Time for a Clean Slate on Workplace Agreements

Recent months have seen a strong focus on workplace agreements.

Ford, Holden and Toyota announced their decision to cease manufacturing in Australia, followed by Alcoa announcing the closure of its aluminium smelter in Geelong. SPC Ardmona’s workplace agreement was also placed under the spotlight as the Federal Government declined a request for financial aid.

Rio Tinto struck a landmark agreement with the Australian Workers Union where members forgo guaranteed pay rises in exchange for better job security and protection of conditions, such as above award redundancy entitlements, payments for health insurance and death and disability payments.

Recently released Australian Bureau of Statistics data reveals unemployment has risen to 6% in seasonally adjusted terms. The Bureau also states that the seasonally adjusted wage price index has increased 2.6% in the past year, the smallest increase since the series commenced in 1997 and one that given recent inflation rises represents a fall in real wages. The ABS also released data on Australian Weekly Earnings up to November 2013, which have increased 3.1% year-on-year for total full time work, down from 4.8% in the period to May 2013.

(The Wage Price Index measures changes in the price of labour, following trends for a fixed “basket” of jobs, while Average Weekly Earnings measures the level of average earnings in Australia at a point in time and is affected by changes in the level of earnings per employee and in the composition of the labour force.)

The Productivity Commission has been repeating its message for some time that wage growth can only be sustained through productivity increases.

Australia’s Management
A 2014 study of 1,898 business people by the Australian Institute of Management found that Australian middle managers underperform across a wide range of key indicators including people management, communication and leadership, causing a “productivity roadblock”.
Another management study in 2012 of 9000 manufacturing firms in 20 countries investigated the extent to which companies monitor themselves and use this information for continuous improvement, setting targets, tracking outcomes, and promoting or rewarding employees for performance.
Australia’s practices were ranked below top performers like the US, Germany, Sweden, Japan and Canada.
Management Practice Scores

Evidence suggests that it is imperative companies raise the bar and increase productivity through better management (see the information box). This will foster increased flexibility and enable companies to offer increased pay for internationally competitive productivity outcomes.

Having said this, it also seems clear that while some employee entitlements contained in workplace agreements are reasonable, providing compensation for genuine hardships, others have become outdated in the contemporary world of work and Australia’s need to be internationally competitive.

The difficulties with many agreements adapting to the new world of work stem from the layering of new arrangements over legacy practices. Like software, as new versions are released more code is added, resulting in additional complexity and, in many cases, sacrificing performance.

The Federal Government has already asked the Fair Work Commission to consider the appropriateness of penalty rates in its review of the modern award and has also announced changes to industrial relations laws that will allow workers to trade their penalty rates in return for more flexible hours of work.

For the best result, perhaps the most appropriate course would be to draw a line in the sand. Could all workplace agreements be rebuilt as of 30 June 2015? If we start from scratch, considering only the future and not the past, which entitlements will still seem appropriate?

Currency and relevance should dictate remuneration for the working world of today, not history and precedence.

In this context, some questions which would be raised following an examination of agreements could include:

  1. Are different payments for different days of the week still relevant in a world where services are available 24/7?
  2. In a working environment where most workers regularly complete unpaid overtime to a reasonable number of hours to get the job done, is it appropriate that a certain number of employees receive double their pay for additional hours worked?
  3. What is a reasonable working week? Do different occupations need different numbers of hours in a working week or day?
  4. How can we best strike a balance between days off and workplace continuity? Are rostered days off a remnant of a bygone era that need to be grandfathered or discontinued?
  5. How many allowances really represent hardships that should be compensated in enterprise agreements? How many are no longer applicable? Are there new allowances we should consider?
  6. Which agreement clauses have the most capacity for misuse?
  7. What additional clauses are not in workplace agreements that should be? For example productivity/performance clauses, working hours flexibility clauses or recognition of relevant learning/capability improvement.
  8. What is a sustainable level of increase in wages that is not based on performance?

Such a rethink would have to occur across all levels of employment, including the executive level, although the questions to be asked would be different. What elements of executive remuneration are aligned to expertise and effectiveness? Which elements are legacies of the past and no longer relevant? What practices have evolved that do not make sense or are not achieving the key goals of equitable remuneration – having regard to executive input and shareholder expectations?

We have reviewed a number of workplace agreements in the retail, construction, industrial, resources, financial services and maritime sectors, noting themes. We outline these themes below and contrast them to the conditions enjoyed by senior management.

Some notes from enterprise agreements examined:

Loadings/Penalty Rates

Often, Saturday is paid at time and a half, Sunday at double time and public holidays at either double time and a half or even triple time in some cases. (This is not universal – Doyles Restaurants only offers time and a quarter for Saturdays and time and a half for Sundays). There are often loadings for particular shifts (normally around 15% to 30% depending on the shift, but one company would pay double time if workers were required to carry out a certain shift intermittently rather than on an ongoing basis). Casual workers generally also receive a loading.

Hours, Spread and Overtime

Maximum ordinary time hours to be worked in agreements were generally in the high thirties, ranging from 35 to 38 hours a week. Maximum hours to be worked a day ranged from 8 to 12 hours, depending on the company.

For shift work, there are often a certain number of consecutive shifts or number of shifts per week which cannot be exceeded.

The ordinary spread of work (when the hours were to be worked) was generally around 6am to 6pm, with longer hours for retail and often a 24-hour spread for shift work. Any hours worked outside the ordinary spread or roster, before planned starting time, after planned finishing time or worked in excess of maximum ordinary hours were generally considered overtime. Usually, the first three hours of overtime attracts time and half and double time is paid thereafter. In some cases less generous payment was offered, such as Bunnings, where work conducted outside the normal spread for Monday to Saturday attracted a lesser penalty of 50%. Bunnings also has a clause to extend the ordinary spread of hours temporarily leading up to the opening of a new store.

If employees are called back to attend overtime, they usually need to be paid for a minimum amount of work, for example four hours.

In some cases, a minimum number of employees is specified for overtime work. For example, in the Mermaid Marine and Maritime Union of Australia BMF Wharf Facility Greenfields Agreement, it specifies that a minimum of three employees have to be engaged for “call-outs” if a tie up or let go is necessary. Loading or discharging of cargo requires a five-man gang, while a bump-and-go cargo operation requires four employees.

A normal clause in agreements is that if overtime leads to an employee not receiving 10 hours rest between one shift and the next, the employee can stay away until they have had 10 hours off duty without losing their ordinary time wage for any hours they miss. If they are required to come in for the shift before 10 hours has passed, then they are to be paid double time until they are released for 10 hours. We note that executives would often have shorter downtime than 10 hours.

It is also worth stating that paid overtime is not enjoyed by all Australian employees. Over 80% of employers surveyed for the 2013 Hays salary guide revealed that overtime had either increased or stayed the same in their organisation (with over 60% recording an increase). Most (over 60%) of the overtime was unpaid.

Paid Days Off

A year can appear a brief period for an employer when faced with public holidays and rostered days off, even before annual leave, personal/carer’s, compassionate leave, study leave, leave for natural disaster situations, and leave for community work is taken into account.

Annual leave is in many cases above the standard 20 days – a Mermaid Marine agreement offers 5 weeks for Monday to Friday roster, 6 weeks for a roster including weekend and public holiday shifts, and an additional week in lieu of five specific public holidays. Annual leave is usually to be paid out at a 17.5% loading over ordinary pay.

Some agreements also allow for paid time off work while the temperature is above a certain level, for example 38 degrees for Australian Stevedores.

For an extreme example of how days can add up, consider Brickmen Constructions.

Their agreement recognises nine standard public holidays plus an additional Day in December used as a “picnic day”.

Rostered days off began when the 40 hour week became a 38 hour week, resulting in an uneven 7 hour 36 minute day. Instead of working this amount, employees work a 40 hour week, but accrue the additional hours worked (0.4) towards a rostered day off, which occurs once in a 20 day working cycle. Brickmen has a 36 hour week not 38, according to its agreement, so employees also accrue 0.8 hours per day worked to pay for rostered days off or provide pay on a “no work” Saturday. The agreement also notes that unless there is an agreed emergency or a special client need, no work can be taken on “no work” weekends and adjacent fixed RDOs. Additional accrual can be used on “flexible” RDOs which employees can take as they wish. Upon termination, these RDOs are paid out. The result is set out in the Construction, Mining, Forestry and Energy Union calendar for 2013 and 2014.

Employees receive 28 consecutive days annual leave (during which they receive a 17.5% loading) and ten days sick leave. If an RDO falls during the period leave is taken, accrued entitlements for the day will be made in additional to the annual leave payment. Lastly, employees who are union delegates can receive a maximum of 10 days paid time off work to attend relevant union training courses.

If an employee exercises his/her full entitlements under such an agreement, the worked days become limited. In a report published by thinktank the Institute of Public Affairs in 2006, it was noted that Construction, Mining, Forestry and Energy Union agreements set down almost 60 non-working days or restricted working days. A Victorian Government report quoted by the Age also noted that because the industry laid down tools for these no work periods en masse, construction sites lay dormant, lengthening project duration.

Personal/Carer’s leave

This has been separated from the above section because there was a surprising level of variability. Some agreements provide for extra sick days after a certain number of years of service. Some specify how many could be taken as carer’s leave. Some agreements allow accrual of sick leave above 15 days to be paid out, or allow untaken leave to be paid out on termination. Others allow it to be salary sacrificed into superannuation. Some allow a certain number of sick days to be taken as days to attend to personal matters not related to illness. One company, the Queensland Country Credit Union, offered 20 days sick leave (minus accrued entitlement) after one year of service to employees who had an illness that lasted over 10 days. After two years, this was raised to 40 days.

Redundancy pay

Redundancy pay was varied among the sample of agreements we examined. Depending on level of service, the payout at termination varied from no pay for less than one year of service to over 100 weeks pay for 10 plus years of service. Some companies pay a certain amount per week worked into an industry fund for the purpose of a later payout.

Allowances

One of the greatest areas of diversity is allowances. Although there are allowances that occur in almost every agreement (such as uniforms, meal allowances for unplanned overtime or sometimes all meals, first aid allowances, travel allowances per kilometre for the use of a personal vehicle for work purposes or if employees have to travel long distances to sites) there are clauses that are different in each agreement.

There are allowances to top up workers compensation, tool allowances for tradesmen, leading hand allowances (which vary depending on how many people are being managed in the shift), and allowances provided to employees assigned to distant projects to pay for board and lodging.

There might be the payment of a wet, cold or hot allowance as in the case of SPC Ardmona, stacking and container allowances, removal allowances for location transfer, broken shift allowances or laundry allowances as for Doyles Restaurants, remote area retention allowances as for the Queensland Country Credit union, or allowances made for a particular intensity of work, for example for Leighton Contractors mobile crane operators are paid $25 for each additional 40 tonnes of crane lifting capacity over 100 tonnes of capacity.

Other allowances encountered include training allowances for accredited trainers, electrical allowances for electrical engineers, divers’ allowances, a emergency response team fireman’s allowance and site-based allowances for specific “disabilities” associated with work on a site.

A Transfield Services agreement also provided an offshore allowance for employees working on an offshore platform and then a supplementary offshore allowance for workers where they are on a “campaign” and accommodation on the platform is necessary.

The Mermaid Marine agreement also provides holiday travel assistance for workers and their dependents, twice a year in the second and subsequent years of employment.

Some employees receive rebates or allowances for health insurance, gym memberships and vaccinations, or counselling sessions if personal difficulties impact on work.

Productivity/Performance Pay

Such clauses were not the norm.

In the Brickmen Constructions agreement, it stated that in return for compliance with the employment agreement, a productivity allowance of $30 per day per shift would be put in a bonus pool and equally divided amongst the permanent employees in the first full pay period on or after 1 December each year.

Leighton Contractors offered a productivity payment to employees when they met obligations concerning health, safety and welfare amounting to $3 per hour for work on projects up to $100 million and $4.50 per hour for projects over $100 million.

The Mermaid Marine agreement contains a performance and retention bonus, paid on an annual basis, which consists of 5% of ordinary time and overtime earnings for employees of less than two years service, 6% for those with two to three years service, 7% for those with three to four years service and 8% for those with over four years service. This will be adjusted pro rata for employess with less than one year of service.

In the Australian Institute of Superannuation Trustees agreement, it noted that 10% of base salary would be allocated as performance pay dependent on KPIs. The Queensland Country Credit union provided for an additional base salary increase of up to 1.25% if the organisation met certain Return on Assets targets. It also offered a performance bonus of up to 2.5%.

The Credit union also has a bonus of $500 per annum for reaching three, four and five years of service (so that someone who had over five years of service would have an additional $1500 in their pay packet per year).

Study leave

As noted previously in our productivity discussion paper, employee skills are highly important to maintain Australia’s competitiveness. Paid time off to study for or undertake examinations for university or other level study, such as that provided by the Queensland Country Credit Union agreement or reimbursement for relevant courses initiated privately, such as that provided by the National Maritime Services and Maritime Union of Australia Enterprise Agreement, could support further skills development.

Rates

The majority of agreements provided for between 2% and 3% salary increases per annum. Exceptions included Transfield Services (for Origin Energy facilities) (5%), Brickmen Constructions (4% or 5%) and Leighton Contractors (5%). Ranger Drilling rates were pegged to mining award rates. Many marine sector agreements sit at 6% increase per year, for example the Mermaid Marine agreement. Australian Stevedores also had 6% rises in its last agreement.

Only a few receive additional super payments, with Mermaid Marine workers offered 10.5% of ordinary time hours in super, Australian Institute of Superannuation Trustees receiving 1% over the government rate and Grasstree Resources 10%.

It’s also worth noting the difference in wages between the industries, with wages ranging from around $30,000 to $200,000 with entitlements.

Observations on Senior Management

Egan Associates’ observation is that senior executives are paid having regard to the requirements of the position including the attributes that the executive brings to the role.

Senior management with broad national and increasingly international responsibility will often travel on half of the weekends in any one year; generally be called out to participate in representation and other obligations a minimum of two evenings per week; and expect a work week to extend to 60 hours (excluding representation and travel activities).

These conditions are often recognised internationally, where additional annual leave is provided for long-serving senior executives up to 30 days per annum. This is not normally the case in Australia.

Instead, these contributions are acknowledged in the form of participation in an annual incentive plan and a share in any improvement in returns to shareholders.

For the vast majority of senior management, tenure is dictated by the business’s performance or the individual’s performance and notice (no matter what the circumstance) is generally not more than three months. Executives are rarely subject to the benefits and conditions of an enterprise agreement, though it is acknowledged in some large highly unionised organisations that benefits under an enterprise agreement can extend through to the office of the chief executive.

A further challenge for those who progress through an organisation’s ranks and whose conditions of employment are not subject to an award or an Enterprise Agreement, is that they also face uncertainty regarding the amount of their annual remuneration. This has become volatile and less certain since the Global Financial Crisis — the majority experienced a decline in pay for a number of the years in the period from 2008 through to 2013. This variability in take home pay is accepted by the award-exempt, as a proportion of remuneration is almost universally determined on the basis of a company’s prosperity and year-on-year revenue growth or profit improvement.

EGAN Associates