil refining plant, thermoelectric plant, etc.). Moreover, according to the chairman of the union committee, those who resigned voluntarily were the best and most qualified employees who were attracted by higher wage. For example, the wage of an electrician at the oil and chemical integrated plant is equal to Rb 700,000, while at other enterprises an electrician may earn as much as Rb 2,000,000. Those who stay at the oil and chemical integrated plant are, according to him, «real fans with many years of service for whom the enterprise is home».

Mass forced vacations are no longer in use here, in the first half of 1997 the monthly average of 70 employees were on their vacation with preservation of 2/3 of their wage. In 1995 (which was the most

37

difficult year for the integrated plant) about 500 employees had their forced vacations for up to 3-4 months.

Debts of the integrated plant. The structure of debts of the integrated plant has partly changed. If since 1994 the major amount of debt included payments for energy services and delivery of raw materials, by April 1997 the integrated plant managed to repay its debt to Samaraenergo Company and Novokuibyshevskgorgas Company for the total amount of Rb 200 billion. At present, the total debt of the integrated plant is equal to more than Rb 100 billion. Its major part includes payments for delivery of raw materials as well as debts to the budget of all levels (the integrated plant has been a debtor to the budget since 1996). Meanwhile, the debt of the federal budget to the integrated plant is equal to Rb 12.2 billion as a subsidy to produce fuel for house-keeping services which should be sold to the population at prices fixed by the State. And although the amount of debt of the integrated plant to the budget is practically equal to the above sum, the State does not support the idea of inter-settlements. Local administration actively cooperates with the integrated plant in making inter-settlements related to the local budget through different ways of repayment, thus giving the enterprise a possibility to survive.

In general, the payables of the enterprise exceed the receivables.

Barter. The situation with debts (including wage arrears) is even more aggravated by the fact that practically none of the enterprises today is able to pay «real» money proposing barter instead. That’s why the integrated plant should organize barter chains to ensure delivery of raw materials and other materials and even to receive vouchers to a sanitarium for the employees. There is a special department of inter-settlements at the enterprise which is charged with organization of barter chains and search for «real» money.

Social sphere. The integrated plant had a large social sphere in the recent years. The city trolley-bus depot (!) was constructed in 1985 and until 1995 financed by the integrated plant. The employees of the trolley-bus depot made a part of the personnel of the workshop No. 8 of the integrated plant. There was also a farm attached to the enterprise which was situated in the country. Until 1995 the utility services department which made apart of the integrated plant provided services related to departmental housing. The integrated plant also until October 1996 maintained a number of kindergartens which after privatization made part of the authorized capital. Moreover, the transfer of kindergartens to the local administration was accompanied by a conflict between the local administration and the union committee of the integrated plant which was against the

38

transfer of kindergartens because of their possible closure. A summer camp and an after-work sanitarium are not yet transferred from the integrated plant.

Prospects of development. The current situation in production of synthetic rubber shows that, according to Synthetic Rubber Association, in 1997-1998 significant growth of demand on the synthetic rubber is not expected, and that, in its turn, will largely increase competition among previously allied enterprises. The integrated plant is presently excluded from the number of producers of monomers. Along with the lack of raw materials, the major reason for that was the high cost of production of these products which caused a sudden growth of debts for energy services. The management has developed a technical program which is planned for implementation at the enterprise to ensure its stable operation. The technical program envisages renovation of a number of production lines in order to transfer to more up-dated and profitable technology which would allow to produce final products, as well as the increase of the energy potential of the integrated plant itself in order to reduce the production cost. One of the production units which did not operate before was recently renovated in order to produce vapor for the enterprise, and that will ensure certain independence of the integrated plant from the monopoly of energy suppliers. To implement the above program, the management of the integrated plant has decided to join the Neftekhimprom Financial and Industrial Group and establish Butamex Joint Stock Company which was mentioned earlier.

2. Situation with wage

Wage arrears at the oil and chemical integrated plant took place for the first time in August, 1994 (August wage was paid only in October) when the situation was too dramatic and the closure of the enterprise was under discussion. At first, wage arrears covered one month. During six months wage arrears reached one month and several days, then wage was paid monthly but wage arrears reached two months already. In September, 1995 wage arrears covered two months. In February-March, 1996 and in 1997 it reached three months because in February wage was practically not paid at all. Wage arrears which took place in 1994 were used by Maxim Company in order to purchase shares from the enterprise employees. The union committee urged the employees not to sell their shares (because in that case the labor collective would lose the possibility to influence the enterprise management including the social sphere), but all its efforts were in vain.

39

At present, wage arrears cover only one month (August) because in the first half of September the enterprise management paid wage arrears for June and July. The total amount of wage arrears is more than Rb 3.7 billion.

The average monthly wage of the enterprise employee increased in the first half of 1997 compared to the similar period of 1996 by 1.71 time and was equal to Rb 969,119 against Rb 567,039. The average monthly wage as calculated for one production personnel employee also increased and was equal to Rb 997,113. Various categories of wage do not differ significantly. Envisaged by the labor contract minimal wage at the oil and chemical integrated plant is equal to Rb 231,000 which corresponds with the 1 category wage under standard labor conditions. This amount is a bit higher than the average for the sector. According to the sectoral tariff agreement, minimal wage is equal to Rb 212,000. The actual increasing coefficient adopted at the integrated plant for all categories of employees is equal to 2. Its use is differentiated: coefficient of 1.8 is adopted for non-operating production lines, coefficient of 2.3 for operating production lines, and coefficient of 2 for personnel of the enterprise management.

3. Labor disputes

No labor disputes related to wage arrears arose at the integrated plant.

Only in 1994 when the enterprise was on the edge of bankruptcy a meeting of protest was organized, and the situation was about to lead to a strike. But actually the protest of employees against wage arrears was used to attract the attention of the Oblast administration to difficult economic conditions of the integrated plant.

Upon the initiative of the union committee (and, probably, the administration, too) the strike committee was established. That decision was a part of the agreed policy of the administration and the union. The union committee conducted a union conference and selected the members of the strike committee. The chairman of the union committee (representative of the labor collective) and a workshop manager (representative of the administration that, according to the union committee, played an important role in resolution of the issue) were selected the two co-chairmen of the strike committee. «The objective of the strike committee was the following: not to impede work in case some of the conditions were not fulfilled, but to get a real opportunity for employees to work». Representatives of the strike committee visited the City of Samara several times to contact the Oblast administration. The thing

40

was that at that moment the integrated plant received claims from suppliers to pay for energy services, raw materials, customs services, railway services, and all that was added by debts into the city and Oblast budget with advance payments as an aggravating factor. As a result, the enterprise found itself inside an exclusive circle: debts impeded its operation because of lack of funds to purchase raw materials, and downtime, in its turn, increased debts (especially the fine for payment arrears). The main slogan of the strike committee could be formulated as follows: let us work to pay the debts!

It would be wrong to say that the enterprise management did not address with the same proposals to the city and Oblast administrations and the Federal Government. The management tried to rescue the integrated plant using its own potential, and the union committee tried to assist that initiative using the authority of labor collective. But the activity of the union committee and establishment of the strike committee played the major role in initiation of decision to improve the economic conditions of the integrated plant.

After several requests from the strike committee and the enterprise management, the Oblast administration took a decision to freeze debts into the Oblast budget for a quarter and debts into the city budget for two quarters. The Oblast administration addressed Samaraenergo Company with a request not to halt provision of energy services to the integrated plant in spite of the existing debts.

As a result of combined efforts of the administration and the union committee, the integrated plant received a number of benefits and thus was able to survive.

4. Evaluation of the situation with wage arrears and actions of the parties.

Position of the employees.

The employees of the integrated plant react to wage arrears rather quietly. Even in 1994 when the strike committee was established there appeared no social tension at the integrated plant. Employees welcomed the initiative of the union committee considering that the strike committee would secure regular payment of wage.

One of the enterprise employees commented on the current situation:

«On one hand, we are indignant at wage arrears but, on the other hand, we are not working at all, look: we come every morning, try to set up the equipment but it does not work -

41

there is no butylphenol. We are doing something but we see that no production is produced. Surely, we want to get paid but we see that the production lines do not operate, so what’s the use of demanding anything? Thanks God that we get even a little money. Besides, the employees know very well that other enterprises are in even more difficult conditions including economic situation and huge wage arrears. Wage arrears influence the employees psychologically: «Hey, manager, do something to find money for us. We were waiting since 1994!»

Wage arrears are not the major reason to stand for voluntary resignation of the integrated plant employees. Voluntary resignation usually takes places due to insufficient wage; those who are able to get a new higher paid job are usually highly qualified specialists. In general the level of wage at the integrated plant (including additional charge for unhealthy conditions of work) is rather high compared with other enterprises of the Oblast and the City of Novokuibyshevsk. Recently the integrated plant management made public its intention to reduce the enterprise personnel. Yet there is no specific program and decision on redundancy, and under such conditions employees express their discontent only in private conversations without taking any collective actions of protest. The union committee activity in securing payment of wage is welcomed by the employees.

Position of the administration.

The integrated plant management is surely worried about the problem of wage arrears. Managers are afraid that many employees may leave, i. e., on one hand, the integrated plant would lose its qualified personnel and the possibilities of production improvement would decrease and, on the other hand, the number of employees would reduce which would cause the decrease of influence of the enterprise over the city and the sector.

However, the major problem for the enterprise management is to ensure production process. That’s why its principal efforts are aimed at maintenance of production, searching for raw materials and possibilities to cut the existing debts. The most effective way (on the enterprise level) to solve the above problems is to organize inter-settlements through barter because most of the suppliers and consumers are unable to pay «real» money. Such measures would help the integrated plant to survive. However, from the point of view of the existing wage arrears, organization of inter-settlements does not help much to solve this problem.

42

The enterprise management also planned to open earmarked accounts at Sberbank so as to avoid cash payments. The management also tried to overcome the wage crisis by providing employees with goods and products at the enterprise stores at the expense of the wage. In particular, due to barter it became possible to buy (and sell to the employees) carpets, flour, sugar, meat products, tea, canned food, macaroni foods, etc. But the main objective of the enterprise management, according to economic and financial director, is to pay wage in time.

Position of the union.

The union committee addressed the administration with questions related to wage arrears. The union committee tried to persuade the managers in the necessity of timely payment of wage «using the method of conviction».

The enterprise management realized itself the necessity to pay wage but the deficit of current assets necessary «not to stop production» did not allow to allocate the necessary amount of funds. The situation became more complicated after the issue of the Presidential Decree from March, 1996 on the priority payment of debts to the budget. As a result, payments to the budget were made by the bank from the account of the enterprise automatically and there were no money for wage. (Isn’t the above Presidential Decree the major reason for wage arrears?!) Besides, according to our opinion, not the least important role was played by the fact that there were precedents of wage arrears at other enterprises which could serve a kind of justification for the integrated plant management («if wage arrears exist everywhere, we can afford them»). That’s why the management reacted to the requests of the union committee like this: wait for some 10 days, and it’ll be okay.

The union committee which felt the understanding from the part of the enterprise management did not initiate any actions, meetings, strikes and tried to prevent spontaneous actions of the employees by informing the labor collective of the course of negotiations.

At first the enterprise administration (under the pressure of the union committee) tried to use other methods of payment of wage. That meant the transfer of funds into cash through outside commercial organizations. However, the union committee, as well as the enterprise administration itself, were not satisfied with the above solution of the problem of wage arrears (due to its illegal character).

43

Another way out for the employees was to receive their wage on the basis of the judgment because according to the Russian Civil Code payments on the basis of executive documents are obligatory and primary. The enterprise administration did not impede the above possibility for the employees to receive their wage. Here we have an example of an agreed policy of the union committee and the enterprise administration according to which the above method of payment of wage is currently the most realistic one.

No individual legal actions were started at the integrated plant. The union committee considered the collective legal actions against the enterprise administration to be the most effective way to solve the problem of wage arrears.

At the labor collective conference it was decided to authorize the union committee to represent the interests of the labor collective in court. The letter of attorney which made a part of the protocol of the decision of the labor collective conference was attached to the legal action documents. The union prepared a statement of claim. Attached to it was a note (pay-list) on the amount of wage for each enterprise division for the corresponding month. In August 1997 that amount (actually the amount of wage arrears, as the delay was equal to one month) reached Rb 3,722,348,350. Also attached were an extract from the collective bargaining agreement (the union committee is a representative of the labor collective), an extract from the Law of the Russian Federation on Professional Unions (where it is indicated that the unions by order of labor collectives have the right to represent their interests in court). The people’s court took a decision in favor of the union committee - the representative of the labor collective.

The court issued the writ of execution to the union committee. The writ of execution was submitted to the bank where the enterprise account was opened. And as soon as funds were transferred to the enterprise account, they were transferred to the account of the union committee which won the trial on behalf of the labor collective. While funds are transferred (the whole amount is not always transferred at once) the union committee receives money at the bank and distributes it among employees.

The first statement of claim of the union committee connected with September, 1996 wage was submitted in November, 1996. Since that moment each month the union committee has submitted statements of claim on wage arrears and paid wage to the integrated plant employees.

Several problems arise in this context.

44

1. The union accountants and treasurers are charged with a large scope of additional work. They are responsible for amounts which exceed an ordinary union budget many times. Accountants have to make calculations with which they never dealt before. Transfer of funds according to the writ of execution sometimes takes almost a month. The procedure of payment of wage to all enterprise employees during the year turned out to be so labor-intensive that the union committee informed the integrated plant management by a memorandum of the necessity to increase wage of the union committee accountants.

2. The union committee can not afford a sufficient number of cashiers to pay wage to the enterprise employees. The enterprise cashiers are involved in this work. The union accountant hands the money to the enterprise cashiers with their word of honor as the only guarantee. Certainly, the corresponding act is prepared but it has no legal power because the enterprise cashiers did not sign a contract on material responsibility with the union committee.

3. In order to receive cash at the commercial bank where the union committee account was opened it is necessary to pay a certain extra amount for transferring funds into cash. This decreases the total amount of wage. At first the union committee paid for the transfer of funds into cash from the union funds, and then it requested the enterprise to compensate those expenditures but could not submit any legal justification (besides, the enterprise management showed no enthusiasm in this respect). At last the parties managed to come to a compromise: the bank where the enterprise account was opened agreed to open the second account of the union committee to make payments according to the writ of execution and to set off the expenditures for the transfer of funds into cash to the integrated plant.

The union committee passed from the tactics of negotiations and persuasion of the enterprise management to the practice of statements of claim due to the financial and legal conditions of the enterprise operation and the impossibility to withdraw funds for wage payments from the enterprise account. Certainly, the enterprise administration is not enthusiastic about the above method of making wage payments according to the judgment. This entails payment of court costs (1.5% of the amount of claim is equal to Rb 50-60 million every month). But there is no other possibility for the enterprise management to ensure a regular (although with delays) payment of wage to the employees.

45

* * *

The method of solving the problem of wage arrears proved effective enough. It did not solve the problem completely (wage arrears still exist) but reduced the term down to one month. The success was undoubtedly due to the efforts (authority) of the union as well as to the support from the part of the enterprise administration. The actions were agreed and coordinated. Interrelations between the union committee and the enterprise administration do not have a conflict character, there is mutual understanding of the necessity to ensure payment of wage and find appropriate solutions of the existing problems.

It is also important that the union leader has a high authority at the enterprise and is able to control the activity of the employees and influence their state of mind. The union committee also has a significant influence over the enterprise management. The enterprise managers never ignore the opinion of the union leader. The chairman of the union committee practically takes the position of the deputy director on social issues (such a position does not now exist at the integrated plant, although 10 years ago the present chairman of the union committee was to take that position but it was not yet vacant, so he elected the chairman of the union committee).

Conclusion

Before considering the findings directly related to the positions of participants of wage arrears conflicts, it is necessary to make a number of preliminary comments.

1. Not at all enterprises wage arrears lead to conflicts between the union and the enterprise administration. The position of the union may coincide with the position of the enterprise managers when the responsibility of the Federal Government for wage arrears is concerned. For example, among the major reasons for wage arrears the respondents named the Presidential Decree from March 1996 which determined that taxes and payments to the budget should be paid without the enterprise consent (i. e. without the signature of its director).

Undoubtedly, the major reason for wage arrears is a difficult financial and economic situation at the enterprises. However, such a difficult economic situation existed long before, what, then, was the specific reason for wage arrears? According to our point of view, wage arrears were directly connected with the impossibility for enterprise managers to withdraw money for wage payments from the account, because

46

even those small amounts that were transferred to the enterprise account were automatically withdrawn to repay debts to the budget. In other words, even if the enterprise management wanted to pay wage to employees, it had no such possibility.

In some cases the conflict between the union committee and the enterprise administration took a very dramatic form (e. g., at Krasnaya Zvezda factory) including the problem of wage arrears. But that was due to a whole number of reasons, and the claim for payment of wage was among 50 points in the list of claims to the director.

Nevertheless, a more typical situation is, to our view, when the enterprise administration and the union committee cooperate in order to find an appropriate solution.

2. The owner of an enterprise is another figure which has certain influence over the problem of wage arrears. This is not always the enterprise administration. An outside owner may influence the issue of wage arrears both through the meeting of shareholders and the operational management (provided that he has the right to appoint/select the director who usually represents the views of the owner of an enterprise). The practice shows that the goals of the enterprise management and the owner may differ: if the enterprise administration is mostly concerned about ensuring high production capacity of an enterprise, the most important thing for the owner is to get regular profit (including that from enterprise closure or sale).

At the enterprises covered by the present study the role of the owner in the issue of wage arrears was very important. In particular, one of the reasons for wage arrears at Shar Company was connected with the lack of attention of the enterprise administration to that issue because of the unresolved property issue. At the oil and chemical integrated plant there is a consolidation of the union committee and a part of managers interested in the enterprise development/survival (and also in regular wage payments, i. e. strengthening of labor potential) together with the hidden conflict between them, on one hand, and the owner and the director appointed by him, on the other hand, who are more interested in increasing their influence over other enterprises of the sector and profitable investment than in prosperity of the enterprise.

3. The last comment is related to conflicts connected with wage arrears. The conflict (between the union committee and the enterprise administration, or between employees and managers, or between the enterprise and the owner, or between the territorial union and the

47

local administration, or between the sectoral union and the Federal Government) may seem as a conflict directly related to the problem of wage arrears but in reality it may be based upon other problems as well, including: (1) conflict related to the violation of other labor relations, for example, changes to the form of conclusion of labor agreements, introduction of terminal contracts (at Krasnaya Zvezda factory, for example); (2) problems of property distribution and management (at the oil and chemical integrated plant, for example).

Therefore, the struggle for wage (and against wage arrears) may be the hidden struggle for the influence over the enterprise, property distribution, possibility to receive financial funds (loans and contracts), creation of an agreeable image, etc.

Position of the union committee and position of the administration

Position of the enterprise administration is similar at the majority of enterprises. Its major arguments are connected with the State policy in relation to the industry. All enterprise managers expressed a common opinion that the State imposed upon the enterprises such conditions under which it was impossible to work. The break of the established economic relations and practical loss of working assets during the inflation leap put the enterprise in a critical situation. The tax sister does not stimulate production. The procedure for tax payments which take the lead over payments for production undermines the financial system of the enterprise. To solve the problem of working assets through loans is unrealistic due to high credit rates at commercial banks.

The enterprise administration does not consider wage arrears its fault because, according to them, wage arrears were due to objective circumstances when tax and debt payments without the consent of the owner of the account do not allow to use funds for wage payments.

At the same time, in some cases the enterprise management (or its owners) used the problem of wage arrears in their own interests, for example, to re-distribute shares or take them from the enterprise employees (at the oil and chemical integrated plant, for example) or to influence the employees so as to prevent their discontent with low wage: “How can we increase wage when there is no wage at all!”

Position of the union committees in relation to wage arrears is not identical. Two major alternatives may be outlined here.

48

The first one (which was more vividly expressed by the leader of the alternative Solidarity union) may be summarized as follows: wage is the only financial source of the employees and the employer shall pay it using every possibility including the sale of the enterprise property. Wage arrears are a violation of law that’s why a claim for wage is absolutely justified (including moral damage to the employee and his family). Where to take money for wage payment is the problem of the enterprise management.

The second one may be expressed in the following way: wage should be paid but employees are interested not only in the amount of wage in question but also in subsequent wages, i. e. in ensuring the economic effectiveness of their enterprise. That’s why a claim for wage should be combined with efforts to ensure conditions when the enterprise is able to survive. This view is targeted not only at momentary effect (immediate payment of wage) but also at some kind of a compromise with the enterprise administration to ensure future survival of an enterprise.

In the first case the enterprise administration is the first to be charged with responsibility for wage arrears: if managers are unable to solve their problems they are professionally unfit. In the second case outside parties and external circumstances are charged with such responsibility.

The actual difference between the above views depends on different priorities of the union policy. If in the first case interests of an employee are the major priority, in the second case the same can be said about the interests of an enterprise as a production unit and as a whole.

At the enterprise covered by the present study the position of union committees differs according to the above principle. In particular, Avtoselkhozmash union at Shar Company is guided by the necessity to ensure the viability of the company, the union committee at the oil and chemical integrated plant takes the enterprise interests into account, the alternative Solidarity union considers the enterprise interests to be subject to major economic interests of employees, and union leaders at Krasnaya Zvezda factory do not take the enterprise interests into consideration at all. The level of conflict in the relations between the union committee and the enterprise administration is undoubtedly connected the selection of priorities although in reality such conflicts depends on many different reasons from economic conditions of an enterprise to social and psychological

49

conditions and personal qualities of enterprise managers and union leaders.

In spite of the difference in views among different unions and the level of their conflict with enterprise administration, at all enterprises covered by the present study the union committees take some steps aimed at solving the problem of wage arrears.

How to solve the problem of wage arrears at the enterprises

1. Negotiations with enterprise administration on wage payments are conducted at all enterprises where wage arrears take place. None of those negotiations brought a positive result yet, i. e. wage payments were not made. Persuasion proves useless, managers give unrealistic promises. But this phase is necessary to try to solve the problem of wage arrears.

Realistic (successful) methods of solving the problem of wage arrears include the following:

2. Payment of wage in accordance with the judgment

2 (a). Submission of individual statements of claim. During the last three years the legislation has changed significantly (including changes which restricted the possibility for employees to fight for their rights) that’s why the standards and procedures for submission of statements of claim changed, too. At present, the statement of claim is an application to court related to wage arrears (without indexation of wage arrears and compensation of moral damage). According to the current Russian legislation, if all necessary documents were submitted and the court issued an order to pay wage, the corresponding amount should be withdrawn from the enterprise account according to the writ of execution. No special trial should take place to issue the above order, the corresponding decision is merely made by the court. As soon as funds were transferred to the enterprise account, they are immediately withdrawn from the account to pay wage in accordance with the judgment, and only the remainder of funds may be withdrawn from the account to pay taxes and debts.

2 (b). Several individual statements of claim may be combined in a collective statement of claim. According to the leader of alternative Solidarity union, collective statements of claim are more preferable than individual ones because they do not require an employee to participate in unfamiliar bureaucratic procedures because the union not only assists him in preparation of the statement of claim but also performs all necessary legal procedures.

50

In case of submission of individual and collective statements of claim, wage funds should be withdrawn from the enterprise account and handed by the enterprise cashier.

2 (c). Submission of a statement of claim by the union committee on behalf of the labor collective. The labor collective conference authorizes the union committee to represent the interests of labor collective in court. The court issues a writ of execution which should then be submitted to the bank where the enterprise account was opened and funds from the enterprise account should be transferred to the union committee account to be paid by the union committee to enterprise employees.

In this case when statements of claim are connected with large amounts of funds (i. e. wage of a whole labor collective), it is possible to add to it other small amounts in addition to wage: vacation payments, benefit payments (although this is illegal, that’s why it is necessary to discuss with enterprise administration the possibility to justify such benefits upon the request of the court). The situation when the union committee (and not the enterprise management) ensures wage payment sometimes largely improves the union image in the eyes of employees.

Submission of statements of claim is the most wide-spread and effective legal method of ensuring timely wage payments but it is limited by certain conditions. If no funds at all are transferred to the enterprise account, it may take a long time to execute the judgment.

3. Wage payments to employees through outside organizations

If all funds transferred to the enterprise account are withdrawn and it is not possible to pay wage, the enterprise management wishing to pay wage to its employees may make these payments through outside organizations (e. g., at Krasnaya Zvezda factory and the oil and chemical integrated plant).

Wage may be paid to enterprise employees in cash or by the transfer of funds to their earmarked accounts. In this case work is actually accomplished at the enterprise but juridically it is a part of activity of another enterprise which plays the role of an agent.

4. Strikes, meetings, demonstrations and other actions of protest

51

Such actions are effective when specific features of an enterprise and of the current moment are taken into account. Traditional (spring and autumn) actions of the Federation of Independent Trade Unions of Russia with their all-Russia claims and slogans did not suit completely the situation in Samara Oblast (they caused ironic feelings even on the level of Oblast union leaders) and usually did not prove effective on the level of specific enterprises. However, strikes and pickets which were conducted in time by alternative Solidarity union at Shar Company made it possible to solve the problem of wage payment within several days.

Under difficult economic conditions (absence of any funds at the enterprise account, working below production capacity) the actions of protest themselves have very little influence over the enterprise management: in spite of any strikes, managers won’t find money for wage. The demonstrative character of the above actions is very important here. The enterprise administration may be forced to take another loan to pay wage but this will probably further worsen the economic situation at the enterprise.

At the same time, such actions of protest may attract the attention of local authorities which often find possibilities to provide financial assistance to the enterprise (by transferring immediately a certain amount of funds to its account, or negotiating with the creditor on postponement of debt payment, or providing a privileged credit). Such actions are most effective at large enterprises but funds provided by local authorities are anyway insufficient to repay all wage arrears. That’s why such actions of protest should be used as an extreme measure and very selectively.

Another reason impeding radical actions of protest is related to the fact that union committees have financial and material funds to support employees during a strike. This circumstance puts certain limits on the duration of a strike. Besides, a poorly organized strike has a negative impact over the authority of the union committee in charge of its organization and may bring nothing instead of the lost wage (wage is not paid for the days of downtime).

Views and opinions leading to confrontation between union committees and enterprise

administration

1. Objectively union committees are primarily obliged to protect interests of employees (including timely wage payments) and only then should worry about the survival of an enterprise (although in reality union committees

52

show different extent of readiness to protect these interests). If payment of wage arrears is impossible under the current conditions, some union committees agree with starting bankruptcy procedure and selling enterprise property, equipment, etc. Enterprise administration is, on the contrary, interested in survival of an enterprise (bankruptcy procedure is not very popular now among managers as a means of survival).

2. For enterprise management it is more profitable economically to pay taxes (because of a possible fine), procure raw materials (to ensure use of production capacities), repay debts (because of growing bank interests) rather than to pay wage regularly.

3. Union committees are interested in control over enterprise management activity and possibility to influence principal economic decisions of enterprise management. Directors are certainly trying to avoid such control.

4. Methods of solving the problem of wage arrears used by union committees (submission of statements of claim, meetings and especially strikes) are negatively estimated by enterprise management: strikes are estimated as destructive actions, submission of statements of claim draws enterprise management away from production management issues and lead to payment of court costs.

Common views and opinions of union committees and enterprise administration related to the problem of wage arrears

1. Enterprise administration and union committees agree that wage should be paid necessarily because wage arrears have a negative impact over the quality of work force. This leads to voluntary resignation of best employees.

2. From the view of ensuring the best conditions of sale of work force, union committees like enterprise administration are interested in ensuring agreeable conditions of enterprise activity. The parties usually express their solidarity in negative (critical) estimate of the role of the Federal Government and legislative power in ensuring economic conditions of operation of

53

enterprises. Protection of interests of employees by union committees may be expressed in protection of enterprise interests from the State. Within the frames of social partnership it is possible for the parties to appeal together to authorities both on federal and regional levels.

Possible methods of union committee activity to solve the problem

of wage arrears

Problems of wage arrears are primarily economic problems which can not be resolved with the help of union committee pressure upon enterprise administration or, on the contrary, a compromise with an employer. However, to a certain extent difficulties of financial and economic situation at an enterprise are due to mistakes in enterprise management. Moreover, under the general crisis of non-payments the enterprise administration may consider wage arrears temporarily acceptable and even profitable from the view of receipt of funds from federal and local authorities, claims for tax relief, etc. In such cases union committees may and should control enterprise management activity.

Acceptable solutions are possible within the frames of influence over the parties involved in the situation of wage arrears. These, according to our point of view, include: union committees, enterprise administration, owners and the State.

(1) Influence over the State. On the level of the State policy the problem of wage arrears may be resolved to a great extent due to more profitable conditions of operation of Russian industrial enterprises related to tax policy, loan conditions, protectionism, etc.

On the level of subjects of the Russian Federation debtors among enterprises may be assisted by provision to them of territorial production orders.

However, the potential of local authorities is insufficient (especially to support large enterprises). Therefore, there is probably a need in State or sectoral programs of support to enterprises with wage arrears.(However, it should be taken into account that if the conditions of the program are too advantageous, enterprise will initiate wage arrears in order to participate in the above program.)

At the same time, in certain cases when wage arrears reach a considerable amount and are still not paid, the State may decide what

54

to do with the enterprise in question up to deciding to sell its property in order to pay wage from these funds (through bankruptcy procedure).

(2) Influence over the owner

The owner of an enterprise has certain economic interests including profit, profitable investment, etc. In order to persuade the owner of an enterprise in the necessity to pay wage regularly, economic levers should be used. For the owner as well as for enterprise administration it is more preferable to repay debts which are fraught with high bank interests than to pay wage. That’s why if wage arrears entail a fine, enterprise management would try to pay wage regularly and an employee would get at least a partial compensation of moral and physical losses (without starting a complicated juridical procedure). Adoption of such a Law (or a Decree) on the federal level would be the greatest merit of the union.

At the enterprise level it is possible to add a provision for indexation of wage arrears to the collective bargaining agreement. Another possible solution is to adopt a Federal Law on indexation of wage arrears (according to some experts covered by the present study, the amount of bank interests may depend upon the discount rate of bank interest for each day of delay). It may also be recommended to add to the collective bargaining agreement a provision for obligatory payment of 2/3 of wage if an employee is on a vacation (or is not working because of downtime) due to administrative reasons, obligatory vacation payments, obligatory severance payments to redundant employees.

In order to influence the owner’s policy, it is possible to demand to include the representative of union committee who will express the interests of labor collective in the Board of enterprise shareholders (even if the labor collective does not possess a large package of shares). This may be achieved on the level of an enterprise (within the frames of collective bargaining agreement) as well as on the level of territorial and sectoral union organizations (within the frames of sectoral and territorial tariff agreements) and on the federal level (adoption of a corresponding Federal Law).

(3). Influence over the administration. Enterprise administration is interested in production development but may also have its own group interests. At present, the dependence of enterprise administration (director) upon the owner is evident; it is connected with selection of a director at the meeting of shareholders. But it is also necessary to underline the dependence of a directorate upon labor collective. The current Russian legislation gives a possibility to

55

remove a director for violation of a collective bargaining agreement. That’s why it is possible to: (1) recommend to union committees to pay more attention to preparation of collective bargaining agreements; (2) develop recommendations on preparation of bargaining collective agreements; (3) conduct several demonstrative removals of enterprise directors for non-payment of wage.

Since one of the reasons for wage arrears is an ineffective enterprise management under market conditions, it is necessary to strengthen in some way the control over the economic activity of enterprise administration. In particular, it may include introduction of a union representative into the Board of enterprise directors (with a right to vote).

(4). Influence over union committees. Influence over union committees is possible through higher union organizations and international non-government institutes showing their interest in the problem of wage arrears. In particular, it will be very useful to conduct an international conference and provide the materials of the conference to a large number of primary union organizations.

Is the current legislation sufficient to solve the problem ofwage payment?

According to Oblast union leaders, the current legislation is strong enough to oppose wage arrears. According to enterprise union committee leaders, the legislation is too complicated to be broadly used by union committee leaders, especially in relation to all peculiarities of labor legislation. There is a need in legal consultations and recommendations to union activists.

At the same time, according to alternative Solidarity union leaders, for the last several years the legislation undergone consistent changes limiting the rights of employees related to timely wage payment. For example, the new Russian Civil Code (1995) does not envisage the possibility to compensate moral damage for wage arrears, besides, the Supreme Court prohibited to use Article 395 (1) of the Russian Civil Code which determined the use of property and financial funds of other juridical persons (the Article envisaged indexation of wage arrears in the amount of discount rate of the Central Bank of Russia) during the submission of statements of claim related to indexation of wage arrears. At present, indexation of inflation is ineffective because the level of inflation is low (besides, indexation should be calculated for each separate month).

56

Moreover, the Federal Law provides a possibility to claim only a wage payment and no other payments including:

payment for forced administrative vacations in the amount of 2/3 of the wage;

severance payments to redundant employees;

vacation, business trip and other payments which make a part of an employee’s income.

57