Corroding morale of a steel workforce

Across the road from the trade union offices at Tata Steel’s strip products division in Port Talbot, Wales, stands the Cold Mill — an expansive grey building with the words “Our People Make the Difference” written in large, bold letters across it. The Tata Group has long made much of its relationship with its workforce; forging a “caring, respectful and compassionate” bond with colleagues and achieving “cohesive” working feature among its five core values. However, at Tata Steel’s UK facilities such claims seem to have a hollow ring as the group faces what could be the most significant industrial action to hit the UK steel industry in more than three decades.

To be clear: in terms of numbers, the strike won’t be on the scale of 1980 when 90,000 workers of the British Steel Corporation (the company that eventually morphed into Tata Steel’s UK operations) went on a 14-week strike over pay and closure fears. Tata Steel employs 17,500 in the UK and the unions, which represent around 95 per cent of the workforce, are yet to specify the length of any strike action, should they get the go-ahead from the ballot taking place between May 6 and 29. But the significance of the dispute cannot be underestimated for Tata Steel. Indeed, union members point to a corrosive rift between management and workforce.

“I’ve been here 30-34 years but have never known morale to be this low,” Mark Davies, a union member based at Port Talbot, said during my recent visit.

At immediate issue is Tata Steel’s proposal to close its defined benefit pension scheme, which dates back to British Steel Corporation days. Though consultation is still underway, a new scheme, announced in March this year (see box), is set to be adopted, which would be less costly to the company and cut its risk exposure. As retired employees live longer and amid low returns from financial markets, the rising costs of running final salary pension schemes have led to substantial deficits. In consequence, companies across the UK have made a transition to defined contribution schemes. In Tata Steel’s case, however, unions argue that the move would remove one of the main benefits of working for the company, and they had in 2011 already agreed to measures to reduce the company’s risk exposure to the longevity issue.

Tata Steel maintains this agreement was limited in scope, and didn’t relate to improvements in life expectancy pre-April 2012, where most of its liabilities lay.

When this round of negotiations began in November, unions were first offered a reformed version of the scheme, but they say the proposals on the table were untenable. One proposal required all workers to retire at 65. Hitherto, employees have been able to apply to retire five years earlier in recognition of the heavy physical demands of the job.

“We have made so many changes to the scheme over the years, cut benefits and costs… they’ve said it would safeguard the future of the scheme,” says Roy Rickhuss, general secretary of the Community Union — one of four unions representing Tata Steel’s workforce. “This time their refusal to negotiate in any meaningful fashion tells me they had a predetermined position and are hell bent on closing the scheme.”

Less room for negotiation

Tata Steel says employees’ views would be considered before any final decision on shifting them to “a very competitive pension arrangement.”

Rickhuss contrasts the style adopted by senior management in the past with that of the most recent rounds of negotiations. “We have definitely got the impression that the management team we were negotiating with had their hands tied. They shrugged their shoulders and couldn’t make any decisions.”

He views this as the latest stage in the sharply deteriorating relations over the past couple of years. He cites the manner in which Tata handled the sale of its long products division, largely in Scunthorpe, to Geneva-based Klesch. Until the day of the announcement last October, even senior union executives within the division had no inkling of the negotiations, or an opportunity to propose alternatives. “We feel disappointed and very let-down,” says Rickhuss. “Tata’s explanation about confidentiality didn’t cut any ice. As leaders of trade unions, we sign confidentiality agreements at all levels.” Tata says the announcement was made early in the merger-and-acquisition process, before due diligence had begun.

Alan Coombs, chair of the multi-union committee at Port Talbot, who has been with the company since 1982, recalls a long period when relations were healthy, even during such challenging periods as 2008-09, when a blast furnace on the site was mothballed. He recalls the attitude of the plant’s former Managing Director Uday Chaturvedi. “It was a pleasure doing business with him,” says Coombs, describing how unions and management worked together to avoid layoffs, putting workers into training programmes, and other roles. “You had the sense it was about looking after people and making them ready to go out again if things turned around.”

Coombs also recalls a period when he was involved in weekly management meetings, but that stopped in the past two years, during which the company has undertaken a crucial review of the plant’s white- and blue-collar workers. “Prior to that I had a seat at the table, no matter how uncomfortable the discussion,” he says.

Missing gestures

Coombs says the lack of consultation has had knock-on effects on morale, leaving the plant undermanned and piling pressure on the remaining experienced workers in the form of overtime and night shifts. One worker, who wished to remain anonymous, said he had little choice other than to go on 16 night-shifts in the past 17 days. “… running a blast furnace takes years of experience,” says Coombs.

The workers I spoke to pointed to small but telling changes. Martin Waters, a staff union representative, was for a while running a scheme that helped the long-term sick return to work in less-taxing roles. For example, a worker with cancer was offered less physical jobs and the flexibility to work when health permitted. This scheme, he said, engendered great morale. However, in the last couple of years, the scheme fell by the wayside.

Another example several workers cited was “the journey”, now discontinued, which gave workers an opportunity to suggest improvements, often in small team settings. Coombs recalls one worker telling him it was the first time someone had asked his opinion in 30 years. Others pointed to changes such as a move from salary rises to bonuses; changes to the benefits linked with overtime; and an end to Christmas family entertainment shows and the bottles of energising squash that were once put in their lockers.

A Euro hangover

Interestingly, no one I spoke to thought the changes were a result of the change in leadership at the top of Tata — a question I specifically asked. Workers and union leaders instead linked them to a new approach at the European level: a growing centralisation of activities. “I believe it’s HR-driven from the top of the European business,” says Coombs. “The one-company, one-HR approach.”

Tata Steel’s tough stance has however been welcomed by analysts. “Demand has collapsed, margins are wafer-thin, the Chinese are oversupplying the market so it’s a very challenging environment and Tata has been slow in taking actions to bring the company into profitability,” said one analyst on condition of anonymity.

The impact of any strike action on Tata Steel’s three British plants, with an annual capacity of 11 million tonnes (global capacity is 29 mt), would depend on how long it continues and the shape it takes. This is a company still in the tentative stages of recovery, as demand has begun to revive, and costs have fallen. According to the latest figures, earnings before interest, taxes, depreciation and amortisation rose to ₹1,308 crore in the quarter ending December — an over 50 per cent increase on the same period the year before.

In a statement, Tata said that a drive for competitiveness in the face of unprecedented economic and market headwinds had required lots of changes, and that unions “can and do have an influence on outcomes at Port Talbot as elsewhere.” Still, Rickhuss argues, it is time for Tata to acknowledge that it is “not living up to what it sets itself up to be as a good employer, exercising corporate responsibility for its workforce.”

“The pension thing is like the straw that broke the camel’s back,” observes Waters. “We have had enough of this. The boys don’t want to go out on strike but this is a protest. They have the feeling management isn’t listening to us anymore.”

Retiring hurt

Tata took over the £13-14-billion British Steel Defined Pension Scheme, which based pensions on the salary close to retirement. In recent years it has begun to run at a deficit — currently estimated to be in the region of £2 billion, with increased life expectancy of an average of six years adding around £2.5 billion to liabilities in the past 25 years. Tata had initially proposed to make up half through modifications to the scheme, which has around 140,000 members including 17,000 current employees.

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