HCC Management Team Bargaining Information
You are the Human Resource Manager, and have been tasked with developing the Management proposals for the upcoming negotiations with the Union. The Management team is expected to negotiate an agreement that will allow the company to achieve its strategic goals over the next three years. You Management team has shared the following long-term information with you, allowing you to see that they have carefully thought out the long-term mission for the organization.
Item 1. Managerial Compensation
HCC managers received 5% across-the-board annual raises for each of the past three years which has caused considerable resentment among the union rank-and-file. Future managerial compensation increases will take the form of at-risk annual lump-sum bonuses based on achieving the projected strategic yearly goals. The lump sum bonus plan was initiated due to the need to reduce operational costs in order to fund the needed upgrade to production equipment.
Attaining all strategic goals in any one year will yield a 20% total annual bonus to the Senior Managers. The extent to which future strategic goals are expected to be achieved (as reflected in the feasible terms of the new contract) will serve to assess the negotiating success of the management bargaining team in the simulation.
This information, to the best of your knowledge, is not known to the employees or the Union Bargaining Committee. However, two Managers at the site have spouses that are Union employees. Both Managers have been advised not to share this information with their spouses, due to confidentiality concerns.
Item 2. Union Employee Compensation
The average hourly wage for Production employees at the site is $16.00 per hour. There are a total of 1,000 Unionized production workers at the site, with all working a five day, 40-hour week. Little to no overtime is worked. Thus, the average annual wage for Production employees equals $33,280 dollars per year.
The planned automation to the production equipment will result in a thirty (30) headcount reduction in the first year of the bargaining agreement. The cost savings of this transformation will reduce operational labor costs by a total of $1 Million dollars per year.
Item 3. Strikes, Lockouts, Unfair Labor Practices
Management may elect to lockout labor at any time if it believes that no reasonable progress has been made in negotiations. Work stoppages will severely damage HCC customer relationships and its valued reputation as a firm dedicated to the prompt delivery of quality products.
Item 4. Facilities Upgrade and Production Manning
In order to meet customer demands for higher product quality, to comply with federally-mandated environmental regulations, and to reduce production costs, HCC must spend $2,000,000 within the next three years to upgrade equipment. The upgrade is expected to result in production efficiency gains that will lower material and labor costs by reducing defective products, process waste, in-process inventory, and production man-hours through simplified work processes.
The proposed facilities upgrade and subsequent manning reduction have not yet been discussed with the union. The company will introduce its demand for the facility upgrade, the manning reduction, and the change to continuous operations in its initial demands.
Item 5. Health Benefit Costs
HCC employees currently have a first-dollar (no deductible or co-pay) health benefits package that costs $3,500 annually per employee. If left unchanged, the cost of health benefits is expected to increase 10% annually for each of the next three years.
A provider has offered an HMO-type plan for $3,000 per employee that limits cost increases to 3% per year. Under the proposed HMO contract, employees will pay a $500 annual deductible before full coverage is assumed by the plan. In an effort to contain its rising health care costs, the company will include the demand for a change to the HMO contract in its initial demands. This proposed plan will save the company a total of one (1) million dollars per year, based on the forecast savings of $1,000 per employee cost and additional reductions in the chargeback for services from providers in the HMO plan.
Item 6. Other Informational Items
* The current contract includes six paid holidays and two days of miscellaneous leave.
* The second shift differential is currently $0.15 cents per hour and third shift differential is $0.25 cents per hour. These shift premiums have remained unchanged for over ten years.
Your Challenge by Upper Management
The planned headcount reductions of thirty (30) production job, plus the additional savings forecast from the change to the HMO medical plan is sufficient to fund the two (2) million-dollar cost of the planned facility upgrade to automated equipment. Built into the headcount reduction cost estimate is a severance package for those Union employees who will be laid off, with extension of benefits for one full year, and two weeks of pay to each employee for each year of service. This added cost does not need to be included in the negotiation calculation, as it is already forecast in the cost of the automation upgrade.
Any new Union proposals agreed to at negotiations with the Union above and beyond $1 million dollars per year must be primarily offset with the Union accepting cost-reduction proposals in other areas of the Collective Bargaining Agreement. Your total allocated budget for negotiations only permits a total of $1 million dollars in increased cost, per year, for each year of the new Collective Bargaining Agreement.
For the purpose of this exercise we will only cost out year 1 of the new labor agreement.
In summary – upper management has allocated you to spend up to $1 million dollars in increased cost in the upcoming Collective Bargaining negotiations session. However, if the proposed HMO is modified, reducing the cost savings, then your allocated budget to spend is reduced by that amount as well.
From your perspective, the amount of dollars allocated for increases to Union employees is low, but upper Management has stated they are willing and able to take a strike, if necessary, in order to achieve these cost objectives.
They state they have full confidence in your ability to negotiate a new agreement with the allocated ranges, and expect you to deliver an agreement acceptable to the Union.
Your strategy is to focus on two, and only two economic areas: hourly wages and shift differential. You believe doing so provides the ability to disperse the $1 million dollars of added spending you have been allocated, which will meet the minimum expectations of the Union employees, avoiding a lengthy strike.
This approach means any proposals outside of these two areas would have to be either rejected, or offset by lower hourly wage increases and/or reduced increases in the shift differential.
Directions
1. Read the attached article, entitled Interest Based Bargaining.
2. Using the BATNA Concept discussed in the article as the framework for your paper describe your strategy using the following Subheadings in your paper:
Identify the Interests, i.e., the interests that both Management and the Union have in process, briefly summarizing the
Substantive Issues,
Procedural Interests, and
Psychological Interests.
3. Choose your team – You will be the Chief Negotiator in your position of Human Resource Manager. Choose other team members that you believe are needed to be part of your Management team.
4. Frame the Issue:
Summarize the two major transformations Management is seeking in Negotiations:
- Automation of Production Equipment, and the resulting layoff of 30 Union employees due to increases in production efficiencies. The upgrade will result in a $1 million dollar cost savings per year.
- Change in the Medical plan to the HMO plan. The change will result in a $1 million dollar cost savings per year.
- Any increases in Union labor production costs must be reasonable, as the organization is facing continued economic pressure from its competitors in the marketplace.
5. Generate Options – You will be focusing on only two proposals – an hourly wage increase and changes in shift differential. Three sample positions are provided for your review in the Excel wage calculator. Feel free to modify these three positions as you deem appropriate.
6. Summarize your Final Offer to the Union, ensuring the total cost of your proposal does not exceed $1 Million dollars per year, plus or minus 5%. ($950,000 – $1,050,000).
The Final offer should simply be listed in the paper, highlighting the percent increase in hourly wages and the change, if any, in second and third shift differential.
The following attachments provide you with the necessary information to successfully complete this Case Study assignment:
