Business Negotiations
Massive article on the importance of Classic Negotiation
Name: 2006 Winter Olympics Curling Gold Medalist Hopeful
Assignment: Classic Case
April 19, 2005
Case Type: Historical Example
Negotiating Parties: Kaiser Aluminum vs. United Steelworkers of America
I. Introduction
The United Steelworkers of America (USWA) initiated a strike against Kaiser Aluminum (Kaiser) in late 1998. The strike lasted for two years and affected 3,000 workers, with a majority of workers involved coming from two Kaiser plants in Memphis, Tennessee, and one in Tacoma, Tennessee. The dispute arose as the USWA was negotiating to provide improved job-security, pensions and sustained medical benefits to its members who worked for Kaiser. These goals contrasted Kaiser's own as the aluminum manufacturer aimed to streamline their plants in order increase cost competitiveness and flexibility to compete with their local and international competitors (USWA).
II. The Players
The United Steelworkers of America - This union has over 1.2 million working and retired members in the U.S. and Canada. The USWA strives to promote fair practices on the job and in society. A diverse membership of workers from the metal, mining, manufacturing, and health care industries comprise the USWA (United).
Kaiser Aluminum & Chemical Corp - In 1998, Kaiser was a $3 billion dollar company that employed of 9.600 workers, making them the fifth largest aluminum manufacturer in the U.S. (White). Today, they continue to produce fabricated aluminum products for the aerospace, automotive, beverage and construction industries among others. Kaiser has facilities in nine US states, Canada, Ghana, Wales, Jamaica and Australia (Kaiser Aluminum).
III. Negotiations Summary
In the summer of 1998, 3,000 USWA members were working at Kaiser aluminum plants across the U.S. Kaiser and the USWA were involved in negotiations to create labor contracts that met the new needs of both parties. Unfortunately, the negotiations were deteriorating as neither side saw their needs being respected or addressed by their counterpart.
The workers were looking for reparations for sacrifices they had made in the mid 1980's to keep Kaiser in business during a financial crisis. One sacrifice the workers had made was a $4.50/hr wages and benefits cut. Kaiser had previously attempted to compensate the employees for their sacrifice with, among other things, series A stock. Unfortunately, the workers only ended up receiving around 55 cents for every dollar they gave up (White).
The USWA also wanted to procure job security for its aluminum workers by halting job cuts and limiting contract work. 50 jobs had already been cut by Kaiser in 1998 to trim costs and that appeared to be just the tip of the iceberg (Crompton A6). Furthermore, the union aimed at improving the Kaiser worker's wage and benefit packages to match those of industry leaders Alcoa and Reynolds (Wasilewski).
Many of Kaiser's strategies to increase their profitability encroached on their worker's sense of security. From a financial perspective, Kaiser was having a terrible time trying to control its costs and rising debt. Debt payments were consuming a considerable part of free cash flow. In order to become a financially healthy company, Kaiser needed to modernize their company by lowering costs and increasing flexibility. Unions can inhibit both of these goals for companies.
The first part of Kaiser's march towards financial health required the elimination of 400 of its near 3,000 USWA employees (Wasilewski). Kaiser had been operating well below operating capacity for a number or years. These job cuts would help keep costs down in times of low production. In order to make their workforce more flexible as aluminum demands fluctuate, Kaiser wanted to contract out 150 positions (Wasilewski). When Kaiser released/rehired contracted workers they could do so with out adhering to the USWA's stringent labor agreement since contract workers were not part of the Union. Kaiser also looked to decrease the amount of worker favored rules established previously with the USWA such as seniority overtime, substitute work and vacation time (Wasilewski). As medical insurance costs continued to rise on a national level, the company wanted to cap their contributions to the health insurance premiums of their retirees. Lastly, since each of Kaiser's plants had a unique labor market and operations base, the company wanted to bargain certain issues at each plant separately.
On September 30th, 1998, after 30 day of formal negotiations, the Kaiser workers went on strike. Kaiser immediately hired 1,000 temporary workers from Tennessee, Oregon and Monday, as well as 136 security guards to keep the peace (White). Through the use of salaried employees, workers from other plants, retirees and the new temporary help, the company was able to keep up production during the strike, although at a lower level in some cases.
Over the next two years, many negotiations and contract talks ensued. Accusation and finger pointing occurred on both side. Federal mediators were brought in on multiple negotiations, but to no avail. After almost two years, the USWA and Kaiser could not come to an agreement. Therefore, both sides approved the use of an arbitration panel that would issue a final and binding decision. On September 18th of 2000, the arbitration panel announced their arbitration award and ended the strike. Unfortunately, in the years following, Kaiser struggled to fulfill its labor agreements and remain competitive in the developing world market. On February 12th of 2002, Kaiser Aluminum filed for Chapter 11 bankruptcy (Blackwell 1).
Table 1 - Summary of USWA's and Kaiser's Interests/Targets
Party Interests/Targets (Wasilewski)
USWA Kaiser
. Reparations from sacrifices made by union members in the mid 80's
. Job security
. No cap of retiree health insurance premiums and 12 year extension
. Improved medical, dental and vision plans
. Wages and benefits level with industry competitors. $3.72/hr over 5 yrs
. $10/mo increase in pensions multiplier for each year of service
. Eliminate the jobs of 400 USWA members
. Cap retiree' health insurance premiums
. Elimination of supplemental and local agreements; E.g. Seniority overtime, vacation scheduling, substitute work
. Separate bargaining for each plant
. Freedom to hire 150 contract workers
Table 2 - Summary of the Resolution between USWA and Kaiser
Negotiation Results (Wasilewski)
Agreements Settled before Arbitration Award
. Expedited procedure for outside contracting
. Limited number of USWA member jobs that could be contracted out
. Removal of cap on Kaiser's contribution to retiree's health care premiums
. Reinstated health care for all striking workers and their families
Arbitration
Awards:
. Increase in base salary wages by $3.42/hr over 5 years
. $8.25/mo increase in pension multiplier for each year of service for future retirees only
. No cap of retiree health insurance premiums and 12 year extension on coverage
. 500 job reductions
. $12 million in severance pay
. Same overtime bypass penalties
. More flexible scheduling ability for Kaiser
Rejections:
. $4 million to recharge supplemental income fund for unemployed
. No increase in layoff benefits for 30 smelter workers
IV. Analysis of Negotiations
This was a mixed negotiation in that there were both distributive and integrative resources on the table. Distributive resources are limited. Negotiations involving distributive resources are often called a zero sum games. If one party gains more of the resource, the other party loses the same amount. In this case, the wages, health care premiums and severance pay were distributive as they all had to do with money leaving Kaiser and going to the Union members. The integrative resources, which allude to a variable sum negotiation, include labor laws and rules involving shift scheduling, seniority, work hours, overtime, and vacation scheduling. Both USWA and Kaiser could possibly come out with a better situation in terms of the integrative resources that were negotiated upon. The negotiation can be potentially considered a win/win situation. Although there were some zero-sum components that lent the negotiation towards a win/lose situation, the variable sum components could have created an overall win for both sides.
The BANTA for Kaiser, or best alternative to USWA, involved hiring temporary employees, retirees and importing workers from other plants. Kaiser's BANTA seems to have been attractive to the company as they appeared to almost encourage a strike from the USWA workers with initial consolations that failed to address many of the USWA's interests. This implies a hard positional bargaining as Kaiser dug into their position and seemed to see the other participant as an adversary. Nevertheless, as the Kaiser gave in to the proposal after two years, it seems that their BANTA may not have been as good as they had imagined.
The BANTA for USWA and its members may not have been very good. Most of the workers had specialized jobs. Thinking long term, if the strike failed, these employees could be forced to move to a new city to find work. Or, the workers could take up new jobs, likely at a lower pay due to their inexperience in the new job. One more option could be for workers to go back to school and become trained in a new profession. For whatever alternative a worker elected, the financial and emotional stress on the employees' families may have been considerate. In the short term, the striking workers could be supplemented by the USWA and could find other temporary work. When the USWA reacted to Kaiser's seemingly half-hearted initial consolations with the strike, they seemed to be replicating hard positional bargaining by applying pressure.
Chart 1 - Estimation of Costs during Strike for each Party
Estimates of both parties target point for wage increase can be estimated from their initial proposals. Kaiser's target point appears to have been $2.75/hr over five years, while USWA's can be estimated at $3.72/hr over 5 years. Resistance points are hard to predict off the information found about the case. The bargaining zone, or area between USWA's and Kaiser's resistance points, when measured, is called the bargaining surplus. Since both sides could not come to an agreement over many of the issues, one might presume that a bargaining surplus did not exist. The resistance points of each side did not overlap. When no bargaining surplus exists, this is called a negative negotiation range because a range of values does not exist where both sides of the negotiations will be content.
Diagram 1 - Estimated Target and Resistance Points
The negotiation dance is the process of making an opening offer and eventually coming to a mutually agreeable deal. The negotiation dance lasted for two years between USWA and Kaiser. The first offer by Kaiser created an anchor point from which the negotiation began. The anchor point in this negotiation was so far off from USWA's interests, that the anchor point set the tone for a positional bargaining negotiation. A more fruitful initial proposal by Kaiser may have been where the company focused on interests, not positions. Kaiser could have looked at the interests of both parties, and then attempted to invent options for mutual gain. Requests for the variable sum resources could have been met. Also, compromises may have been reached for the zero-sum resources such as wages, and insurance payments.
In this negotiation I learned the value of interest based negotiations. I learned that if the two negotiating parties see each other as allies instead of adversaries, significant amounts of money and time can be saved. If the two negotiating parties work together, they can structure a deal using creativity that can potentially satisfy the needs of both sides. This case also illustrated how easy it is for a negotiating party to fail to empathize with their counterpart. Both Kaiser and USWA are huge organizations with millions of dollars worth resources to aid in strike resolution. Instead of using these resources to help come up with solutions, they each used their resources to fortify their own positions in the strike. Kaiser spent $50 million to hire, train, protect, feed and house the temporary workers they brought in to work at the aluminum plants. A union representative commented that if Kaiser had accepted the USWA's original proposal, three years worth of new benefits to the union workers would not have totaled enough to reach the $50 million (Sudermann A.1).
V. Ending Elements
Resource being negotiated: Money, Job Security, Workplace rights
Type of negotiation: Mixed, Distributive and Integrative, Potentially Win/Win
Outcomes:
USWA Kaiser
Give . Limited number of USWA member jobs that could be contracted out
. 500 job reductions
. Elimination of some supplemental and local agreements
. No cap of retiree health insurance premiums and 12 year extension on coverage
. $8.25/mo increase in pension multiplier for each year of service for future retirees only
. 12 million in severance pay
Get . Increase in base salary wages by $3.42/hr over 5 years
. Removal of cap on Kaiser's contribution to retiree's health care premiums
. Reinstated health care for all striking workers and their families
. $12 million in severance pay . Expedited procedure for outside contracting
. 500 job reductions
. More flexible scheduling ability
. Limited number of USWA member jobs that could be contracted out
Key Terms: Mixed Negotiation, Distributive, Integrative, Zero Sum, Variable Sum, Win/Win, BANTA, Hard Positional Bargaining, Dug into Position, See other Participant as an Adversary, Applying Pressure, Target Point, Resistance Point, Bargaining Zone, Bargaining Surplus, Negative Negotiation Range, Negotiation Dance, First Offer, Anchor Point, Focus on Interests - not Positions, Invent Options for Mutual Gain
Works Cited
GG
Blackwell, John Reid. "Kaiser Aluminum Corp. Files for Bankruptcy Protection." Knight Ridder Tribune Business News 13 Feb. 2002: 1. Proquest. 18 Apr. 2005.