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**RESPONDING TO CHANGE IN THE WORKPLACE:**

## INNOVATIONS IN LABOR-MANAGEMENT-GOVERNMENT COOPERATION 

## 

> **Matsushita Refrigeration Industries, Singapore: Dialoguing its way
> to Effective Labour-Management Partnership**

### 

# SINGAPORE

June 25 -- 26, 2001 Mexico City, Mexico

> **Matsushita Refrigeration Industries, Singapore:**

**Dialoguing its way to Effective Labour-Management Partnership**

*The following case study looks at how establishing a system of formal
channels for communication between management and staff in the company
has not only helped to generate greater informal collaboration and
understanding, but has also led to more effective grievance handling and
the improvement of th workplace environment. In particular, this case
study will examine how the ongoing labour-management partnership is
central in annual wage negotiations and the successful evolution over
the years of a more flexible wage structure as recommended by the
National Wages Council in Singapore.*

1.  **Summary of the Organisation**

Matsushita Refrigeration Industries (S) Pte Ltd Singapore, which
manufactures refrigeration compressors, electrical components and cast
iron parts, is under the Japanese-owned Matsushita Group of companies
whose product trademarks are Panasonic and National. The company's
operations began in Singapore in 1972, for the purpose of making
refrigeration compressors for exportation.

The company currently employs some 1630 employees who have served an
average of 8.8 years[^1]. A significant portion of the employees are
skilled and semi-skilled workers employed at the manufacturing plant,
while only 20% are either supervisors or executives and management
staff.

More than half of the company's total workforce is represented by the
Union of Workers in Electrical and Electronic Industries (UWEEI), an
affiliate of the National Trades Union Congress (NTUC)[^2]. Adopting a
consultative approach in its relationship with the Union, the company
has actively supported many of UWEEI and NTUC's training and skills
upgrading initiatives, as well as workplace safety and health programs.
In recognition of its commitment and contribution to the labour
movement, Matsushita Refrigeration was awarded the Medal of Commendation
by NTUC in 1990 and the Gold Medal of Commendation in 2001.

2.  **The Evolving Labour-Management Partnership at Matsushita**

### 

### **Phase 1:** Overcoming Confrontational Labour-Management Relations 

When Matsushita Refrigeration Industries began its Singapore operations
in 1972, labour-management conflicts were heated and frequent. Different
work attitudes, as well as the inherited and historical prejudices,
resulted in years of confrontational labour-management relations.

Following the unionization of the company three years after it was
founded, the labour-management relationship began to normalize. As a
result of active engagement in dialogue, the world views of management,
union and workers began to converge so as to evolve both a work and
people-centric company culture.

### **Phase 2:** Strategy of Regular Dialogue to Build Partnership

### Matsushita Refrigeration Industries maintained its strategy of establishing a formal framework of communication at all levels of the management and staff. It did not merely create a single channel for dialogue, but given the company's extensive and bottom-heavy workforce profile, ensured the communication and discussion of key company policies and activities through a framework of communication channels. As a result, for more than 20 years the company has never had the need to refer cases for conciliation services at the Ministry of Manpower or for a decision at the Industrial Arbitration Court. Regular labour-management dialogue has built a high level of trust, which has translated into the fast and effective settlement of workplace disputes and wage negotiations at the company level. 

***Phase 3:** Leveraging Labour-Management Cooperation to Meet Future
Challenges*

With a relatively older workforce that is also less educated[^3], the
company and the union face the challenge of upgrading their skills, so
as they can keep pace with rapid technological developments. In the face
of more intense global competition and an increasingly volatile business
environment, there has also been a greater need to evolve a more
responsive wage system to manage the wage cost of the company, while
rewarding workers in line with company and individual performance.

As a result of the close partnership that has been built up through the
on-going labour-management dialogue, the company and workers have been
able to participate actively in and benefit from various union-initiated
or government training programmes and schemes, such as the Skills
Redevelopment Programme. Besides the many in-house training courses,
over 200 workers have taken part in the last 2 years in the Critical
Enabling Skills Training (CREST) Programme, and some 40 older
low-skilled workers last year have received basic skills certification
from a three-month full-time course. The company, with the cooperation
of the union and workers, has also been able to smoothly implement
several national tripartite initiatives to enhance the flexibility of
our wage system. Workers, too, have enjoyed sustainable wage increases
over the years. The company has also been able to implement temporary
lay-offs, while preserving jobs for workers, in the face of poor
business conditions.

3.  **Building the Framework for Labour-Management Dialogue**

The key strategy that both management and workers have endorsed as the
basis of their successful partnership is continual engagement in
dialogue. However, they also recognise that ad-hoc discussions arising
from workplace disputes are not sufficient. Instead, a framework for
communication incorporating the following features or conditions must be
built:

-   a Forum to discuss broad, long-term policy and welfare issues

-   a Platform to resolve immediate workplace disputes and issues

-   Information-sharing on company performance and direction

-   Involve all levels of leadership from management and union/workers

-   a sustainable arrangement for all parties involved

Based on the above, a framework for labour-management dialogue was
designed.

### **A.** Quarterly Dialogue Sessions with Top Management & Union Leaders

At the Quarterly Dialogue Sessions, the management is represented by the
CEO, the company's directors, plant manager and HR management, while the
workers are represented by the union representatives from UWEEI and
NTUC, as well as the committee members of the in-house UWEEI branch.

The objectives of such sessions are to share information on company
performance and prospects, as well as to discuss broad issues relating
to skills training, workplace safety and health, as well as welfare and
benefits. The implementation of key national initiatives and programmes
to enhance workers' employability, productivity and
cost-competitiveness, are also discussed.

These high-level dialogue sessions, over and above ad-hoc or reactive
labour-management meetings arising from local or specific grievances,
was important as they demonstrated the management's commitment to labour
relations and welfare as a key business and organisational concern. They
also create an opportunity for discussion that is not confined to
short-term or immediate problems but allowed both management and union
to revisit their common objectives.

#### **B.** Monthly HR Management-Union Meetings

The monthly meetings are attended only by the entire HR management team,
the Industrial Relations officer from NTUC, and the committee members of
the in-house UWEEI branch.

Narrower in focus than the Quarterly Dialogue Sessions, the monthly
meetings allowed for discussion on specific HR policies. These meetings
are also useful as they provided a forum for discussing grievances or
workplace disputes that could not be resolved at the ground level. As
such, the meetings allowed for the sharing and better understanding of
the management and workers' perspectives, as well as the reiteration of
common principles and values.

**C.** Monthly General Morning Assembly with executives and union
representatives

The company's management representative, executive staff, as well as
union representatives meet monthly for a morning of presentations which
detail the company's financial results, quality results, as well as
successful departmental projects. The content of this broad-based
information sharing and learning session would also be communicated by
the union representatives to the rest of the employees at their union
meetings.

#### **D.** Workplace & Welfare Committees and other Recreational Events

The setting up of these various safety, canteen and staff recreation
committees provided an added channel for labour-management collaboration
and employee involvement in decision-making. More importantly, they
provided an added opportunity for social interaction between management,
union and workers.

#### **E.** Investing Resources for Labour-Management Communication 

The company had also shown its trust and commitment to building a
cooperative partnership by investing and building up the following
physical and human resources for effective labour-management
communication:

-   A Union Room for union-related activities and meetings

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-   One employee is assigned on a full-time basis to the UWEEI Branch

-   Training and regular guidance on grievance handling and team
    building are provided for executives and supervisors to raise
    leadership competencies

4.  **Labour Management Cooperation for a More Responsive Wage System**

Compensation issues are understandably the most sensitive issues in
industrial relations. It is therefore a testimony to successful
labour-management partnership that Matsushita Refrigeration Industries
have been able to secure the support and cooperation of the workers in
smoothly implementing the several national tripartite initiatives to
transform the wage structure into a highly flexible and responsive one.

### Background: The National Wages Council Recommendations

The National Wages Council[^4] (NWC) issued quantitative wage guidelines
in the 1970s as Singapore was undergoing rapid industrialisation and
there was a need to keep a check against wage inflation. This was so
that, in the long run, our economic progress could be sustained and that
wage increases for workers would be fair and orderly. This was
necessary, though ultimately rigid. Recognising that the performance of
individual companies and sectors varied, the NWC introduced the
following in the 1980s:

-   qualitative wage guidelines;

-   the concept of giving a portion of wage increases in the form of
    year-end variable payments or bonuses so that increase in cost is
    not built-in; and

-   the concept of "Base-Up Wage Increase" to narrow the salary range
    such that it reflects the true value of the job and not the
    seniority of the worker.

> This was a first step in encouraging companies and unions/workers to
> negotiate for wages based on company and individual performance. At
> the same time, workers benefitted from the sustainable built-in basic
> wage increases, and the bonuses in good years.
>
> With greater global competition and shorter business cycles in the New
> Economy, as well as the experience of the 1997-99 Asian financial
> crisis, the Council recommended the concept of a Monthly Variable
> Component (MVC)[^5] in 1999 and 2000. This component would be built
> into the salary structure of companies, and as agreed between union
> and management, could be cut in sudden business downturns. Over time,
> the hope was to have the following wage structure:
>
> Basic Salary -- 70%
>
> Variable Payment -- 20%
>
> Monthly Variable Component -- 10%

Such a salary structure would allow companies greater flexibility in
managing wage costs more responsively, for wages to reflect productivity
more directly, and more importantly, to preserve jobs for workers in
difficult times. However, it was a controversial policy that faced some
resistance from companies.

### 

### 

### Enabling Effective Yearly Wage Negotiations at Matsushita

The yearly wage negotiations at Matsushita Refrigeration Industries are
often smoothly conducted because of two main reasons: 1) the regular
information sharing on company performance and direction; and 2) the
common negotiation principle agreed upon.

Instead of bargaining on a "hope-to-get" basis, both management and
union have agreed on the common negotiation principles of sustainable
wage increase and appropriate rewards for high productivity and
profitability, as illustrated in the following matrix:

##### 

##### As a result of the common principles and understanding reached, the gap between the proposals for wage increase from management and workers was often narrow even at the start of wage negotiations. This allowed wage negotiations to conclude smoothly.

##### 

##### Transforming the Wage Structure at Matsushita

The wage structure at Matsushita Refrigeration Industries, in keeping
with the recommendations of the National Wage Council underwent various
transformations:

-   the adoption of the base-up system of salary increases;

-   the incorporation of a performance increase component;

-   the building up of the Monthly Variable Component.

The UWEEI Branch at the company was initially unhappy with the proposal
to incorporate the performance increase element. It argued that it was
difficult to achieve perfect objectiveness and hence fairness in
evaluating the performance of employees. However, both union and
management agreed that the lack of evaluation and the tying of wage
increase only to seniority was not a viable alternative in the long run
as it undermined the competitiveness of the company while inadequately
rewarding workers for their productivity.

It was again through the continual engagement in dialogue that both
management and union came to an agreement to incorporate a performance
increase element and continue to raise the "base" of salary ranges to
narrow the gap between the lower and upper end of each range. This would
allow a transition to a more performance-based wage system, as opposed
to a merely seniority-based one. At the same time, the union and company
agreed to continue to recognise employees for their loyalty and
experience. Salary increases were therefore structured as such:

  --------------------------- --------------- -------------- -------------
                              **1998**        **1999**       **2000**

  **Base-Up Increment**       1.5%            1.0%           2.0%

  **Service Increment**       1.5%            0              2.0%

  **Performance Increment**   0.61%           0.5%           0.6%

  **Total Wage Increase**     3.01%           1.5%           4.5%
  --------------------------- --------------- -------------- -------------

The Monthly Variable Component was also built into the wage structure in
1999 and 2000 by apportioning a total of 3 percentage-points of the wage
increase as the MVC, with the aim of reaching the target of 10% over
time. This move was strongly pushed for by the union who saw that it was
important to have a cost mechanism that would enable job losses to be
minimised in sudden business downturns.

5.  **The Role of External Factors in Replicating the Partnership**

Both the management and workers at Matsushita Refrigeration Industries
were of the opinion that the strong spirit of Tripartism already
established at the *national level* was crucial in the success of the
company's transformation from having a confrontational labour-management
relationship to having one that is cooperative and consultative. As
tripartite cooperation at the national level was already
established[^6], there was less skepticism and more ready acceptance at
the company level, allowing labour-management partnership to develop in
the tradition of positive engagement. Hence when the company faced
difficulties in its early years, the setting up of a union in the
company helped to facilitate talks and open discussions between the
workers and management. The NTUC also provided leadership and training
for union leaders at the affiliated and branch unions. Through
participating in the many national tripartite projects, opportunities
for partnership were also created at the company level.

The management also raised the point that labour-management cooperation
is only viable and practical against a backdrop of overall economic
development and progress, as well as company performance and
competitiveness. The motivation behind the partnership must be the
creation of a larger economic pie to the benefit of both parties.
Without tangible returns, consultation would appear meaningless. In
turn, this common principle must be adhered to and the profit-sharing
that results (whether it be in the form of wage increases, bonuses,
greater investment in training or staff welfare) is key to the building
up of mutual trust.

Given the right social and economic factors, the replication of a
broad-based partnership is not difficult. Certain obstacles at the
company level, however, would first have to be addressed. Chief amongst
these would be overcoming the initial discomfort and mutual distrust at
information sharing. Establishing a structured framework of
communication channels has been an effective strategy for Matsushita
Refrigeration Industries as it provided for regular dialogue. The other
crucial condition at the company level would be equipping the
middle-management, including the supervisors and HR team, with the
appropriate skills in team-building, grievance handling and
communication. Without this, the policies and spirit of partnership
sealed by the leaders of the company and union would not be smoothly
translated into a viable working relationship at the plant.

The example of Matsushita Refrigeration Industries is testimony to the
fact that good labour-management relations and a fruitful partnership
does not require extensive financial resources or elaborate programmes.
The lessons to be gleaned all point to the importance of regular
dialogue to achieve the buy-in from all parties concerned.

[^1]: See [Annex 1]{.underline} for details on the company and workforce
    profile.

[^2]: The NTUC is a national federation of trade unions of workers in
    the industrial, service and public sectors in Singapore. As of
    today, it has 69 trade unions and 6 associations affiliated with it
    in Singapore.

[^3]: See Table 4 of [Annex 1]{.underline} for details of the skills and
    age profile of the workforce.

[^4]: The National Wages Council is an advisory body to the Government
    set up in the 1970s. The Council is made up of representative from
    the trade unions, employer organisations both local and foreign, and
    government agencies. Ever year, the NWC meets to formulate general
    guidelines on wage policy.

[^5]: See [Annex 2]{.underline} for details of the Flexible Wage
    Structure.

[^6]: This was evidenced by the many national projects relating to
    employment matters and worker welfare that were tripartite in
    nature, for example, the National Wages Council and the setting up
    of the Skills Development Fund. The three partners (government,
    employers and workers/unions) have also embarked on many programmes
    together. Examples of some of these in recent years are the
    Tripartite Retrenchment Panel, the National Manpower Summit, the
    Skills Redevelopment Programme, the Extension of the Retirement Age,
    and the Committee on Portable Medical Benefits.