Human Resources Management
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chapter_11.docxChapter Eleven
Contract Negotiations
The negotiation of a labor contract is critically important to both parties. The agreement governs their relationship for a defined time period. For the employer, the contract has cost impacts and constrains management decision making. For the union, it spells out union members' rights and returns from their employment relationship.
Why does a contract emerge in the form that it does? How do the parties prepare for bargaining? What influences do the rank and file or the various functional areas within an organization have on the demands made in the negotiations? How does each group organize for bargaining? What constitutes success or failure in negotiations? What sequence of activities usually occurs during negotiations?
In this chapter we first examine the activities preceding the negotiations from both union and management perspectives. Then we look at the theory and tactics of the negotiating process and the steps necessary for agreement and ratification. Finally, we examine management's assessment of bargaining.
As you read this chapter, consider the following questions:
1. How do both management and the union prepare for negotiations?
2. How are negotiating teams constituted for bargaining?
3. What processes are involved in negotiations?
4. How are agreements reached, and what processes are necessary to obtain approval by the union rank and file for ratification?
Except for initial contracts and financial exigencies, negotiations are triggered by a preagreed date for renegotiations and the law. The Taft-Hartley Act requires that the party desiring modification give at least 60 days' notice before any terms can be changed. Under the Railway Labor Act, a party must indicate it wants to modify the agreement. However, regardless of the amendment date, the existing contract remains in effect until a new one is agreed on, and strikes cannot occur until 30 days after the National Mediation Board (NMB) has declared an impasse.
Figure 11.1 portrays a general sequence of activities in the bargaining process. The diagram lays out the basic prenegotiation activities, the proposals and responses in bargaining, and the possible outcomes of bargaining, together with settlement procedures. Both parties have an idea how they would like a new contract to be shaped. Either they have taken positions during an organizing campaign or they have had experience with an existing agreement.
Page 321FIGURE 11.1 Bargaining Process Events
Page 322MANAGEMENT PREPARATION
Because labor is a large share of total operating costs for most employers, management must be well aware of the cost implications of contract proposals. Both heavily organized and less organized firms should be aware of contract implications because benefits won at the bargaining table are frequently passed on to unorganized employees.
Negotiation Objectives and the Bargaining Team
The chief executive officer (CEO) ultimately establishes economic targets and needed changes with advice from the top management team. The top human resource/industrial relations (HRIR) executive is responsible for coordinating preparations for bargaining and may be the lead management negotiator. Various functional departments help prepare for bargaining and want to see certain issues pursued at the bargaining table. Production managers are interested in work rules and costs. Marketing managers want a contract that will minimize production disruptions. Accounting personnel supply many of the cost figures used for bargaining.
Contract objectives should support the goals of the employer. For example, to avoid production disruptions, the contract should include clauses providing for arbitration of unresolved grievances in return for no-strike agreements. If cost certainty is important, the contract should avoid person-tied benefits and cost-of-living clauses and include gainsharing, profit sharing, and/or piece-rate pay plans.
Reviewing the Expiring Contract
Top management, the labor relations staff, and first-line supervisors all review the expiring contract. The review centers on contract language that contributed to cost or operating difficulties during the contract, areas in which frequent grievances occurred, the results of arbitration cases, current practices not covered in the contract, and other contract supplements that affect operations.
Preparing Data for Negotiations
Necessary pay and benefit data include relevant comparisons, such as rates paid within the industry, local labor market rates for occupations covered by the agreement, settlements gained by unions known as pattern setters, and changes in the cost of living since the last negotiations.
Page 323Employee demographics such as seniority, age, sex, job classification, and shift are important. Because entitlement to many benefits is tied to seniority, a workforce with an increasing number of senior workers will incur higher benefit costs, even without a negotiated increase in benefit levels. For example, if vacations increase from two to three weeks after five years of service, a workforce that has 200 employees with three years of seniority at the beginning of a three-year agreement would have 200 employees with six years of seniority at the end, assuming there is no turnover. This change would mean an increase of 200 weeks of vacation by the end of the agreement. The employer will be paying for 200 unworked weeks and may need to hire five more employees to make up for the lost production. Knowing how many employees are on each shift enables employers to calculate shift differential costs.
Internal economic data, such as benefit costs, participation in discretionary benefit plans (recreation, etc.), overall earnings levels, and the amount and cost of overtime, are important. Information on competitive overall earning levels is important because some employee groups may feel underpaid when they actually are not. For example, skilled-trades employees in industrial plants earn less per hour than their counterparts in contract construction, but they are laid off less frequently because of weather or lack of work and thus may have higher gross earnings.
Knowledge of the union's negotiation and ratification procedure is also important. The bargaining team needs to know how the union signals concessions and drops demands during the process. If the union negotiator is new, information on his or her negotiating style is important. The time necessary for ratification and whether the union usually works after contract expiration are important from a deadline standpoint.
The employer's current level of operations and anticipated future changes are important in assessing bargaining power on certain issues. For example, if little inventory is available and customer orders have increased recently, but there are several competitive sources available for similar products and services, then a strike might be disastrous. The increasing use of just-in-time inventories and other sophisticated supply-chain management methods has increased bargaining power for unions since operations could not normally continue if a strike occurred.
Identification of Probable Union Demands
Using information from grievances under the expiring contract and feedback from first-line supervisors, management may be able to assess the likelihood of certain demands and the union's likely tenacity during bargaining. In large companies with national-level negotiations, attention to union bargaining conventions should inform management about the issues to which the union has committed itself. Other pattern settlements should offer clues to management.
Costing the Contract
As noted in Chapter 9, the level and type of wage and benefit changes specified in the contract have a definite cost impact for the employer. To make rational choices among possible demands and to counteroffer with an acceptable package that minimizes its costs, management must accurately cost contract demands.
Management can use a variety of costing methods of varying sophistication. An example of a relatively simple approach highlighting many of the issues is portrayed in Table 11.1. This example shows some of the important dynamics in long-term contracts. Costs for wages may increase at different rates than do costs for paid time off or insurance benefits. In general, the costs of insurance to cover certain events, such as medical care, are outside the employer's control unless the employer has negotiated a fixed dollar amount of insurance to be purchased.
The implications of certain contract terms are not straightforward and must be examined closely to capture real-cost impacts.1 First, the “roll-up,” or amount by which overtime and wage-tied benefits are increased by changes in the base rate, must be tracked. Second, overtime premiums greater than those required by law should cause the firm to consider whether overtime is controllable and whether labor cost increases can be passed on to customers. Third, vacation costs need to be examined critically. For example, vacations for maintenance employees may be essentially costless if work can be postponed until vacations are over, but production employees' vacations may require scheduling overtime, thereby increasing vacation costs by the premium rate, or hiring an equivalent number of full-time employees. Fourth, relief time may cost more if it is broken up into short periods. Some time may be necessary to begin the break and then return to work. This slippage may require adding more employees to sustain production volume.2
Benefits costing is not straightforward. Pension costs may depend not only on a defined contribution rate (e.g., 5 percent of base wages) but also on quit rates, vesting (personal ownership of benefits) rules, and pay rates at the time of retirement. For example, if the contract vests contributions after five years of service but only 20 percent of employees ever accrue five years, pension costs would be far less than the 5 percent of base wages. Health insurance usually provides a certain level of benefits (e.g., 80 percent of the first $5,000 of medical expenses and 100 percent above $5,000 annually). Unfortunately, employers have little control over the premium charged for the benefits. Thus, they can only estimate future costs.3
Page 325Employers need to evaluate salary-increase costs closely over the duration of the contract. For example, given interest rates and the total amounts paid, agreeing to increases of 50 cents, 50 cents, and 75 cents over a three-year agreement might cost the company less than 90 cents, 40 cents, and 30 cents. In the former case, the total increase is $1.75, while in the latter it is $1.60. But in the former case, an employee would earn 50 cents per hour more for three years ($1.50), 50 cents more for two years ($1.00), and 75 cents more for one year—a total of $3.25 more over the contract period. In the latter case, the employee would get 90 cents more for three years ($2.70), 40 cents for two years ($0.80), and 30 cents for one year—a total of $3.80. But postponing increases to give a larger total increase during the agreement raises the base wage rate for subsequent negotiations.4 Management should also consider the costs of wages and benefits that will be granted to nonunion employees to preserve wage differentials and equity.
A detailed example of costing contract demands is included with the negotiating exercise at the end of this chapter. The method used for costing must enable management to calculate the effects of various union proposals quickly and provide an accurate estimate of their costs.
Bargaining Books
A bargaining book is a cross-referenced file that enables negotiators to quickly determine what contract clauses would be affected by a demand. It contains a history of specific contract terms and a code to indicate a proposal's relative importance to management. Many bargaining books are tied to spreadsheets so that answers to “what if” questions can be calculated quickly. Following is information likely to be included for each clause:
1. The history and text of the particular clause as it was negotiated in successive contracts.
2. Comparisons of the company's experience to the experiences of other companies in the industry, including comments on similarities and differences.
3. Company experiences both in operation and in grievances.
4. Legal issues, including both National Labor Relations Board (NLRB) determinations and judicial decisions.
5. Points the company would like to have changed, differentiated into minimum, maximum, and intermediate possibilities.
6. Changes the union may have previously demanded, the union's justification for these demands, and arguments management used to rebut them.
7. Data and exhibits, including cost and supporting analysis.
8. Progress in the current negotiation, together with drafts of various company proposals.
Strike Preparation
As noted, anticipating vulnerability to a strike may substantially improve management's bargaining power. The employer also needs to plan how it will handle a potentially disruptive situation, particularly if it expects to continue operations.
The employer balances the costs and benefits of operating during a strike. If it operates, labor relations will undoubtedly be troublesome after a contract is negotiated, particularly if replacements have been hired. Additional security may be required, and picket line observation will be important. Suppliers, customers, and government agencies will require notification if a strike occurs. For important customers, alternative methods of supply—including supply through competitors—may be necessary. Management views a credible threat to replace strikers as increasing bargaining power, but it may not have a major effect on outcomes.6
Strategy and Logistics
Finally, management must construct the strategies it will use to move toward an agreement. Management must decide who has the power to make concessions and what the final positions are beyond which it will not go.
A place to hold bargaining meetings must be arranged. If meetings will be held away from the employer's premises, cost-sharing questions must be resolved before negotiations start. The union will probably prefer a neutral site, given evidence (explored later in this chapter) that the employer takes a tougher bargaining stance on its home ground. Table 11.2 shows management time frames and functions involved in preparations for negotiations.
UNION PREPARATION
To an extent, union preparations parallel management's, with important distinctions. Traditionally, unions see contract negotiations as an opportunity to improve their outcomes. Politically, leaders are expected to gain ground or face membership problems. The union may not be as well prepared to respond to possible management demands as management is to respond to union demands, especially if the national union is not involved in the negotiations.
Page 329National-Level Activities
National union research departments track contract settlements. The employer's ability to improve pay and benefits is assessed. Some unions retain financial analysts to parse financial information to determine whether the company's future financial condition matches what management negotiators claim. This is particularly important when management is demanding concessions. Unions that negotiate later than others within an industry are able to learn from other settlements what positions employers have taken with regard to various demands. This information helps to better estimate final settlement positions and avoid strikes.7 The ability of union members to take strikes is assessed. The union's strike fund balance and the state of members' personal savings are important considerations when the union assesses its bargaining power. The national must also consider the target company's ability to withstand a strike and its vulnerability to competition.
If the negotiations involve many units of a single company or are conducted on an industrywide basis, the national is usually responsible for negotiating economic issues. National-level bargaining teams usually consist of national officers and officers of some key locals. The inclusion of senior members, who are paid more, leads to higher negotiated wage outcomes.8
Before negotiations begin, the national union may call a bargaining convention at which local delegates hear the national's plans for bargaining and propose their own issues. The convention has two major purposes. First, grassroots issues are raised for inclusion in the bargaining agenda. Second, the union's leadership has a forum for publicly committing itself to certain bargaining positions. Commitment to issues strengthens the union's bargaining power, because conceding later at the bargaining table will be more difficult. The union is also interested in homogenizing attitudes of members around the salience of important issues and heightening adversarial attitudes.9 A study of teacher union members found that attitudes were less varied during negotiation years compared to “off” years. Attitudes toward pay and management declined, while attitudes related to teaching were unchanged.10
Page 330TABLE 11.2 Management Planning for Contract Negotiations
Source: A. Freedman, Managing Labor Relations (New York: Conference Board, 1979), p. 24. Copyright © The Conference Board, 1979, used by permission.
Local-Level Preparations
At the local level, the negotiating committee is usually elected with the other officers and has responsibility for negotiating contracts and processing grievances. The committee identifies contract clauses (e.g., allocation of overtime) susceptible to more than one interpretation or viewed as inequitable by the membership. Locals are also served by the national union's field representatives. As a result, members learn about settlements reached by other locals. They also learn which issues the national considers critically important to include in all contracts.
The employer's financial performance is known if the employer's shares are publicly traded, and this information may help the union to gauge the level of its economic demands. However, in firms that operate in several industries (e.g., General Electric is involved in power plant equipment, home appliances, broadcasting, financial services, and other industries), the relative contributions of each division are difficult to separate. The union knows the perishability of the employer's products, its competition, and its ability to operate during a strike. It is also aware of industry trends to move production offshore, move to another region of the country, or substitute capital for labor when high economic demands are won. Small bargaining units and independent unions are less likely to reach an impasse, possibly because of better ongoing knowledge of their counterparts, and they have less of a need to achieve a national pattern.11
Local unions hold membership meetings before the negotiations to inform the membership about important issues and to solicit more input. These meetings also help determine local members' commitment to bargaining issues in case a strike is called.
After negotiations are under way, the union usually calls another membership meeting. The negotiating committee reports on progress and requests authorization to call a strike if necessary. Overwhelming approval is usually given. A strike vote does not mean a strike will occur but rather gives bargainers the authority to call one after the contract expires.
NEGOTIATION REQUESTS
Section 8(d) of the Taft-Hartley Act requires that the party wanting to renegotiate the contract (usually the union) must notify the other party of its intention and offer to bargain a new agreement. Notice must come at least 60 days before the end of the contract if the requesting party intends to terminate the agreement at that time.
Page 333Employers usually propose a time—often not immediate—and place for negotiations to begin. Often this means initial demands are not made until 30 days or less before the contract expires. After notice is served, both parties start final bargaining preparations.
WHAT IS BARGAINING?
Bargaining, at a basic level, is the communication by two parties of the terms they require to consummate a transaction and the subsequent acceptance or rejection of the terms by both. Negotiation is the set of techniques parties use to influence the terms of the ultimate settlement.12
Bargaining is required because the parties have a conflict of interest on issues that jointly affect them. They must decide how to divide resources and other intangible issues in which they have joint interests. Negotiation requires the presentation of positions, their evaluation by the other party, and counterproposals. The process requires a sequential rather than a simultaneous mode because each party must have time to evaluate the other's proposals before responding.13 Bargaining processes that involve proposals and counterproposals have higher expected payoffs than ones that involve making a proposal that is followed only by an acceptance or rejection.14 Following is a description of bargaining or negotiating from an economic perspective:15
1. Negotiation occurs if both parties believe they will benefit by agreeing. The employer benefits by continuing to operate, and the union benefits by meeting member needs.
2. Concessions made during negotiations are voluntary. Concessions, in number and degree, may be influenced by the size of the demands and the opponent's beliefs about the demander's willingness to concede, but any movements made are still voluntary.16
3. Negotiations are seen as productive. They may disclose areas of agreement or alternatives not previously considered by either party.
4. Negotiations as used in labor-management relations are characterized by verbal and/or written demands and concessions.
5. The bargaining process requires competition before the benefits available accrue to the parties involved in the bargaining.
Page 334A behavioral definition of the collective bargaining process includes the following:17
1. Collective bargaining includes some issues that generate conflict between the parties and others that require collaboration to accommodate the separate interests of both.
2. Attitudes and feelings play a part in the outcome of negotiations over and above what results from the bargainers' rationally defined attributes. Further, the bargainers do not come together only for this negotiation but must maintain an ongoing relationship. Thus, the results of the negotiations affect the long-term nature of the bargaining relationship.
3. The bargainers are often acting on behalf of others rather than for their own ends. They are representing constituents who evaluate their performance and may affect their tenure as negotiators.
Collective bargaining results because either labor or management is unwilling to agree to the other's total agenda. The following basic rules appear to govern the bargaining process:18
Rule 1 states that an impending contract expiration is necessary for the commencement of bargaining. During the course of the agreement, the parties have essentially agreed not to bargain, so the anticipated expiration allows the renewal of bargaining.
Rule 2 states that the initial bargaining demand should be large. Even though both parties are fairly certain the initial positions are substantially different from what each is willing to settle for, the large initial demand creates room for bargaining and allows relatively large concessions when the time is right.
Rule 3 explains that the negotiating agenda is determined by the initial demands and counterproposals. In other words, the issues initially raised by the parties constitute the focus of the bargaining. Additions to the initial agenda are seldom made, and offers made in regard to these items can rarely be retracted.
Rule 4 precludes strikes or lockouts before a certain time and requires that notice be given if a strike is possible after this point.
Rule 5 provides that negotiations terminate when an agreement is reached. This rule may contain a requirement that unresolved issues be arbitrated or operations continued to preclude an emergency while an agreement is reached.
Rule 6 requires that the parties negotiate in good faith. To do this, the parties must respond to each other's demands and take no unilateral action to change the existing conditions before the end of negotiations.
Page 335Thus, bargaining involves parties that have a mutual interest in reaching agreement on a variety of issues. Negotiators are agents for others who stand to have their positions altered as a result of bargaining. Personal characteristics of bargainers, as well as the power of the parties they represent, are likely to influence the outcome. The union has strong interests in a continuing relationship, while management generally has no intrinsic interest in its continuation.
BEHAVIORAL THEORIES OF LABOR NEGOTIATIONS
Distributive Bargaining
Bargaining includes four behavioral components. Distributive bargaining occurs when the parties disagree on an issue and when its settlement will involve a loss for one party and a gain for the other.19 Assume the union wants a 60-cent hourly increase, and the parties ultimately settle for 30 cents. The 30-cent increase is a gain to labor and a loss to the company, which is not to say the loss is greater than the company expected. The company may have believed a settlement for anything less than 35 cents would be better than it expected. Distributive bargaining simply means some resource is in fixed supply, and one party's gain of that resource is the other party's loss.
Because distributive bargaining involves the division of outcomes on a bargaining issue, much of the negotiation process involves providing the opponent with information on the importance of a particular position, the likelihood of future movement on that position, and possible trade-offs that might be made for a concession. Through bargaining, each side may pick up cues as to where the other is willing to settle. An important part of this process is identifying the commitment a bargainer attaches to a position. One bargaining strategy would be to demand most of what would constitute an acceptable outcome and then threaten the other party with a strike if the demand is rejected. Evidence from bargaining experiments suggests, however, that fairness in outcomes is incorporated into bargainers' sequences of offers.20 Table 11.3 portrays various management and union commitment statements and analyzes them as to their finality, specificity, and consequences for ignoring them.
Integrative Bargaining
Integrative bargaining is used when the parties face a common problem.21 For example, a company may be experiencing high employee turnover. As a result, union membership is also eroded, and union officials need to spend a great deal of time recruiting new members. Both parties may seek a solution to their joint problem by attacking any contractual causes of turnover.
Integrative bargaining occurs when employers and unions accommodate each other's needs without cost or through simultaneous gains. Integrative bargaining frequently involves employers' desires to improve flexibility and unions' desires for increased job security.22 Much attention is currently being paid to so-called mutual-gains bargaining. This is Page 339an example of integrative bargaining in which the parties approach the negotiation with the idea that when it's concluded, both sides will have benefited. Exhibit 11.1 details this approach.
Attitudinal Structuring
Attitudinal structuring refers to activities parties use to create atmospheres of cooperation, hostility, trust, and respect.23 Changed attitudes are expected to change predispositions to act. Relationship patterns will affect or follow one party's action toward the other, beliefs about legitimacy, level of trust, and degree of friendliness.24 The predominant patterns of these attitudinal dimensions (shown in Figure 11.2) fall within the categories of conflict, containment-aggression, accommodation, cooperation, and collusion.
Conflict occurs when each party seeks to destroy the other's base. Neither acknowledges the legitimacy of the other, and each pursues activities to interfere with the other's existence. Containment-aggression involves demonstrating a high degree of militancy while recognizing the other's right to exist. Accommodation occurs when each party accords the other a legitimate role and allows the other to represent its position as a legitimate interest. Cooperation occurs when each party sees the other's position as legitimate and when common issues are of simultaneous concern to both parties. Collusion takes place when both parties join to subvert the goals of the parties they represent, for example, when management covertly assists a union in organizing in return for a nonmilitant stance on bargaining.25
Attitudes toward bargaining have polarized since the 1970s. Almost 20 percent of a sample of large U.S. manufacturing employers adopt strategies beyond containment-aggression with a goal of eliminating unions. Conversely, almost one-third have adopted a cooperative approach, emphasizing joint union-management programs, while another one-third mix containment-aggression and cooperation strategies. Union-busting tactics were linked to companies with lower financial performance, while cooperation was related to companies with higher performance. In both cases, however, employers closed union facilities and opened new nonunion plants.26 One study of managerial stances toward labor relations found that tougher approaches were related to low sympathy for union goals, larger plant size, low capital intensity, low market share, and educational requirements for the job.27
Page 340FIGURE 11.2 Attitudinal Components of the Relationship Patterns
Source: R. E. Walton and R. B. McKersie, A Behavioral Theory of Labor Negotiations (New York: McGraw-Hill, 1965), p. 189.
Intraorganizational Bargaining
Intraorganizational bargaining is the process for achieving agreement within one of the bargaining groups.28 For example, a management bargainer might convince the management team that a 40-cent raise is necessary to avoid a strike, although management had determined previously that the union would likely settle for 35 cents. Intraorganizational bargaining also comprises the activities union negotiators engage in to sell an agreement to the membership.
The union negotiators must be able to sell an agreement to members once it has been reached. To do this, the team has to balance competing needs of subgroups within the union. One tactic is estimating some reasonable range of contract outcomes to members. Suggesting that excessive demands could damage the bargaining relations (see “Attitudinal Structuring,” above) can help moderate initial demands.
BARGAINERS AND THE BARGAINING ENVIRONMENT
As the behavioral theory noted, negotiation outcomes are likely to be influenced by the attributes of the parties and the context of the negotiations. Since the negotiations are complex and take place over a relatively extended time period, the parties need to be sophisticated about the manner in which they conduct negotiations and the characteristics of the participants.
Page 341Attributes of the Parties
Research has found that a variety of attitudes toward bargaining and gender differences influence outcomes. From the standpoint of attitudes toward bargaining, negotiators with prosocial values prefer to pursue a cooperative approach to bargaining, while competitive-social-value bargainers favor gains over losses.29 This suggests that if the parties are engaged in distributive bargaining, using competitive bargainers will be to their advantage, while if integrative bargaining is desired, prosocial value bargainers will be more likely to achieve an acceptable bargain. Bargainers' aspiration levels influence outcomes, and expectations of settlement improve chances of reaching an agreement. However, differences in expectancies may lead to impasses where settlements could otherwise have been reached.30
The interaction of interpersonal orientation, motivational orientation, and power affects the bargaining relationship. Interpersonal orientation reflects responsiveness to others—reacting to, being interested in, and appreciating variations in another's behavior.31 Motivational orientation pertains to whether bargaining interests are individual (seeking only the party's own interest), competitive (seeking to better an opponent), or cooperative (seeking positive outcomes of interest to both parties).32 Power involves the range of bargaining outcomes through which the other party may be moved.33 Power is low when the negotiator has few alternatives if an agreement is not reached.34
Given these individual differences and contextual variables, bargaining effectiveness should be greatest when interpersonal orientation is high, motivational orientation is cooperative, and power is equal and low.35 The interaction of these variables may have no effect on how the parties structure their negotiating teams. Much of the structuring must depend on the goals of the party (e.g., breaking ground on productivity issues requires cooperation) and on beliefs about the tactics an opponent may Page 342use (e.g., assigning low-interpersonal-orientation bargainers to a team). The evidence regarding the interaction of individual differences and their effect on negotiation outcomes is mixed.36
An analysis of a large number of studies of male-female differences in negotiating behavior found that women are slightly less competitive bargainers than men, except in so-called tit-for-tat situations, in which they become more competitive.37 Another large-scale analysis of bargaining studies found that men tend to negotiate slightly better outcomes than women.38 A study of collective bargaining negotiations found that male negotiating teams were more likely to reach agreement. Curiously, female managers preferred interest-based bargaining (a form of mutual-gains bargaining), while female union negotiators preferred to avoid using it.39
The Process of Negotiation
Labor negotiations are seldom conducted privately. While the general public and most management and union constituents are excluded, the negotiating teams witness the bargainers' behavior. Bargaining with an audience makes concessions more difficult. Difficulty increases if the bargainer is highly loyal to the group or if the group is strongly committed to the bargaining issue. If the other party interprets a concession as a sign of weakness, retaliation is likely in subsequent negotiations.40 Bargainers can use two tactics to overcome these problems. First, to increase an opponent's willingness to concede, the bargainer should respond to the opponent's concession in another important area or should indicate that a major concession required hard bargaining. Second, the negotiator should realize public commitment to an issue reduces the degree to which objective data can modify the position. But the skilled negotiator is aware that public commitment may be a tactic to justify support for an issue not really viewed as important.
Bargaining, by definition, involves a situation in which the goals of the negotiators are mostly in conflict. Because of this basic level of disagreement, escalating conflict is always a potential problem. Where the parties attack each other in negotiations, the responses tend to become increasingly extreme. When this occurs, an extreme distributive outcome is more likely. Lack of reciprocation or reciprocating in a noncontentious Page 343manner to a conflictual attack reduces the likelihood of a conflict spiral. A bargainer who responds to escalating conflict by labeling the process as ineffectual can also reduce conflict spirals.41
It's important to remember that the union is the employees' bargaining agent. Members expect that their bargainer will be an expert negotiator. The lead negotiator is usually a national union representative, an experienced local negotiator, or an attorney hired by the local. The top HRIR executive, attorney, or trade association representative represents management. The lead negotiator is responsible for structuring interactions within the negotiating team and coordinating communications between its members. The lead must project a hard public line to maintain the commitment of constituents but also be willing and able to concede to reach an agreement.42
When there are several negotiators on each side, some act as information brokers during negotiations while others broker trust. As bargaining deadlines approach, roles of these negotiators blur, while gatekeeper and group representative roles become more distinct.43
Unless each party's initial demands are acceptable to the other, one or both must concede to reach an agreement. A problem occurs in offering concessions, however, since an offered concession may be reduced in value in the eyes of the recipient once it has been made. To avoid this problem, parties should be aware of the priority of demands so that the concession is perceived as having the highest value.44 Alternatively, a concession costing a certain amount might be made and the opponent offered the choice of the area to which the concession will be applied.
The bargaining environment, perceptions of the bargainers, and complexity of the negotiations all influence outcomes. Conducting the negotiations in a neutral environment is important because a party is less willing to make concessions on its home ground. Thus, unions should avoid bargaining at the plant. The perceived characteristics of the opponent are also important. If a party perceives the opponent as nondeferring, then it will not seek concessions as vigorously. As more issues are injected into bargaining, logrolling (trading blocks of apparently dissimilar issues, such as a union shop for a work rule change) occurs frequently. Also, a sequence of offers, counteroffers, and issue settlement will result from bargaining on Page 344numerous issues.45 Where several bargaining issues exist, simultaneously considering the issues is more likely to produce an agreement than following a sequential approach.46
Perceived fairness depends on the perspective of the offer's recipient. Bargaining experiments have found situations in which both sides submit offers they believe are fair and would result in settlement but a settlement does not occur because the opposing party does not perceive the offer as fair.47 Offers that are labeled as “fair” but are offered without additional information often contain lower terms.48
The types and levels of concessions convey information about each party's true position. For example, several concessions on a given issue followed by no subsequent movement could signal that a party has reached its resistance point. A retreat toward an original position may signal that a party is toughening its stance. Concessions appearing to reward the requester's behavior may increase cooperation between the parties and may strengthen the role of an attractive counterpart to the requester's constituency.49 When parties are having difficulty achieving a settlement, shifting the focus from how to achieve a settlement to why a settlement is necessary appears to make the parties more amenable to movement.50
Bluffing
Bluffing has been studied extensively. In most negotiations, neither party expects to win its initial demands, and the other knows the demands exceed the expected settlement.
Bluffing is valuable because if one party stated a final position first, there can be no exploration of ways to reach an agreement. Bluffing allows a bargainer to test the firmness of an opponent's demands without a full commitment to a settlement and provides an opportunity to learn about the opponent's expectations.51
Page 345If bluffing is used to gain information, the union is likely to make a more extreme initial demand, because it has less financial information than does management. An examination of contract settlements between the Tennessee Valley Authority and its unions showed that agreements on economic issues are most often closer to employer than union proposals. However, if management is pressured by outside forces, settlements tend to be closer to the union's positions.52 The union runs a risk if it makes very high demands, because these may increase management's cost expectations and lead to a strike over points the union would likely be willing to concede.53
Perceptions of Bargainers
Through the bargaining experience, negotiators form perceptions about their opponents' relative bargaining power and likely willingness to concede. A bargainer would have high strategic power if (1) agreement is less advantageous for the bargainer than for the opponent, (2) more ways exist to satisfy the bargainer's needs than the opponent's needs, (3) more credible threats can be made by the bargainer than by the opponent, (4) maintaining the relationship is more important to the opponent, and (5) the opponent is under heavier time pressure.54
Within this framework, an example of condition 1 is an employer with a large backlog of orders. The company might be more motivated to settle because large profits would be lost by not doing so. The union faces relatively little pressure because it believes lost wages would be made up with overtime after a strike. As an example of condition 2, an employer struck in one of many plants producing the same output would have a distinct bargaining advantage. Condition 3 involves beliefs that threatened actions will be taken. It reinforces the idea that a strike may have value for future bargaining situations. In condition 4, unions are expected to be more responsive because the bargaining process is necessary to maintain the relationship. Finally, condition 5 involves employers that deal in perishable goods, such as food producers and air travel (holiday travel lost because of strikes), and thus are under greater pressure to settle on the union's terms.
The Roles of the Actors in Negotiations
An analysis of the dramatic characteristics of labor negotiations suggests “front-stage” activities are directed at different audiences—the lead negotiator is performing for the negotiating team, and team members are performing for each other and their constituencies. The show aims to demonstrate adherence and effort toward bargaining goals.55 Figure 11.3 diagrams the acting and audiences.
Page 346FIGURE 11.3 Audience Structure for Main-Table Negotiations
Source: R. A. Friedman, Front Stage, Back Stage, The Dramatic Structure of Labor Negotiations (Cambridge, MA: MIT Press, 1994), p. 86.
One tactic, used particularly by management, limits participation of those likely to take militant stances or be unwilling to modify positions as bargaining continues. This gives the negotiator greater freedom to respond during the bargaining process.56
In the later stages of bargaining, lead negotiators may conduct private sidebar conferences to convey information about each party's willingness to concede, the relative importance of issues, and the like. The ability to productively use sidebars requires a climate of trust between the negotiators.57
Negotiators are concerned with their reputations after the agreement is reached. A settlement may help or hinder a negotiator's career, depending on the outcome and the degree to which he or she is associated with it. Negotiators who have particular information may control the direction of the negotiations and have greater effects on their outcome.58
CONTRACT NEGOTIATIONS
In this section we examine activities involved in bargaining a new contract. Activities include tactics, information requirements, and union and employer requirements for agreements. Labor laws require that Page 347the parties meet at reasonable times and places and bargain in good faith over issues involving wages, hours, and terms and conditions of employment.
Initial Presentations
Although not legally required to do so, the party requesting changes in its favor presents its demands first. Thus, the union presents demands when seeking improvements and management when seeking concessions. At this presentation, the initiating side specifies all areas of the contract in which changes are desired. This session also allows the union to present all grievances or positions developed through the membership meetings. The union does not expect to gain all of these changes, but as a political organization it has an obligation to state the positions of individual members. It also creates new bargaining positions that alert management to expect more vigorous future demands in these areas.
The responding party may choose not to reply to demands at the opening session. When it responds, its offer is usually different from what it would be willing to settle for. If management adheres to or refuses to move past its original position, it must provide information, if asked by the union, to support any positions based on an inability to pay.59
Bargaining on Specific Issues
If the issues are complex, the negotiating committee and company representatives frequently divide themselves into subcommittees to negotiate specific issues. For example, contract language on work standards may be handled by a subgroup of production employees or union stewards and production supervisors. Usually the subgroups do not have the authority to finalize issues they discuss, because these may form part of a trade-off package, but they may bring tentative agreements or positions back to the main table for consideration.
At the main table, issues not forming part of a combined package or being used as trade-offs may be initialed by the parties as finalized for the ultimate agreement. Thus, the final settlement is not necessarily a coalescence on all issues simultaneously but rather a completion of negotiations on final areas in which disagreement exists.
In most negotiations, nonwage issues—union security clauses, seniority provisions, work rules, and the like—are decided first. Wage and benefit issues are often settled as a package near the end of negotiations. As noted earlier in discussing the certainty of outcomes and the potential costs of package characteristics, management must consider wages and benefits carefully.
Page 348Tactics in Distributive Bargaining
Each party enters the negotiations with certain positions it hopes to win. Management has an economic position it wants to protect. The union has specific wage and benefit demands it perceives as achievable. Bargaining is the process by which each party tries to influence the perceptions of the other to adopt its positions as a final outcome.
The following represents the types of approaches the parties use to influence the resistance points of their opponents through information transmission:
“I do not think you really feel that strongly about the issues you have introduced.”
“I believe that a strike will cost you considerably more than you are willing to admit.”
“I believe a strike will cost me almost nothing in spite of your statements to the contrary.”
“I feel very strongly about this issue regardless of what you say.”60
Certain tactics may be used during negotiations to assess the actual point at which an opponent would prefer to settle. Addressing questions to various members of the negotiating team may gain, through their responses, an overall flavor of the most important issues. To highlight the importance of a particular issue, the party proposing the issue may provide detailed information to clearly establish its position. For example, a firm faced with a large wage demand may provide detailed data on the wage costs of its competition and its inability to pass increases through to its customers.
In one tactic, a party tries to get its opponent to see that the opponent's demands will not result in as positive an outcome as it expects. For example, the union may see a demand for more paid time off as a way to increase employment, but the company may show that increased costs will result in replacing existing workers with robots.
Another successful tactic changes the costs of a strike for an opponent. For example, a strike by the UAW is much more critical if it occurs immediately before the start of a new-model year, when auto companies do not have inventories of new-model vehicles ready for delivery. Employers may build up inventories before contract expirations by working at full capacity or by scheduling overtime to reduce the potential costs of a strike.
Committing to a Position
Committing to a position can be a powerful bargaining tool. If the opposition perceives no more movement will be made on a specific issue, it may then concede to the offered point if within its settlement range. Three components of a position signaling commitment are finality (communication Page 349indicating no further movement will be made), specificity (the clarity of the position), and the consequences (the contingent outcomes, such as a strike, that will occur if the demand is not accepted as proposed).61
Several tactics may signal commitment to the opposition. Most relate to the issue of consequences. For example, a strike authorization vote signals union commitment. A company preparing to close operations or refusing to accept new orders signals it is prepared to call the union's bluff. Consider the 1981 Federal Aviation Administration–Professional Air Traffic Controllers Organization dispute in which President Reagan indicated the government would not bargain during a strike (finality) and that all strikers must return to work within 48 hours (specificity) or be permanently severed from federal employment (consequences).
Deadlines
Negotiations are seldom settled until close to a deadline.62 There are two reasons for this. First, the more time available, the more information that might be disclosed to lead to a better final solution. Second, the constituents of the bargainers may believe that settlement before the deadline constitutes poor effort and that their position could have been improved.63 The presence of a deadline increases the rate of concessions.64 The deadline effect may help to explain why negotiations under Taft-Hartley jurisdiction usually take substantially less time than Railway Labor Act negotiations.
Settlements and Ratifications
When the negotiators agree on a new contract, the union team still has responsibilities to fulfill before the final agreement is signed. In most unions, two hurdles remain to be cleared before the tentative agreement becomes permanent. First, the international union must approve the agreement. This ensures that a local will not negotiate an agreement substantially inferior to other contracts in the international or other unions. Second, most unions require a referendum among the bargaining unit's membership to ratify the contract. To do this, the bargaining team conducts a membership meeting and explains the contract gains won in negotiations. The team then generally recommends settlement, and the members vote to accept or reject.
If the negotiating committee recommends acceptance, the membership nearly always votes to ratify. However, some exceptions occur. Reasons for contract rejections include an inability to alter positions through Page 350bargaining, final positions outside the opponent's settlement range, hostile relationships between the parties, poor coordination in bargaining, or a failure to estimate correctly the priorities of the membership.65 A study of a specific contract ratification found votes for approval were more likely to come from union members who were satisfied with their pay, believed they had few alternative employment options, were positively disposed toward the quality of the union's representation, and had lower job satisfaction.66
When the negotiating committee unqualifiedly recommends ratification but the contract is rejected, union negotiators are placed in a precarious position. Management may question whether they are in touch with their constituents. During the negotiations, management may have conceded on issues of seeming importance to union bargainers but of questionable relevance to members. The negotiating committee also may have difficulty selling a subsequent settlement to the membership because its credibility was undermined by the earlier rejection.
Sometimes, management questions whether the bargaining committee is representing the true wishes of the membership. Management bargainers may suggest a package be submitted to the membership for ratification. The company may not insist that the union take a proposal to its members for a vote because this is not a mandatory bargaining issue.67 If union negotiators are reasonably certain a proposal that management wants put to a vote will be rejected, it might strengthen its bargaining position by taking the proposal to the bargaining unit and having it voted down.
Nonagreement
Occasionally the parties may fail to reach an agreement, either before or after the contract expires. A variety of activities may then occur, including mediation, strikes, lockouts, replacements, management's implementation of its last offer, and arbitration. Impasses lead to very complex issues, which will be detailed in Chapter 12.
THE BARGAINING ENVIRONMENT AND OUTCOMES
During the 1980s when companies requested concessions, unions responded most frequently by asking for greater job security, limits on subcontracting, or some form of profit-sharing or gainsharing program. They were most successful in obtaining job security and gainsharing but very unsuccessful in limiting subcontracting.68 Table 11.4 displays union and management perceptions of issues discussed as compared to changes included in contracts during negotiating rounds taking place between 1993 and 1996. Table 11.5 shows perceptions of factors that unions and managements felt heavily influenced negotiations in 1996 and 1999.
Page 351TABLE 11.4 Union and Management Perceptions of Issues Discussed and Incorporated in Final Agreements, 1993–1996 Round of Bargaining
Source: J. Cutcher-Gershenfeld, T. A. Kochan, and J. C. Wells, “How Do Labor and Management View Collective Bargaining?” Monthly Labor Review 121, no. 10 (1998), p. 26.
Increasingly, bargainers have been urged to pursue integrative solutions using interest-based bargaining methods. One study examined factors related to negotiations that resulted in contracts with one of more of the following innovations: new pay systems (pay for knowledge, gainsharing, or profit sharing), worker input into managerial decisions, team-based work systems, joint committees, or any combination of two or more of these. For new pay systems, the degree of international competition, threats to replace workers, and brainstorming sessions were significantly related to their implementation. For worker input in management decisions, first contracts, interest-based bargaining training, and brainstorming sessions were positively related, while male union bargainers were negatively associated with these innovations. For team-based work systems, the need for flexibility and brainstorming sessions were positively related, but being in the service sector was negatively related. More than one innovation was positively related to a first contract, international competition, the need for flexibility, threats to replace workers, interest-based bargaining training, and brainstorming sessions.69 This study seems to indicate that interest-based bargaining may be spurred by credible threats as long as it doesn't lead to a premature hardening of positions. The threats and information that makes them credible may force a consideration of innovations.
Page 352TABLE 11.5 Union and Management Perceptions of Factors “Heavily Influencing” Collective Bargaining Contract Negotiations
Source: J. Cutcher-Gershenfeld and T. A. Kochan, “Taking Stock: Collective Bargaining at the Turn of the Century,” Industrial and Labor Relations Review, 58 (2004), p. 17. © Cornell University.
Companies that are vulnerable to strikes or that have been struck in the past are more likely to settle above their wage targets. This trend lends credence to the suggestion that striking may constitute an investment in bargaining power for the union. Companies emphasizing union containment goals as well as bargaining goals are more likely to achieve their targets.70 However, success in bargaining cannot necessarily be attributed to a hard-line approach because a heavily unionized firm cannot readily have a credible containment policy. Containment may be related to relatively small proportions of employees being unionized, which, in turn, increases bargaining leverage. Conservative accounting practices, such as the use of last-in, first-out (LIFO) inventory valuation and accelerated depreciation practices, were related to more success in obtaining concessions from unions.71
An extensive study of smaller unionized Michigan firms examined negotiations between 1987 and 1991. Only about one-third of settlements were achieved through traditional bargaining. The rest were either highly contentious or cooperative. Fully one-sixth were not settled within a week after the old contract expired. Long delays were associated with unilateral imposition of a new contract by management. For contracts that involved multiple rounds of concessions, wages were reduced first and benefits second, with few promises of increased job security. Open warfare preceded a transition from traditional to either highly contentious or cooperative bargaining relationships. Strikes tended to speed settlements but could be used successfully only by unions with reasonable levels of bargaining power.72 Relationships between unions and management seem to have improved somewhat since the late 1980s. Table 11.6 shows that both labor and management perceive their relationship as mostly cooperative and improving, although the changes are slow.
Firms with higher amounts of asset-specific investments had lower bargaining power. Unions captured a larger portion of profits through wage increases in these situations. In the long run, high union density lowers investment and employment growth.73
Summary
Managements prepare for bargaining by gathering internal and comparative data, including employee distributions by job, seniority, shift, and so forth. Other data relate to wage increases in other negotiations, local labor market rates, and so on. Many different functional departments obtain information Page 354and help in formulating a management negotiating position. Contract terms that may be renegotiated must be costed to assess their relative financial impact on the employer. Bargaining books assist in negotiations.
Unions prepare for bargaining by determining what issues are important to their members. The political nature of unions requires that they pay attention to the interests of major employee groups. National-level preparation involves collecting and analyzing data, while local-level preparation formulates bargaining positions and involves members in forming a negotiating team.
Bargaining occurs in situations where both parties expect the act of bargaining to improve their positions. One side may expect an improvement in benefits, while the other gains certainty in outcomes through the contracting process. Attributes of the bargaining situation and the personalities of the parties involved influence outcomes. Bluffing appears to be important because it allows the parties to explore the significance of and reasons behind demands without initially stating positions they might want to retreat from later.
Collective bargaining is suggested to have four components: distributive bargaining (one party's gain is the other's loss), integrative bargaining (a settlement improves both parties' positions), attitudinal structuring (attempts to create atmospheres likely to obtain desired concessions), and intraorganizational bargaining (the parties try to convince constituents within their own organizations to change positions).
