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
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
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
3Ú4 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
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.
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.
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
- Electricorp Production, responsible
for generation at 37 hydro, thermal and geothermal
- 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 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' 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
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
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.
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
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
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
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.