Back in the spotlight: Shining the light on workforce productivityDecember 27, 2015
Enterprise bargaining is once again at the centre of the productivity debate and Jessica Fisher, Partner of FCB Workplace Law, looks at why it’s no longer enough just to ‘follow the pattern’.
In the early 90’s, enterprise bargaining became the structural saviour of workforce productivity. Since that time, however, its shine has gradually faded. Indeed, in many industries today, agreement making is seen as little more than the unavoidable price of industrial peace. In 2015, corporate leaders are increasingly questioning the value of industrial bargains that simply ‘follow the pattern’ without adding value or improving efficiency.
The political and legislative spotlight is also being squarely redirected towards enterprise bargaining, to ensure it supports productive workplace co-operation. Creative negotiators will use this opportunity to reinvigorate workforce bargains, drive innovation and protect their businesses from emerging market pressures. On the other hand, those who fail to factor in productivity – whether in terms of growth or efficiency – can expect to feel the heat under fresh scrutiny from both senior management and the Fair Work Commission.
What is productivity, really?
Improving productivity basically comes down to one of two things: either you achieve more without having to invest more effort and resources; or you achieve the same, but reduce your level of effort and resources. The simplicity of this proposition, however, can easily become lost or forgotten when disproportionate attention is given to macro-economic concepts (eg, ‘national productivity’) or particular financial formulations (eg, goods/services produced per hour worked).
Ultimately, how you assess productivity (particularly at a workplace level) is subjective and will always depend on a range of considerations, including:
- How you define your productive output: For example, are you in a commercial business focused on producing returns for shareholders? Or is your mission to deliver low cost social services? Is it perhaps a combination of both?
- How you define your input costs: The standard input unit for ‘labour productivity’ is hours worked, but this assumes each hour worked is of equal value and, of itself, this doesn’t factor in things like unpaid work hours, discretionary effort (some employees will always work harder than others!) or differences in capacity (eg, an employee with a cognitive disability may produce less per hour than an able bodied employee, even if they put in the same effort and receive the same pay).
- How you factor in other influencers: A range of indirect factors also affect the value of output and input. For example, investing in skills training increases the real cost per hour of skilled labour; and substandard customer service can dilute the real value of a manufactured product (ie, by undermining future sales volumes).
Indeed, defining productivity can be particularly difficult in the (growing) services sector. In part, this is because the value of services tends to be less quantifiable than manufactured goods (particularly for public services, such as health, education, aged care, etc). Another contributing factor is the indirect cost of maintaining a large, skilled workforce. To demonstrate this, and to highlight some practical examples of opportunities to improve workforce productivity, we’ve set out below a hypothetical (and very simplistic!) worked example from the aged care sector, where the mixture of public/private investment provides useful comparison points.
Making it real
In practice, the complexity and subjectivity involved in defining and analysing productivity (let alone improving it) adds an extra degree of difficulty to enterprise bargaining negotiations. Many employers shy away from this entirely, instead using bargaining simply to preserve the status quo (eg, by rolling over an existing agreement) or to buy industrial peace and employee trust (eg, by locking in above award benefits through a statutory instrument, rather than using more discretionary policy or contract provisions). We also frequently see agreements that give productivity lip service, but don’t actively improve it. For example, they often include ‘aspirational’ clauses where the parties notionally commit to co-operate to improve productivity, but without including any practical mechanisms for doing so.
WORKED EXAMPLE: AGED CARE PROVIDER
The reality is that enterprise bargaining can be used effectively to improve workplace productivity, but you need to be prepared to put in the effort to produce the returns. As a minimum, this is what you’ll need:
To reach a shared commitment to improve productivity, you need a shared vision. This demands clear and appropriate communication to ensure employees (and their representatives) both know and understand the key issues: the definition of productivity you are using, how your proposed initiatives relate to productivity, as well as the practical impact for them. Effective communication is also critical for ensuring accurate up to date information from and about employees (eg, whether they will vote for your proposals!).
Effective productivity initiatives must be based on accurate information, and not just financial or operational data (although this is important). Subjective data is often forgotten. For example, have you surveyed staff to identify what they really expect? And have you read the most recent research about what drives consumer choice in your industry?
The practical ability to align bargaining outcomes with productivity objectives often lies in the analysis. For example, you’ll need a realistic assessment of which input/output factors employees can influence, how much ‘extra pie’ you are prepared to offer to encourage that behaviour and, ultimately, whether offering those incentives will actually drive the desired outcomes. For example, some employees may say they want more money, but they won’t necessarily work harder to take what’s on offer!
Productive co-operation, like bargaining generally, is about shared interests and commitment. Unless employees see real value in the goal of improving productivity (or a particular type of productivity), they won’t engage. Often, this comes back to the employer’s commitment to good process (especially the resources put into communicating with employees).
All of this complexity can be tricky, but good planning and preparation can simplify the process and improve the prospects of success. Looking ahead to key timeframes, undertaking early research and analysis and getting good strategic advice are all critical.
Legislative Reforms: “You can lead a horse to water…”
In late 2014, amid concerns about productivity, the Federal Government introduced a new Bill aimed squarely at enterprise bargaining practices.1 If passed by the Parliament, the proposed changes would actively require bargaining representatives to discuss productivity improvements. This would not require the parties to actually agree to productivity improvements or include them in their EA. However, before the FWC could approve an EA (other than a Greenfields EA), it would have to ensure that improvements to productivity at the workplace “were discussed”
Although this proposal is clearly aimed at improving bargaining outcomes, it’s hard to see how it could actually “enhance enterprise bargaining” as intended1 (other than simply by reminding less sophisticated bargaining representatives that productivity is important). Instead, for most employers, the change may well add more counterproductive ‘red tape’ to the approval process, because they would presumably need to generate, maintain and potentially submit extra documentary evidence confirming what was discussed during bargaining (eg, agendas, minutes, communications, etc). At best, it would add another ‘tick a box’ obligation to the approval form. At worst, it could enable the tribunal to intervene and void a bargain (even after employees have voted to approve it) if the FWC subjectively assesses the quality of productivity discussions as inadequate. That is, even though the Bill says “were discussed” not “were discussed genuinely or adequately”, there is a risk the FWC might “fail to be satisfied” if it considers a discussion was contrived merely to tick the box.
Ultimately, legislation can’t force people to achieve more productive bargaining outcomes. The purpose of statutory enterprise bargaining is to allow employers to opt out of the standard safety net terms in Modern Awards, in return for employees receiving a larger slice of the employer’s pie. Although some of these deals may look unproductive to an outsider, we must assume that, rational employers (free from unlawful coercion) wouldn’t sign up to an EA unless they actually see some net benefit in it for them. It is another question entirely whether this benefit can be quantified easily or factored into financial productivity measures. The best that procedural rules can hope to achieve is to equalise each party’s bargaining power (at least, to some extent), for example, by allowing a limited right to strike but ensuring there is no obligation to reach agreement and preventing unlawful coercion.