In Search of the Magic Pudding

Enterprise Bargaining in Electricorp

David J Bedford

The Electricity Corporation of New Zealand (ECNZ) has identified one indisputable principle regarding the management of its greatest resource---its staff.

We get the best out of our staff if we motivate and remunerate them to perform effectively; in order to do this managers have to deal with them directly, not through the union that claims to represent them. This is the only message that makes any sense on the subject of employer/employee relations.

This fact best expresses the management approach to employee relations we are endeavouring to promote in the ECNZ.

State Owned Enterprise

ECNZ is a State owned enterprise (SOE), created on 1 April 1987 under the provisions of the State Owned Enterprises Act 1986. Its two shareholders are the Ministers of Finance and State Owned Enterprises. Under the Act it is expected to operate as a successful business and to be as profitable and efficient as comparable private sector businesses. Directors of ECNZ are appointed from the private sector. The nature and scope of ECNZ's business, together with operational and functional objectives, are specified in the Statement of Corporate Intent, a document that must be produced annually under the 1986 Act.

The Industrial Legislative Framework

Recent changes to NZ industrial relations legislation have considerably altered the industrial environment in which ECNZ is required to operate.

The Labour Relations Act came into force on 1 August 1987, replacing the Industrial Relations Act 1973. The principle of the legislation in regard to enterprise bargaining has been to reduce the level of second and third tier bargaining that had previously been widespread. Under the 1973 Act, bargaining could take place initially at a national award level. Unsatisfied union objectives could then be pursued on a selective industry or company basis and thirdly at a shop-floor or site level. The results of all three levels of bargaining could be enforced through the legal system. The 1987 Act provides that a worker's conditions of employment can only be contained in one enforceable award or voluntary agreement. If a union wishes to negotiate an agreement with an individual company, that goes beyond the conditions provided in a national award, it must now cite that company out of the national award and separately negotiate a voluntary agreement for that company alone.

Employers see in the new legislation the opportunity to break away from the constraints of national awards. During the 1987-88 wage round, employers endeavoured to keep national award settlements low and as tight as possible, thereby hoping to force the unions to cite out from the award those companies with whom they had previously had an above-award arrangement. The result would be more genuine enterprise agreements.

The unions decided that the preservation of national awards was their top priority and that they would not cite out individual employers. As a result, lower tier bargaining has doubtlessly continued but the resulting agreements are not enforceable through the Labour Court. Many employers still see the national awards as a security blanket which they wish to retain; but others who are having to respond to the necessities of hard economic times wish to grasp the opportunity to negotiate enterprise-based documents that better reflect the realities of their company's financial position and/or geographic location.

The State sector has, until 1987-88, operated under a different industrial relations legislative framework than the private sector. Industrial agreements for the nation's many thousands of public servants were highly centralised. Union coverage spread to the Heads of Government Departments, and the senior officials of the Public Service Association were used to dealing directly with Ministers of the Crown if they become too frustrated with the antics of the State Services Commission.

ECNZ's predecessors, the Electricity Division of the Ministry of Energy (NZED), had functioned within this environment. NZED, however, was not the employer of its 'employees': all public servants were employed by the State Services Commission---NZED only supplied them with work and paid them! The State Services Commission ran a highly centralised industrial relations regime. So-called NZED managers in the field had little authority in industrial matters; nor did NZED's General Manager 34 that authority lay with the Commission in Wellington. It is not surprising that the union organisation that represents public servants was also centralised and saw no value in wasting time dealing with station managers who may have had control over a hundred million dollars worth of power station but couldn't fix an industrial dispute.

Recent industrial legislation has modified this environment for both SOE's and the core public service. From 1 August 1987, SOEs' and government departments' bargaining arrangements became those provided in the new Labour Relations Act. On 1 April 1988, the introduction of the State Sector Act 1988 unified the industrial relations legislative framework for both private and State sectors under the Labour Relations Act 1987. SOEs are now required to negotiate voluntary agreements to establish conditions of employment and, as with the private sector, if a condition is to be legally enforceable it must be incorporated in a voluntary agreement registered with the Arbitration Commission. The legislative requirements of being an SOE and the changes to the industrial relations legislative framework have provided the opportunity to introduce to NZ's electricity and generation industry the principles of management accountability, the efficient use of resources and the monitoring of performance and output.

Transition Arrangements

Prior to becoming an SOE on 1 April 1987, a document called the Transition Determination was negotiated with the Public Service Association which, in the main, rolled over the majority of existing employment conditions for employees of the new Corporation. A management group of 226, exempt from union bargaining, was created. On 1 April 1987, the Corporation had approximately 6,200 employees, whose conditions of employment remained essentially unchanged. The Transition Determination was an umbrella document that nominally pulled together the many 'determinations' and other agreements that had been the conditions of employment for NZED's employees, and who were now employees of the Corporation.

The Transition Determination would expire on 10 December 1987, at which time more appropriate permanent conditions would have to be negotiated.

Additionally all employees (with the exception of a few hundred on construction work) were covered by one union---the Public Service Association.

Organisational Structure

The Board of the Corporation had, prior to 1 April 1987, commissioned a study to identify the most appropriate structure for the Corporation's future operation. Management decision-making was to be decentralised. The result was a company comprising four independently-managed business units:

  • Electricorp Production, responsible for generation at 37 hydro, thermal and geothermal stations;
  • TransPower, responsible for the operation of the national grid comprising major substations and thousands of kilometres of high-voltage transmission line (including the Cook Strait Cable);
  • Electricorp Marketing, responsible for low-voltage transmission and the wholesaling of electricity to local power authorities; and
  • PowerDesignBuildGroup, providing construction and consulting services to the other business units and to external clients.

TransPower and PowerDesignBuild are now subsidiary companies of the Corporation, with the other two being operating divisions. Each has its own general manager, fully accountable for the operation of the unit and reporting to the Chief Executive of the Corporation.

The 'restructuring' of the Corporation from what had been a unified and centralised government department into four business units exposed the Corporation's new management for the first time to union forces who were opposed to decentralisation and were later to oppose our desire for enterprise bargaining.

The 'Union'

The Public Service Association (PSA) is a major 'union' representing the Corporation's staff. Prior to corporatisation, it had represented in collective bargaining all permanent NZED staff from senior management to basic labourers. It also represented permanent staff in the majority of government departments and had a total membership approaching 100,000. It is not strictly a 'union', but an incorporated society, and membership is voluntary (unlike its private sector rivals). Its coverage is based on ministerial recognition, though this changes from 1 April 1989, when it will be subject to the same legislative requirements as other unions. This includes contestability of coverage by other unions---which should bring an interesting dimension to our industrial environment in future years;

Previously collective bargaining occurred centrally between the PSA and the government employing authority, the State Services Commission. Members of the PSA employed by NZED were represented within the PSA by the Electricity Group, which had a management committee drawn from throughout the country who took all decisions on behalf of their members. This management committee still exists. It in the past relied for its power on its ability to deal directly with either NZED's centralised management or the State Services Commission---also centralised in Wellington. Not only were matters of national significance handled centrally, but many issues of only local significance were elevated to the national level because it suited the centralist tendencies of public servants and union officials. Management at power stations and other facilities were industrially impotent.

Things have changed, and apart from an ongoing process involving the creation of our enterprise agreements there are no longer any meetings in Wellington between the Corporate Industrial Relations group and the PSA. Local managers now deal with their own industrial issues at the workplace, calling on the support and advice of industrial relations specialists only as required, but not being allowed to pass responsibility for resolving the problem on to those specialists.

The 'Restructuring'

The 'restructuring' into four business units has also involved the shedding of 25 per cent of the staff taken over on 1 April 1987. The Corporation now employs 4,500 staff. Prior to commencing the restructuring, a consultative process was initiated with the PSA on 4 September 1987. Local managers firstly advised staff directly at each location throughout New Zealand of the nature of the new organisation. This in itself was a novelty as previously such information would have been fed to staff by the union after extensive Wellington-based discussion. It was also the first exposure many of our managers had to the new management philosophy requiring them to communicate regularly and effectively with their staff.

Following the local exchange of information on 'restructuring', the four general managers and corporate management met with the Electricity Group management committee. In addition to providing a broad-brush description of the nature of the 'restructuring' and the staff reductions, we had one other important message for the union. They would have to take up any specific concerns they had regarding the process with management at the locations where the concern arose. No longer would industrial problems be brought back to the central negotiation arena.

The union management committee rejected this approach. They demanded that no staff reductions at any locations should take place until agreed by the union and also negotiations should continue to occur centrally.

As a result, during September and October 1987 an impasse developed that saw the Corporation embark on the restructuring and staff reductions in direct opposition to the PSA's demands. There was no centralised negotiation on the restructuring process and, because of inadequate union organisation at a local level and an attractive voluntary severance offer, the staff-reduction program saw 500 severances by the beginning of November. Some industrial action was taken at a number of power stations in early November but its effect was limited and did not disrupt the supply of electricity to the nation.

The union had misread its own membership, many of whom leapt at the voluntary severance option, and by failing to adjust to the decentralised management structure the union missed the opportunity to debate with local managers the reasons why reductions were required.

Hostilities ceased in mid-November with the signing of an Administrative Agreement between the Corporation and the PSA which tidied up a number of loose ends in regard to voluntary severance arrangements but which saw no concessions by the Corporation on the critical issues of decentralised negotiation and the employer's right to decide the staff numbers required.

The lessons for our managers were crystal clear. The Electricity Group management committee was determined to oppose the concept of dealing with local managers on industrial relations issues. Their power base was built on the traditional centralised negotiations of all industrial issues.

Industrial Action

Prior to corporatism, industrial action in NZED had been an extremely co-operative affair. Because NZED management were part of the PSA, union action was not usually directed against NZED's management but against the employing authority, the State Services Commission, and the ultimate employer, the Government. NZED's management was in some instances neutral at best. Their prime role was to ensure that the industrial action did not disrupt supply to the consumer. As public servants it was their perceived duty to ensure no disruption of supply.

Consequently when industrial disruption occurred it was the PSA's aim to cost the NZED more in generation costs, by limiting production at cheap hydro stations, thereby forcing the running of the more expensive coal, gas and oil powered thermal stations. The PSA and NZED management co-operated over the balancing of the distribution system; and normally because no employees actually left their workstation, no deduction of pay was made from wage packets for the strike. A cosy and comfortable situation for all.

Electricorp's new management changed this. When, in November 1987, station operators reduced generation at the union's instruction, they were advised that they were on strike and no longer being paid. This was received with a degree of incredulity and we were told we couldn't do it because the operators remained on the job performing their other duties. But we could do it: as in Australia, a strike is defined in NZ law as a refusal to perform any normal duties.

This was a real problem for the PSA and its members as the only alternative was to actually shut down stations and possibly cut power supplies. This would have brought the wrath of the public on their heads, and this they were not prepared to do.


Because the Transition Determination expired on 9 November 1987, its renegotiation commenced immediately following the settlement of the 'restructuring' dispute.

The development of a decentralised management structure based on the four business units meant that it was logical for the Corporation's management to push for enterprise agreements. As soon as most of the new managers had wrapped their minds around the management principles the Corporation was promoting, it became obvious that each business unit needed to be able to shape its own industrial environment. The Corporation had been formed to provide a more commercially orientated and competitive approach to the electricity generation and distribution business. The general managers of each division were working hard at creating within staff a sense of each business unit's unique identity. This, coupled with the new industrial legislation that provided the opportunity for and encouraged the development of enterprise agreements, dictated what the crucial issue in the negotiations would be. The PSA's continued preoccupation with centralised negotiations, demonstrated during the restructuring dispute, convinced management that the single agreement had to be broken up.

During the preceding months we had developed, in-house, seven enterprise agreements shaped around the principle activities of the Corporation's business units. Each of the four business units was to have its own agreement; as well, there was to be one for the small Corporate Group, one to cover a retailing activity in the South Island, and finally one to cover construction activities in two major power station sites.

The prepared documents did not propose major changes to existing conditions: we limited our goal to getting enterprise agreements. It should be remembered that these negotiations were not being conducted in an environment conducive to such an innovation. We were creating a new company structure, shedding staff at a steady rate, and making long-term employees compete for their jobs in a way never before experienced by former public servants who had previously been able to look forward to a 40-year career that was typically characterised by little incentive for performance or little possibility of being dismissed for lack of performance. Despite our limited objective, we entered our second major industrial conflict with the PSA in three months.

The Corporation's tabling of the seven voluntary agreements was not taken seriously by the PSA. The concept of enterprise bargaining was entirely rejected. Negotiations proceeded from November 1987 to February 1988. Some industrial action occurred on power stations, disrupting power supply in January to a number of centres including Auckland. Support for the industrial action was sectional. Many employees were beginning to come to terms with the new structure of the Corporation and while still uncertain about the future had come to accept that the world could never be the same again.

During this period the Corporation endeavoured to communicate extensively with staff about the reasons why we saw enterprise bargaining as essential to our future success. This was done through regular newsletters and by encouraging managers to discuss and explain the benefits of enterprise bargaining directly with their staff. While not always believed, at least management were endeavouring to sell their story and provide an alternative reasoned option to that being promoted by the PSA.

During this process the issues in dispute were thinned down to three:

  • the number of voluntary agreements;
  • the percentage level of wage increases; and
  • the application date of the new agreement/agreements

The standard wage increase during the 1987/88 wage round in New Zealand had been 7 per cent and it was our initial aim to get the seven enterprise agreements settled at 7 per cent. The union was prepared to accept 7 per cent for one agreement with application from 10 November 1987.

By the beginning of 1988 both the PSA and Corporation management understood that the enterprise agreement concept had assumed considerable symbolic importance. If management prevailed, it would signal to our staff that we were determined to manage the business as we had said we would and that we were not prepared to bend to union pressure when it was contrary to the concept of decentralised management. If the PSA preserved the one agreement regime, the Group management committee would continue to retain and wield its traditional power. The PSA understood that when we talked about it being better for local managers to deal with their own staff directly on industrial issues, that threatened the management Committee's power base and meant that life could never be the same again.

Finally, during February, agreement was reached on the seven agreements. Our offer on wages was increased to 8.2 per cent effective from 10 November 1987. We accepted a rolling-over of all existing conditions but we had expected that anyway. We had our enterprise agreements. We are still completing the exercise of fitting the existing conditions into the appropriate agreements, a process that has not been entered into co-operatively by the PSA. But the concept is established and there is no going back. However, enterprise bargaining in itself is not the end goal. That goal is to develop an industrial environment that empowers our managers to provide their staff with the remunerative and motivational incentives that make them full contributors to the success of our business. Enterprise bargaining should provide the opportunity for the development of conditions of employment that are more attune to the requirements of both our business and our employees.

We are working hard at giving our managers the confidence to take the initiatives required to win the hearts and souls of the staff and their commitment to our new organisation. Not all our managers take readily to this and a few may always struggle. Some of our employees would still laugh if they heard me say that, above all else, we value their contribution to the Corporation and that they are our greatest asset. After all, we've just put them through what for most has been the most unsettled 18 months of their lives and we've sent around 1,700 of their colleagues down the road with voluntary severance.

The goal, however, is to get the staff relations right. A commitment to the goal should see results that staff can relate to. It can't be achieved by the Corporation's head office talking to staff through a centralised union organisation in Wellington. It can't be achieved by a Corporate Industrial Relations manager negotiating conditions of employment for 4,500 employees with union officials in the isolation of a Wellington conciliation room.

Enterprise bargaining is a vital tool in the ongoing process of getting staff relations right. It is only through management initiatives that staff will feel able to contribute effectively to the success of the company.

The Corporation's commitment to the concept of enterprise bargaining is a message to all our staff that we recognise that it is a sham to believe that you can provide satisfactory incentives to staff to reward them for performance, by negotiating centrally one agreement to cover all their work-related requirements. In reality, the conditions of employment that apply to the majority of Electricorp staff are the same now as they were prior to corporatisation. What has changed is the attitude of management to how it wants to relate to its staff and how staff wish to relate to their manager.

The ability to bargain on an enterprise basis is only significant because it begins to recognise the realities of a workplace that requires strong employer/employee relationships. Equally important has been the Corporation's insistence that grievances be raised at place of origin with the immediate supervisor or manager.

Combating the centralist tendencies of the PSA has only been half the battle as most of our managers are also products of the former regime. Their inclination was often to look to Wellington when an industrial issue arose on their patch. But we have not let them off the hook. They've been told it is their problem, for them to fix it. Support and advice is always available to help them but not to take the problem away from them. Most have responded to the challenge enthusiastically.

Introducing enterprise bargaining is a natural support to this management style as it brings the bargaining process closer to the workplace and allows more recognition of the unique requirements of each of our business units. It is not the final goal itself, but merely a necessary tool to help management create an environment where staff are empowered to contribute fully to the success of our business.