Productivity targets absent from wage talks

[miningmx.com] – TALKS between South Africa’s platinum producers and the Association of Mineworkers & Construction Union (AMCU) have hit many-a-rock in the past five months, but an area where the sides don’t seem to have made any progress at all is in linking wage increases to productivity targets.

“We’ve just not been able to get any traction on it at all throughout the whole process,’ said Johan Theron, corporate affairs head for Impala Platinum (Implats). “We think that instead of sharing more of the existing cake we could perhaps make the cake bigger,’ he said. “I don’t know if it’s a historical thing but it won’t be discussed.’

It isn’t just the intransigence of AMCU.

The National Union of Mineworker (NUM) rejected the notion of productivity-linked wages in last year’s gold industry wage negotiations despite having to agreed to discuss it in the 2011 wage talks. “It was discussed after a monitor group completed a study, but the sides couldn’t agree,’ said Roger Baxter, head of strategy at the Chamber of Mines and its senior economist.

The monitor group, which drew its research following a trip to Brazil, found that 80 additional productive shifts per year could be added to the current 220 productive shifts achieved per year against which higher wages could be agreed. It ultimately asked of the NUM to consider multi-shifting.

“Other countries are mining more intensively than we are,’ Baxter said at the time. The study group, which is part of the Chamber of Mines’ Sondisa study into productivity, is based on the fact that South African mines work about 274 days a year against 365 in foreign countries.

Unions are sceptical of linking productivity to wages owing to past experiences. Former AngloGold Ashanti CEO, Bobby Godsell drove productivity initiatives in unison with James Motlatsi, then secretary-general of the NUM, in the late Nineties. Unfortunately, the slide in the gold price meant that the mining improvements didn’t materialise in the margin. The size of the cake remained unchanged.

By extension, there’s scepticism too about the value of Employee Share Ownership Schemes (Esops) the benefits of which to workers also turns on the markets. Kumba Iron Ore, for instance, paid out a total of R2.7bn in terms of its Envison Esop, equal to a breaktaking R576,045 per employee – there were 6,209 employees in total – when most of them were drawing R5,000 to R20,000 per month.

Implats employees, however, fared much worse when that company’s Esop matured. Structured around the same time as Kumba’s Envison Esop, the Implats version paid out only R3,000 per employees – there were 26,000 total beneficiaries at the time – after the five-year maturation period was up. The vast difference in benefits was linked to the share prices of each company at the time of payout.

When the Implats Esop matured in 2012, at some R175 per share, it was not far of the original strike price of R162/share. Kumba, on the other hand, saw its share price rise from less than R100 to over R500 over the same period.

Envision beneficiaries received the additional benefit of Kumba being one of the JSE’s best dividend payers in recent times, receiving payouts totalling R279m during the five years of scheme at an average of R55,000 per employee.

Implats and the gold companies hadn’t broken any promises but the upside benefits promised to workers, and the failure to deliver on them, seems to have dented any faith unions have in risk-related wage offers.

As with the modern mining sector investor, the most important metric is cash in pocket today rather than the promise of greater riches tomorrow.