You are on page 1of 6

COLLECTIVE BARGAINING: An Unsuccessful

Saga at Escorts
ESCORTS: A Background
Escorts Limited is among India’s leading corporations operating in the diverse fields of
agri-machinery, telecommunications, Healthcare, construction and material handling
equipment, automotive, Railway ancillaries, information technology, and financial
services. The Escorts group has 12 modern manufacturing facilities and an extensive
marketing network spread across the country.
The genesis of Escorts goes back to 1944 when two brothers, H P Nanda and Yudi
Nanda, launched a small agency house, Escorts Agents Ltd., in Lahore. Over the years,
Escorts surged ahead and evolved into one of India’s largest conglomerates.
The foundation of Escorts Ltd. was laid in the formation of Escorts (Agents) Ltd. on
October 17, 1944 and Escorts (Agriculture and Machines) Ltd. in 1948. The two were
later merged in 1953 to form Escorts Agents Private Ltd. The company’s incorporation in
its present name — Escorts Ltd. — was effected on January 18, 1960.

Employee Hierarchy
The company had three distinct levels of employees. At the lowest level were workmen
and staff. The workmen worked on the machines on the shop-floor and had no
discretionary authority. At the start of a shift, they would be asked to work on a specific
machine and carry out a definite number of operations. Also, there were eight grades of
workmen (W1 to W8) though there was not much difference in the work that the
employees of different grades performed. A system of annual appraisal was in place and,
depending on performance, a workman could get a single increment double increment, or
promotion to the next grade. But, the increment rates were low and promotion to the next
grade did not lead to any change in the tasks that a workman performed.
The staff did not work on machines. They worked in offices as clerks and peons. They
too did not have any discretionary authority but were more educated than the workmen.
The workmen and the staff were non-managerial cadre of employees and they were a
part of the union; they were, in fact, the ‘unionized’ employees of the company.
In the next level were the supervisors who managed work on the shop-floor. They dealt
directly with the workmen and staff. They could not be a part of the workmen’s union
,and the Managers worked with supervisors to get work done.

CASE FACTS:
Union- management Relationship: An autocratic past
• In the early seventies, the condition of the workmen was miserable. The
management had complete control over them and there were excesses.
• The workmen were issued passes for going to the toilet and for drinking water.
• They had to faithfully carry out the work assigned without any consideration of
the grade of the employee
• When the union was formed under the leadership of Subhash Sethi, the
management reacted very strongly and tried to prevent the workers from joining
the union by locking them up in their respective plants.

Union- management Relationship: Winds of Change

Eventually, the workmen of all the plants of Escorts joined the union and the
management was left with no option but to recognize the union. The condition of the
workmen began to improve with the formation of the union. Management could no
longer ride roughshod over them.

Union-management Relationship: Reversal of Power


The power equation between the management and the union soon began to reverse.
The once subservient workman was no longer willing to be ordered around By the
late eighties, the management was at the mercy of the union. The salaries had
increased to make the workmen most prosperous in the Faridabad industrial region.
The most discernible change was that the status of a common worker had improved.
Now, the management could not assign work arbitrarily or dare to misbehave.
The worker was the boss on the shop-floor and the managerial and supervisory staff
had to maintain good relationship with him.
There was a common union for all the 12 plants of Escorts Ltd. If there was a
problem in any plant, all the other plants would extend support and would go on strike
collectively. Since the management could not afford to shut down all its plants, the union
seemed invincible.
The management and the union dealt with each other at three levels: On the shop-floor
and in the offices, the supervisors and managers dealt with the workers and staff directly.

The management often felt helpless as the workers and the staff would work only as
much as it was stipulated in the agreement. They hardly ever made official complaints
against any worker knowing fully well that no actions would be initiated against him,
and, instead, relied on personal relationships with him or concessions like overtime to get
work done. At the second level, the head of a department interacted with the
functionaries of the union regarding the personal grievances of the workers and those
aspects of the working of the department about which the union was unhappy. In such
situations, the personnel department intervened and tried to find solutions. But, they
would end up persuading the department head to agree with the union functionaries and
advising them to stay in their good books. At the third level, the top functionaries of the
union interacted with the plant heads and the executives of the corporate personnel
department. The discussion at this level led to sorting disputes that arose at the plant
level.
Productivity Concerns

By mid-nineties, the management realized that the external environment had become very
competitive. It had, therefore, become imperative to reduce cost and improve quality so
that it could face the emerging competition. The management also believed that this was
the most opportune time for making fundamental changes in its working.
The union had, so far, resisted all management attempts to bring changes which could
affect its advantageous position. However, after heading the union for 20 years, Sethi
died in 1996. This led to a bitter power struggle in the union which culminated in two
elections in two years. After Sethi’s demise, the entire scenario had changed.
Now, the president and the council were always at loggerheads. Multiple seats of power
had emerged.

Areas of Concern in the Case:

• The management’s goal was to increase the competitiveness of its products.


• Its cost of production was higher in comparison to other manufacturers and its
quality was going down.
• It had to increase the utilization of its machines so that the cost per component
could come down.
• It was also keen to pass on the responsibility for quality output to the workmen
working on the machines as quality was still the responsibility of quality
inspectors.
• The management had no control over the unionized workmen.
• It could not deal with individual workers directly. Even for allocating machines to
workers, it had to seek the permission of the union.
• The union resisted any move by the management if it adversely affected the
interests of even a single member.
• The management could not bring about any change and improvement in the
working pattern event though the company had undertaken a programm of
Business Process Reengineering.
• The management wanted flexibility in its working pattern.
• According to the present practice, a workman who had been allocated a machine
a decade ago could not be allocated to a different machine by the management
until it received a consent from the union.
• If a machine had broken down, the operator of the machine would sit idle and
would refuse to work on any other machine.

COLLECTIVE BARGAINING AGREEMENTS MADE:


The company had a successful experience of negotiating three years’ collective
bargaining agreements with its union.The process had started in late seventies and
the three years’ agreement had almost become a routine and had come to be accepted
as an important element of the management-union relationship. The process of
collective bargaining was almost institutionalized at Escorts.
Process Of Collective Bargaining at Escorts Ltd.

• A few months before the existing agreement made for three years lapsed, the
management and the union would submit their charter of demand to each other.
The management’s charter of demand would be centered around increasing
production levels, i.e., increase in production of tractors by, say, ten per day.
• The union’s charter of demand would be centered around the increasing the
salary of workers. Escorts had 12 plants and the collective bargaining agreement
was common for all the plants. But, each plant produced different products
and the market demand for each product was different.
In every agreement, there would always be some products which would not be doing
well in the market at all and the management did not want any increase in the
production levels of the plants producing those products. Also, it did not want to
increase the salaries of the workers of these plants.
• Managing these discrepancies was the major challenge for the union and the
management. Since the union was common for all the plants, it could not agree to
major differences in increase in salary levels of workers of different plants. These
differences had to be reconciled before an agreement could be reached.
• Normally, the union would persuade the workers of the plants producing the
products whose demands were higher to accept a lower hike in salary so that
some of their benefits could be passed on to the workers of the plants whose
products were not doing well in the market.
• These inter-plant differences could be sorted out because the workers had
implicit faith in the president of the union. They trusted his sense of justice.
They also realized that keeping the workers of all the plants together was very
important as the power of the union directly derived from its ability to take
collective action involving all the plants.
• Negotiations often broke down between the union and the management as the
settlement of wages and production levels of each plant was a very intricate job.
• There would be slow-downs & strikes.
• These slow-down and strikes had a crippling effect on the company.
• The union had such an overwhelming influence over the workers that production
would halt immediately at all the 12 plants as soon as the union called for a
strike. There was no dissent among workers regarding the union’s decision.
• The management felt helpless in such situations and normally rushed through the
negotiation process, granting major concessions to the union in the process.
• The most remarkable thing about these agreements was that there would be no
left-over acrimony between the managers and the workers over the
settlement.As soon as the settlement was reached, the workers and the managers
would get down to work as if nothing had happened between them in the previous
days.
• Both the company and the union grew in strength through the years. The company
that was making just 20 tractors per day in 1975 was making 105 tractors per day
in 1998.
• Salaries of workers had increased over the years with the minimum salary
touching Rs.10,000.
• The company increased production through collective bargaining and the
union was able to secure higher wages for its members.

HISTORICAL CHARTER OF DEMANDS


• The management submitted its charter of demands on March 3, 1997.
• The demands included optimal utilization of plant, equipment, labour, and
other resources, sincere working during scheduled duty hours based on IE
norms, cutting down wasteful practices, and adoption of such practices
which would result in higher productivity and quality and provide the
necessary operational flexibility for meeting the exigencies.
• The management was not seeking an incremental increase in the production level
of the final product as it had done in the earlier agreements.
• The main plank of the management was that the workers should work diligently
for eight hours and produce the scientifically-determined output.

Negotiation in Progress
• The proposal by the management contained clauses which adversely affected the
privileges and benefits of the workmen. The management wanted production
according to the IE norms.
• When these norms were translated into production figures for each workman, they
turned out to be much higher in comparison to what a workman was producing
then.
• The union vehemently opposed the production plan according to the IE norms.
• According to the IE norms, production of the assembly line was calculated to be
140 tractors in 16 hours.
• The management was giving Rs.4,790 per workman in the new agreement and
manufacturing 35 extra tractors.
• . The union opposed all the major proposals of the management.
• To put pressure on the management, the union resorted to slow-down in May
1998. The production fell from 105 to 30 tractors.
• But, the management was not willing to compromise

Conclusion
• The management somehow got the bill signed, but ultimately it increased the
fixed part of salary.
• When the market declined, they sufferred loss but nothing could be done, as the
pact was for three years.
• It sufferred heavy losses and the losses continue till date due to certain
agreements made by the management as a part of collective bargaining process
which has hampered the success of the company and has placed the workers at a
pedestal from where they can dictate terms and have more power .

Recommendations
• Autocratic rule could have been avoided in the very beginning as an autocratic
behavior from the management’s side instigated the workers towards taking
actions and developing a negative view of the management.
• Strength of unions downplays the management regime, so it should be handled
with tact.
• No pact should be made without proper future analysis as was made by the
management under the pressure of the union, and the move till date has hampered
the company’s growth and success .