Collective Bargaining At Escort Limited

By Marketing Research Team, 3EA
Collective Bargaining At Escort Limited

In July 1999, management of Escorts Limited and all Escorts employee union signed a historic collective bargaining agreement on wages and productivity. At that time the agreement seemed to be in the favour of management of Escorts Limited .But subsequent events in the latter half of 1999 proved otherwise. The agreement was now in favour of the union.

The foundation of Escorts limited was laid in the formation of the Escorts (agent) limited on October 17, 1994 and of Escorts Agents Private Limited. The Companies incorporation was later merged in 1953 to form Escorts Agents Private Limited. The company's incorporation and its present name were effected on January 18, 1960.Having initially started with a franchise for Westing House Domestic Appliances, Escorts has come a long way in manufacturing and marketing a range of products. It has pioneered farm mechanization in India through import a distribution of agricultural tractors.
In five decades Escorts has grown to become one of the top industrial conglomerates in the country.

The term collective bargaining was coined in 1891 Beatrice Potter Web in her book, "The Co-Operative Movement in Great Britain," to describe the method adopted by Labour Union to improve the working and employment condition of their members. Collective bargaining is the method in which the employee and the employer in conference,from time to time agree upon the condition in which the labour shall be performed. Collective Bargaining is a term that describes the continuous and dynamic institutional process for solving problems arising directly out of the employer-employee relationship. Over the last fifty years collective bargaining has evolved to acquire an intuitional character.

In early 70's the condition of workmen was miserable. Management had complete control over them and they were excesses. Passes were issued for going to toilet and for drinking water. Work assigned was to be faithfully without any consideration of the grade of salary. Salaries were also very low. But when the union was formed by Mr. Subhash Sethi, the situation began to improve and by late 80's the management was at the mercy of the union. Salaries had increased to make workmen most prosperous in the Faridabad industrial region. But the most discernable change was the status of a common worker had improved. Now management could not assign work arbitrarily, or dare to misbehave. In fact the worker was the boss of the shop floor and the managerial and supervisor staff had to maintain the good relationship with the workers with conceding favours.

There was a common union for all 12 plants in Escorts Limited and if there was problem in any plant, all the other plants would extend support and could go on strike collectively. Since then, management could not afford to shut down all its plants the union seemed invincible.

By mid of the 90's management realized that the external environment had become very competitive. The change had come about, in too short a time. International players were in the process of setting their business manufacturing units which promised to produce superior product at reasonable price. These companies could cut prices in the short term and get market share by aggressive marketing, this pattern of entry and gaining the market share was followed in the many sectors of the industry and the management feared that it could happen in tractor industries soon. Therefore it had become imperative to reduce cost and improve quality so that it could face the emerging competition.

Another alarming situation was the company was not doing well even in present competition. Its position had slipped from second to third and was likely to further down. The companies wanted to put its working pattern on firm ground.

The management also believed, that was the most opportune time for making fundamental changes in its working. The company has single and strong union for all its twelve plants in Faridabad. It was led by its founder president Mr. Subhash Sethi for the last twelve plantsin Faridabad. And the union resisted all management attempts to bring changes which would affect its advantageous position Mr. Sethi died in 1996, and the union was in problem immediately. A bitter power struggle ensued in the union which culminated in two elections in two years. Union had divided its members into forty constituencies and one member was elected as per constituency. These 40 members constitute the executive council of the union. This council is the decision making body of the union. There is a directly elected president who was the most powerful functionary on the union when Mr. Sethi was the President. The decision of the president was to be approved by the council; this was merely a formality because the council only consisted of his supporters. But all this changed after Mr. Sethia's demise. Now the president and the council were at loggerheads. Multiple seats of power had emerged. Council passed a resolution to dismiss the president and the president issued a fiat to dissolve the council. The result was a new election within six months and new president.The management wanted to take advantage of the fluid situation to force change.

The company had a successful experience of negotiation of collective bargaining agreements. The process has started in late 70's and three year agreements had almost become a routine and it had come to be accepted as an important element of the management-union relationship. Both companies and the union grew in strength through the years. The company was just making the 20 tractors per day in 1975 and it was making 105 tractors per day in 1998 salaries of worker had increased over the years and minimum salary had touched Rs 10000. The company increased production through collective bargaining and the union was able to secure higher wages. In fact the management preferred to deal with union because it has complete control over its members. If the union agreed to some proposal, the management could feel reasonably certain that its proposal would be implemented. The management had no experience of dealings with individual worker even when some with the individual workmen it was resisted vehemently by the union and the attempt almost failed. Therefore management was able to communicate with workmen only through the union.

When the management decided to bring about wholesome changes in the attitude of the workmen and work patterns, the only viable option was to first convince the union of the inevitability and desirability of the direction of the changes that the management wanted to initiate. Taking all this into consideration, the management decided that it will negotiate the changes it wanted in its three years collective bargaining agreement.

The management submitted its charter of demand on March 3, 1997. It wanted optimal utilization plant equipment, labour and resources sincere working during schedule duty hours, based on INDUSTRIAL ENGINEERING NORMS, cutting down wasteful practices and adoption of such practices which would result into higher productivity and quality and provide the necessary operational flexibility for meeting the challenges.

The proposal was the management contained clauses which adversely affected the privileges and benefits of workmen. Management wanted production according to INDUSTRIAL ENGEENEERING NORM. When these norms were translated into production figures of each workman, they turned out be very high in comparison to what a workman was producing today. For some machines the production was doubled and in majority of the machines the production was increased by at least 50%. The union vehemently opposed the production plan according to INDUSTRIAL ENGENEERING NORMS. The management proposed to multi machining and multi-skilling this would considerably increase the work load of the customers. According to IE norms production of assembling line was calculated as 140 tractors in 16 hours, presently 120 tractors were manufactured in 20 hours. There was 4 hour of work day for people working in night shift and company worked on all holidays. On an average each workers earned Rs. 2000 as overtime. The company proposed to do away with overtime and wanted production of 140 tractors. In regular working hours of 16 hour, workers were required to increase production from 5.2 tractors to 8.7 tractors per hour and in addition they would lose 2000 earned as overtime.

There also was an incentive system this was group incentive and was based on production of the final product. For making 105 tractors, incentive and was around Rs 2200. Incentive for 140 tractors would have been above Rs 3500 the management proposed was now determined by IE norms. But to protect the present salaries of workmen, management proposed to fix the incentive at Rs 1690

The union opposed all these major proposals of the management. But the management was firm on its demand of work being done according to IE norms and abolition of overtime and incentives. To put pressure on management, union resorted to slowdown strike in May 1998. Production fell from 105 to 30 tractors. But the management was not willing to compromise. The stalemate continued for a month and the management had to bear a heavy loss in terms of production. But it retaliated by cutting wages under every clause possible. It also started to transfer the workmen in divisions. The situation became very tense. The general secretary to hind Mazdoor Sabha intervened,and he started taking the,management on behalf of the workmen. The management promised to expedite the process of consideration and reconsider specific cases of transfer. The union promised to work. After nearly a month of slowdown strike the normal work resumed at escorts, Faridabad.

Negotiation started again but there was no real progress for the next six months. There was great pressure on the union from workers to negotiate the agreement and it also did not want the union to concede to any major proposal of the agreement. On Dec 3, 1998 the union convened a general body meeting and decides to go down a tool down strike. On Dec 4, the company came to grinding halt. All normal activities of the company ceased. The management tried to resume production through the supervisory and managerial cadre and casuals but they were not allowed to do so by the workers. They were also cases of violence and beaten when they tried to resume work at behest of the management. Meanwhile the management terminated the services of more than 100 workers including some senior executives of theunion and also suspended around 150 workers. All talks between the union and management came to halt. There was no solution in sight of the stalemate.

The entire Faridabad region was badly affected due to the strike. Many industrial units supplied solely to Escorts, and they also had to stop operation. Workers of Escorts were not paid their salaries and there was general despondency and slowdown of business activities in the region. There was also a real threat to the law and order situation, as the management was trying to bring in usual workers and union was trying to stop them physically. The district magistrate of Faridabad intervened and tried to bring 2 disputing parties together. The union wanted the restoration of the services of all suspended workers and terminated employees and fixed date by each the agreement would be negotiated. The management agreed to take in all the employees but it said that it will consider the merit of each case of the terminated employees. It also promised to expedite the negotiations.

The union and the management agreed to end the stalemate and normal workwas resumed on January 10, 1999. Suspended workers were taken back on duty, but 105 terminated employees were not taken back even after the collective bargaining agreement was signed on July 2,1999.

Negotiations started again after January 10, and this time both sides showed some urgency, but there were still major differences between them on some of the clauses proposed by the management. There was not untoward incident after January 10,1999, and 105 tractors were produced everyday.

And all of sudden on July 2, 1999, the management issued circular stating that a collective bargaining had been reached between the union and the management. It also stated that all the major proposals of the management have been accepted. But there was no such circular issued from the union and finally issued a circular on July 4, 1999, stating that an agreement had been reached between the union and the management. The normal procedure followed by the union, was that it would convene a general body meeting with all its members and out before it the major proposals of the proposed agreement if there was general consensus, the union would go ahead and sign it. This procedure was not followed this time. Union member came to know about this only after it had been signed and that too issued through a notice. The union had agreed to all major proposals it had been resisting from the last two years. There was no mention of the 105 terminated employees and they seemed to have been forgotten by the union and general unionized workers.

Nobody knows what transpired between the union president Mr. Viram Singh and management, but Mr. Singh left the company soon after. He is supposedly a rich man now and the top management attended the wedding of his daughter in October.

The management obviously felt triumphant. Anew work order had been established by management. It had complete control over its workforce now.
But the agreement had one big implicit assumption that the demand of tractorswould be around 150 per day. The agreement was doubled edged sword. The management would benefit from the agreement in the market demand was more than 105 tractors per day. For a production level of 105-140 tractors per day, the company would be paying approximately the same salary that it was paying before the agreement when the workers were making 105 tractors. The company neither would nor be paying anything for the next 35 tractors as the variable component of overtime. And incentives had been merged in the salary and the salary of the workers was fixed irrespective of the number of tractors made. Therefore the company would be benefiting if the demands of tractor was around 140 per day. The company would be making 35 tractors without any extra labour cost.

But the market changed dramatically in early 2000, and the demand in the tractors market fell within the first six month of 2000. The company was just making around 50 tractors. If the new agreement would not have been placed, the workers would not be getting 3000 as overtime and incentives. But these two components have been merged in the salary. If the salary of pre agreement and post agreement was compared the company was paying the salary that it would be paying for 105 tractors. If the new agreement had not come in place, the company would not be paying 3500 workers for the overtime and incentives. But since these are in salary so they have to be paid in nutshell, the company was losing 3500 per worker due to its new agreement.

The situation has only got worse since then. The company is periodically shut down (operates for 15 days a month) due to lack of demand but then workers are getting the same salaries that they were getting when they were making 105 tractors. When the agreement was negotiated it had been seen as a big triumph for the management. There was a general euphoria in management ranks. The workers have felt suppressed and cheated. But the change in market turned the tables. The workers are now benefitting from the agreement. They are getting a consistent payment. There cannot be more dramatic reversal of victors and losers. It happened because the market was ignored. It was assumed that demand would move up as it always had. Only this time it did not.

The Interviewee's Indignation
Akash waited at the reception of the Accent Communications for the interview of unknown position, existing with this organization. Few days ago he received a call from Shruti, an HR executive with accent; he was told that company was considering him for various positions based on his qualification and experience.

Akash had brilliant academic records and career of high achievements. He was an engineer and management graduate from countries premier institution. He was awarded as best student of the year consecutively for 3 years during his 4 years engineering college and was given a special award for his brilliant dissertation on "Investing and minimizing risk in high growth Sectors." On the basis of his reports he was picked up by Sakshi Investment Ltd, doing wonder in mutual funds sectors.

Early this year he was interviewed at Accent for the position of GM finance by a junior executive and was told to wait at the reception as the papers were send to the dir finance, who would meet him shortly.

After waiting for one hour Akash was told that dir finance was busy and he would have to come for another round of interview on some other day which will be intimated to him later. There was complete silence from Accent after that. In the couple of follow ups by Akash, he was told that he had qualified the initial rounds of interview and the company is considering the case. Frustrated, he gave up the hope of entering a company which could give him boost to his career. Now he wondered how come Accent woke up from its hibernation after almost over a year.

Accent communication has formidable presence in telecommunications sector and acquired an enviable position in the market after a tie-up with mobile hi-tech Inc of US, a Fortune 500 company. There was a rumor in the circles that Accent after its tie-up with mobile hi-tech is on a major expansion spree, and is recruiting top notch professionals in every functional area.

As Akash had entered the plush reception of Accent, he asked Shruti, the executive who had given him the call. Instead, he was handed over an application blank to be filled and given back. He protested that he had already filled-up the same form when he had come a year ago and his papers must be in the company records. The receptionist contacted the HR department and enquired about his paper and replied that the HR department could not find his papers therefore he will have to fill the form again. "What a mismanaged company," thought Akash, "If they can't retain a form how they will retain people."

Akash started to fill the details in the form and came across questions like, "What distinctive qualities do you posses tojustify your candidature that other candidates does not possess?", "What an irrelevant question,"thought Akash. How could he answer this question till he didn't know the other candidates who were applying for this job? So he left the space blank. He ignored few other such irrelevant questions and handed over the application form to the concerned person. The application form came back to him with instructions that he must answer all the questions, however irrelevant they are as they form the basis of the interview.

So after filling up the form completely he submitted it and enquired after how much time he will be called for the interview. "Kindly wait for 10 minutes, the concerned person will be in touch with you."He waited for 1 hour but the concern person was nowhere to be seen. Getting restless he asked receptionist to contact that person and find how much more he will have to wait. "Please wait as the concerned person is having lunch and will see you after he is through." "They don't have courtesy enough to offer a glass of water to a person who might be occupying a senior position in future," were the thoughts of Akash and he was waiting for his turn. "I wonder what kind of value system and the culture does the company posses- If they seem to have no respect for someone else's time, how would they be managing their time."

After three hours of waiting he was finally called for the first round of the interview. To his amazement the interviewer was a young executive perhaps a newly appointed junior finance executive. "Don't they have a senior qualified person to interview a senior executive,"thought Akash "Are they ridiculing me or making mockery of the entire interview process which is very serious affair in the selection process."
Akash could see the interviewer getting intimated during the interview process and hardly asked any relevant questions as perhaps he was not capable to interview a person of Aakash's caliber. After five minutes of interview he was told to wait at the reception as director-finance would see him next. Akash waited for 15 minutes and was escorted to director's office.

Aakash had to appraise the director of his entire profile as the director was not familiar with his papers. "Even the director has not done the homework," contemplated Akash. The director seemed to be a dry person and did not even care to give a warm welcome smile as Aakash entered his office. The discussions with the director were short and to the point. On being asked about the salary expectation Akash quoted 70% higher salary than he was previously drawing, from the expression on the director's face, Akash read that the figure he quoted have been accepted and he was asked to wait as the next round would be with the Chairman . "They are short of talent at the senior level," Aakash concluded. It was late evening by this time and most of the staff had left for the day. Akash waited for another one hour but there was no indication to see the Chairman. Finally after soliciting the person who was coordinating the interview process, he got a reply that the chairman was busy in a meeting and he will have to come some other day to see the chairman. The date will be informed to him later.

"Oh! God, no not again! Not another Ordeal! From the way they handled the entire interview process it seems they were unprepared for it or it is the way they are used to doing things here." If this is the way they treat their guest,how would be treating their employees, will be right place to work in," wondered Akash.

Presented in the case is a situation how large organizations sometime handle/mishandle small but important events. While expediting their routine activities executives sometimes overlook the attention to be given to small non routine but important events.
An interview was scheduled for a senior executive in Accent Communications Ltd but no one qualified to interview Akash, a talented senior executive who was being called a second time.
To the surprise of Akash, his papers were missing, there was no one to entertain him upon his arrival, he was made to wait for four hours before he was called for the first interview ,was not offered even a glass of water during the entire 6 hours and was send back without any decision.

This case can be used to teach the participants about the importance of:

  1. Giving attention to small but important events and how overlooking then can distort/form the right perception of an organization in the mind of a potential customers(internal/external
  2. How experiences executive can read the non verbal clues and form an opinion about an organization, interpret the prevalent culture.
  3. By being careless, an organization may lose an erstwhile talented and capable executive.

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Article by: Marketing Research Team, 3EA