Abstract
The state and the unions are the main institutions of corporate governance in Brazil’s emerging economy. The human-resource management policies of firms rely on changes in labor law and labor market regulations rather than on managerial models. The legal measures taken by the past two administrations, including profit-related pay and the hour bank, all aim at flexibility and labor market deregulation. The current reforms of Brazilian labor law apparently fit, in a contradictory way, long-standing banners of the “new unionism” such as decentralized negotiations and anticorporatist procedures. Neoliberal policies have disrupted old labor allegiances, leaving the unions more vulnerable than ever.
El estado y los sindicatos son las principales instituciones de gobierno corporativista en la emergente economía brasileña. Las políticas de administración de recursos humanos de las empresas depende más de cambios en la ley laboral y de la regulación del mercado de trabajo que de modelos de gestión empresarial. Las medidas legales tomadas por las dos últimas administraciones, incluyendo las políticas de salarios atados a las ganancias y el banco de horas, todos apuntan a la flexibilidad y desregulación del mercado de trabajo. Aparentemente las actuales reformas de la ley laboral brasileña caben, en forma contradictoria, en lemas establecidos del “nuevo sindicalismo” como son negociaciones descentralizadas y procedimientos anti-corporativos. Las antiguas lealtades laborales, ahora quebrantadas por la política neoliberal, deja a los sindicatos más vulnerables que nunca.
Keywords
The patterns of human-resources management employed by companies are largely reliant on state policies—especially labor law—as well as on the condition of the labor market (the imbalance between those who have some sort of employee status and those who do not). In the so-called developing countries, the role of these two labor-regulation components used to be salient, often superseding the so-called natural conditions of the (liberal) equilibrium between supply and demand in the labor market. Historically, the state has been a dominant actor in promoting the conditions for the accumulation of private capital (either domestic or foreign) and the creation of a proper labor market in which wage-earning workers and companies can behave as collective and rational actors. The longevity and scope of the informal sector affect the way workers and their representatives approach negotiations and collective bargaining. Brazil, as a case in point, shares these characteristics: a strong presence of the state and a fragmented labor market (Boito Jr., 1991; French, 2001; Paoli, 1988). Today, 70 years after the first trend toward state intervention of the Republican era (1889–1930) and with a Workers’ Party in power at the head of the political bloc, a new wave of state regulation is taking place, now in the name of flexibility and the creation of favorable conditions for private investment and corporate competition.
Since the mid-1990s, during Fernando Henrique Cardoso’s presidency, a set of official rules from the top down has sought to facilitate company restructuring and boost competitiveness. Once again, for quite opposite reasons than in the 1930s and on the basis of opposing principles (opening of the market, free collective bargaining, pluralism, new ideas on corporate governance, etc.), the state has taken center stage. Human-resources management policies like those increasingly being adopted by companies in the South are correspondingly much more sensitive to changes in labor law or state regulation of the labor market than to any other initiative from either civil society (nongovernmental organizations, international standards, the third sector, the cooperative movement, etc.) or the corpus of management techniques themselves. While there is no doubt that the lean-production model (Womack, Roos, and Jones, 1990) is being employed by Third World companies in astonishingly similar ways (Nichols et al., 2004; Nichols and Sugur, 2004), political and social determinants such as those mentioned above are capable of strongly influencing the way managers make use of that “universal” model. 1 This paper aims to help reestablish state policy as a significant element in understanding the policies of firms and their organizational choices, a topic that is largely underestimated in the management literature (Barton and Delbridge, 2004; Becker and Gerhart, 1996; Capelli and Neumark, 2001; Godard, 2001; MacDuffie, 1995).
For example, two particular recent changes in the regulation of the use of labor in Brazil—profit-related pay (also known as “participation in profits and results”) and the hour bank —have broken down the rigidity of the labor law, which formerly forbade the modulation of wages and work time. Profit-related pay allows supplements to wages if annual productivity and profit targets are reached. The hour bank subjects work time to the flexibility of the commodity chain. If there is no demand for production, there is no work; conversely, if demand increases, workers are allowed to work overtime beyond a certain (according to the old labor law) threshold, and a system of compensation is set up whereby hours earned during production downtime are used when needed to supply products and goods. Under the new rule, differentiation of incomes among workers in the same branch, sometimes in the same company, begins to be “normalized” as common ground in Brazilian industrial relations. These novelties fit well with the flexibility model, and as a result companies are much more reliant on the possibilities opened (in terms of flexibility) by the change in the state regulation system than on the application of guidelines coming from management models. The critical point I plan to discuss in this paper is the extent to which human-resources management is important in achieving flexibility, given the role of the state and the labor market in developing countries. What emerges from various case studies and a wide range of research is a framework in which new productive models (including human-resources management tools) overemphasize procedures and organizational arrangements when similar outcomes in terms of rationalization can be accomplished simply through changes in labor law. My research suggests that the state should be seen as an actor rather than just a passive regulator of the industrial relations environment. The Brazilian case is interesting for a number of reasons: (1) the democratization process has greatly empowered the unions, especially at the national level; (2) state intervention was, until recently, considered deleterious by the left wing and social movements, given the past corporatist tradition (Rodrigues, 1990); and (3) as a result, decentralization and social actor autonomy have masked deregulation and flexibility.
Historical Background
The authoritarian political regime that emerged with Getúlio Vargas in 1930 was a break from the agro-export economy (especially of coffee) and the exclusive liberalism of the republican regime (1889–1930). Through an import-substitution policy and heavy investment in industrialization, the nation achieved high growth rates and developed various sectors of the economy in a far more autonomous fashion. A national labor relations system was born. Though bound to the state through a labor law framework borrowed from fascist Italy, with capital and labor represented in corporative chambers, important social transformations occurred not only for labor relations but for social policy as a whole: (1) an extensive and detailed labor law was drafted (and consecrated in the 1943 Consolidação das Leis do Trabalho); (2) provisions were made for instruments of collective representation (professional unions, trade unions by economic category, federations by professional category and state, confederations for larger economic sectors); and (3) state entities, including courts, inspection bureaus (mostly in the areas of health and safety at work), and pension boards, were made responsible for regulating the new system. However, this public system for regulating labor relations (Noronha, 1998) went hand in hand with a total absence of the right to free union association (and in some conjunctures, an absence of political freedom per se), since it was based on an organizational framework in which only one union per category of worker in a given municipality was allowed. Other important attributes of the system were the imposto sindical (the union tax, administered by the Ministry of Labor and deducted from the pay of all workers irrespective of membership), and official registration (recognition by the Labor Ministry) of unions. The latter produced a politically controlled union with a strong commitment to the state and an ensured detachment from (then so-called) alien ideologies such as communism or anarchism.
It was this corporative system that laid the foundations for what recent scholars (Cardoso, 2003; Noronha, 1998) have referred to as a “legislated model” of labor relations. More important, it was this system that came under attack with the emergence of the “new unionism” at the end of the 1970s, when strikes challenged the legal structure of the model. Lula was just one of the major “new-unionist” leaders at that time. While this new unionism has always been associated with the Central Única dos Trabalhadores (Unified Workers’ Central—CUT), founded in 1983, other political forces organizing unions were not as committed to criticism of the corporatist labor law. What the new unionism demanded was basically freedom of union association for the working class, but its stance was ambiguous with regard to the maintenance of pillars of the corporative model such as compulsory contributions and the labor ministry. 2 This ambiguity can be attributed to the period in which new unionism was becoming consolidated, which was the period in which companies began to experiment with new, less rigid methods of organizing production. Soon thereafter, in the 1990s, the country entered wholesale into globalization, and this restructuring of production deepened, further weakening the unions, which to some extent turned to the available regulatory apparatus for protection against the bombardment of neoliberal proposals for labor market deregulation and a loosening of the historical (corporate) forms of collective bargaining.
Labor Law Reform Today
Corporate arguments generally level criticism against two aspects of contemporary labor relations: the burden of contributions associated with the hiring of formal wage-earning labor (some calculations set it at 100 percent of the base wage) and the legal protection that makes dismissal difficult. Together, these factors have caused a proliferation of subcontracting and other atypical forms of contract such as fixed-term contracts, part-time contracts, the use of interns as employees in disguise, and the ongoing renewal of subcontracting agreements.
According to the business community, it is the excess of state regulation that nourishes segmentation. Because labor law is so detailed, it discourages employers from drawing from the formal market on the grounds that employees are “too expensive” to sustain. A small core of essential staff is maintained on a formal employment regime while the vast majority is sought on the fringes of the formal market. If labor regulations were less rigid, perhaps the difference between these two “markets” would be less dramatic. For the business community, it is the informal rather than the formal market that most resembles a truly liberal labor market, since the latter has a high degree of externality.
The arguments presented by trade unions and wage earners take a diametrically opposite view: though they recognize the split between formal and informal job markets, they contend that homogeneity should be sought not by approximating the former (more regulated) to the latter (less regulated) but by bringing the atypical workers into formal, ongoing contracts with all the associated benefits and rights. Thus the two sides recognize the divide running through the Brazilian labor market but prescribe different remedies for it. This may not seem at all inconsistent with the global trend, but in emerging economies, especially those with a populist or corporative past, the informal market tends to be excessively deregulated and the formal overly so in comparison with those of older and more consolidated industrialized nations.
In what follows I shall present the main measures taken to render the work contract in Brazil more flexible over the past decade and a half. These changes have unfolded over the course of two administrations of different political persuasions: the government of Fernando Henrique Cardoso, with its clearly neoliberal orientation, and the government of Luiz Inácio Lula da Silva, with a center-left platform. In terms of labor law reform, the approaches of the two governments have been strikingly similar and can be broadly described as maximizing the delegation of labor legislation architecture to “agents” or “collective actors” representing capital and labor, on the understanding that the present legal regime is outmoded and needs replacing.
The recent changes in labor law derive from proposals by the executive and the legislature, which in the 1990s started introducing amendments to the law and to articles of the Constitution dealing with labor relations or social rights. These projects for legal change were an important attempt to alter the institutional paradigms for industrial relations nationwide. According to those who have spent the most time studying these measures (Galvão, 2007; Krein, 2003; 2007; Pochmann and Moretto, 2002), they all tend toward more flexibility. For Pochmann and Moretto (2002), these measures can be divided into five areas of flexibilization: contract, work hours, wage policy, collective bargaining, and termination of employment contracts (Table 1).
Main Measures on Labor Reform in Brazil
Also known as the Real Plan, designed to control inflation. Caused a complete revision of wage policy, including regular automatic wage increments tied to inflation. Automatic increases reflecting past inflation can no longer be included in collective bargaining agreements.
A provisional decree, issued by the president, is valid pending congressional approval.
In practice, restricts the application of fines by inspectors from either the Labor Court or the Departments of Health and Safety.
Subsumes under one structure all the taxes and disbursements payable by micro and small enterprises. One of its “simplifications” is the reduction of hiring costs.
Sets the minimum wage to be paid by companies according to regional areas throughout the country. Increases in the minimum wage are now determined only by presidential decree.
Aims to reinforce a culture of collective bargaining in industrial relations, thus avoiding recourse to the Labor Court.
Conceived as a way of avoiding appeals of labor disputes.
One common feature of these initiatives is an obsession with direct or decentralized negotiations (not involving the state) between capital and the workforce. Direct negotiations without labor court mediation have traditionally been a demand of the CUT, which identifies the labor courts as “an ally of the moneymen.” Today, however, we can see a certain shift in this position: the union recognizes the importance of distinguishing between “state” and “public.” As the CUT understands it, it is possible to maintain an organ (a labor court) as a branch of the judiciary in labor relations without its being confused with a state institution as was the case under the nondemocratic regimes of Vargas and the military dictatorship (1964–1984). The net profits reaped from labor reforms since 1994 have not been particularly positive for union organization. The deregulatory measures carried out by the neoliberal and globalist stream overshadowed the democratizing measures the CUT leaders had imagined would come to light once the old statist-corporatist and authoritarian labor policy was dismantled. Decentralization of negotiations, for example, led not to a more democratic pattern but to the hollowing out of the present work organizations and insecurity throughout their constituencies. Fernando Henrique Cardoso’s administration (1995–2002) started the process, while Lula’s (2003–2010) ultimately deepened its consequences.
In the following sections I will analyze two of these measures: profit-related pay and the hour bank. Both directly affect the way work is organized and, indirectly, the way human resources are managed, as they begin to incorporate into the legal norm the plant-level principles of just-in-time and flexibility.
Profit-Related Pay
Profit-related pay was introduced as a replacement for the government’s wage policy. Because of the inflationary culture in place up until 1994, when the currency stabilization plan (the Real Plan) was launched, government wage policy was important in protecting salaries by conferring automatic inflationary adjustments. After 1994, the government strove to shed all forms of indexation and began to encourage free negotiation. However, the salary policy served as a life raft for professional categories even though it was not capable of recouping losses from inflationary erosion. For better or for worse, the worker knew that he would receive salary compensation—at least annually—and that this was a right that could be demanded in the courts should the employer refuse to observe it.
Free negotiation, in contrast, shifted the responsibility directly to the two parties —management and the unions—with no state intervention. Therefore the measure cannot be characterized as neocorporative, as there is no tripartite resolution of interests such as reciprocal counterparts among the state, the business community, and the unions (Rodrigues, 1990). Free negotiation was another historical banner of the CUT, which had always been against the corporativist-state system of labor relations (1943–1988, although not entirely extinct in some articles). 3 The CUT’s main rival, the Força Sindical, objected that free negotiation might benefit larger unions while hurting smaller organizations that lacked the resources to take on the moneymen. When Cardoso, elected soon after the launch of the Real Plan, proposed free negotiations, he did so in the name of a long-standing union demand for freedom of association and collective bargaining, a demand that was, in doctrinarian terms, in line with the spirit of modernized labor relations—and, as we have seen, also something with which the CUT agreed even before it was established as a central in 1983. The effects of the measure on the way labor was organized and therefore also on the relations between the workforce and management were both direct and indirect: indirect in that it imposed a salary adjustment mechanism divorced from the indexation of the old salary policy and directly in that, in conjunction with the other tools of lean production, it allowed work productivity to be associated with the productivity obtained through rationalization. While the salary policy corresponded to a time of greater predictability and stability despite the cumulative rhythm of inflationary adjustments, free negotiation and profit-related pay were more adequate encapsulations of the time that followed, one of flexibility and instability. As regulation exited stage left, deregulation stepped into the spotlight.
At that moment, from 1995 on, the unions embarked on the experiment of conducting negotiations wherever profit-related pay was present. The idea was to use the opportunity to make free negotiation really work as it was originally conceived. Many warned, however, that the conjuncture might not be favorable because the initiative was coming from the bosses and accepting the proposal might mean a loss of rights. Two consequences stemmed from this understanding: (1) an approximation of profit-related pay to “variable remuneration,” an old management proposal, and (2) the eschewal of collective bargaining on the grounds that it did not correspond to the distinct realities of different companies in terms of size, profitability, origin of the capital, technology, etc.: different realities, claimed the moneymen, required negotiations differentiated by company. In fact, profit-related pay is a powerful component in individualizing collective bargaining. The law determines union participation in profit-related pay negotiations in the form of a profit-related-pay committee. In the original CUT conception, it was essential to force union participation in the negotiation of results and targets, as this would bolster the role of the unions in the factories, where they have difficulty operating because of the lack of institutional support for their presence there. 4 Also stipulated in profit-related-pay law was the possibility of access to the company’s books (so as to check that the sums distributed as bonuses on salaries were really everything the company could concede and nothing was being “hidden,” as it were). It was, therefore, a persuasive appeal for the transparency and democratization of information in labor relations that went a long way toward securing union acceptance of the proposal. After all, the CUT affiliates had long stressed the importance of workers’ being treated less as workhorses and more as citizens, which basically came down to their having access to information in order to be able to choose and deliberate consciously on all issues in their interest. Current annual wage campaigns since the demise of the official wage policy in 1995 have gradually seen profit-related pay become part of union demands, including those of the CUT.
Profit-Related Pay and the Hour Bank
Union structure envisages two types of collective bargaining between employers and employees: the convenção coletiva (collective convention), a sector-wide negotiation between the trade union and the workers’ union, and the company-specific acordo coletivo (collective bargaining agreement), also negotiated by the category union. Agreements cannot contain clauses that infringe on rights already granted by the convention, though they can add, at a company level, general clauses valid for all those working in a given field. Conventions deal with such items as the minimum wage for the workers in a category, criteria for pay raises, rules for health and safety at work, benefits or other indirect additions to overall salary, workplace representation, work hours, overtime, and other general parameters that must be observed by all companies operating in a given sector. The accords update these parameters at the company level and are devoted to specific themes. For example, there are accords on work hours, local organization of representation, profit-related pay, and the hour bank. Few categories are organized by a national convention. The banking and oil industries are exceptions in the union world. The same occurs with profit-related pay, where there are collective conventions—which cover the negotiation of basic rules for profit sharing and participation in results—and company accords establishing minimum percentages. I shall show this collective profit-related-pay bargaining unfolds in three important sectors: banking, metallurgy, and the chemical/petrochemical industries.
In banking, perhaps the most developed sector with regard to profit-related-pay negotiations, the biggest challenge lies in what are called “private profit-related-pay programs.” Companies often consider profit-related pay part of their competitive strategy, in which case the programs are not negotiated with unions or other representative institutions such as factory committees. The unions consider this kind of behavior unilateral, while the companies justify it as a way of protecting details of their directives and corporate plans from the prying eyes of the competition. In effect, profit-related-pay programs not negotiated publicly (i.e., with collective entities) tend to reinforce a micro-corporative posture toward employees.
Sometimes, packages already paid for through negotiations (the banking sector has centralized nationwide negotiations) were discounted on these private programs, which tended to award a higher sum—occasionally a far higher sum, according to some workers—than that agreed upon under collective profit-related-pay conventions. Private programs are considered part of the “variable remuneration” package and therefore come under a profit-related- pay-specific collective bargaining agreement. While the unions sign the agreements, this does not mean that the results of the negotiations between a given company and its employees will be generalized industrywide. The directive adopted by the bank workers’ union opposes discounting profit-related-pay sums agreed upon under collective bargaining against disbursements in private variable remuneration programs (Sindicato dos Bancários, 2011).
The unions set a cap and a floor for payouts. The bank workers’ union stipulates that individual targets should never exceed the targets for the sector in which the employee works or, indeed, those for the company itself. It tries to block the tendency toward individualized performance-related pay. It also argues that the profit-related-pay-specific collective bargaining agreement should be put to a vote at a general assembly of the company’s workers. However, the company can unilaterally confer additional remuneration as part of overall variable pay even when the agreement on this form of compensation has not been signed by the union.
The biggest concern for the bank workers’ union is ensuring an egalitarian and linear rule for increments due on categorywide profit-related-pay distribution, making sure that it does not vary according to position or function. However, profit-related-pay bargaining is not very common among Brazilian companies; the banking sector is more the exception than the rule. In the metallurgical sector and among medium-sized companies, workers with union support usually have to force profit-related-pay negotiations, sometimes even to the point of taking industrial action: “Sometimes the only language the owners understand is the silence of machines on the factory floor” (Sindicato dos Metalúrgicos, 2012).
In the heavily unionized chemical and petrochemical industries, minimum profit-related pay is negotiated under a collective convention and company-specific profit-related pay under particular agreements. In this sector there is naturally an enormous heterogeneity of professional situations, and profit-related pay mirrors this structural reality. This means that more complex profit-related-pay collective bargaining agreements are required for this sector, and it explains why participation in results—rather than in profits—is the decisive focus of the category’s bargaining. In the petrochemical sector, for example, the sheer complexity of positions and functions, not to mention the types of work required by the different plants, demands target-based remuneration engineering that is practically impossible to replicate in other sectors. At the same time, in certain cases group-specific profit-related-pay agreements end up functioning as a way of unifying the demands of separate company units in different locations and in different states nationwide. Since this is a highly concentrated sector in which large private groups, both domestic and foreign, are the rule, it is difficult to establish a general agreement that holds for all plants, each of which has its own culture. Furthermore, in the case of multinational companies, profit-related pay is seen as part of the group’s strategic policy rather than as an element of the industrial policy of the host nation. This can be a source of conflict, pitting a tendency toward private agreements, with particular criteria for targets and performance aligned with a global orientation, against compliance with the host country’s labor relations standards.
In theory, the same structural characteristic can be found in the automotive industry, which is similarly concentrated and multinational. This sector, however, has a history of negotiating with the unions, which since the 1990s have been trying to raise relations between capital and labor to a level that obeys certain conditions of development, tying salaries and dismissals to targets for investment, competitiveness, technological innovation, and taxes. 5 This did not occur in the chemical and petrochemical sectors, and therefore the bargaining process itself is considered an advance by the unions. As the risk of losing control over the rank and file increases, profit-related-pay programs become more successful in extricating themselves from collective criteria.
One can draw upon many indicators to reveal the role of profit-related pay in workers’ remuneration. The first one is taken from a report by the Departamento Intersindical de Estatísticas e Estudos Socioeconômicos (Interunion Department of Statistics and Socioeconomic Studies—DIEESE) that uses a sample of 123 national collective bargaining agreements, covering various sectors of activity in 2005, in which profit-related pay was part of the negotiations. From this 2005 panel it is possible to conclude that profit-related pay has been progressing especially in industry (73 percent of all occurrences versus only 13.8 percent in services and 13 percent in commerce) and is concentrated in the south-central region of the country, which is exactly where the bulk of industrial production is located. Furthermore, the 3.3 percent of nationwide agreements also include sectors that contribute to industrial production, such as oil and electrical workers 6 (DIEESE, 2006).
The second indicator is a survey, also conducted by the DIEESE (2012a: 309), of industrywide strikes between 2000 and 2009 (Table 2), in which one can observe that profit-related pay is the second-most-frequent reason given by unions for work stoppages, behind only wage increases. Wage increases are traditionally the most delicate item in collective negotiations, especially in Brazil, where the sources of protection and safety for workers are based more on the package of direct remuneration than on the typical mechanisms and benefits of a welfare state. The long-term increasing importance of profit-related pay in collective negotiations supersedes the variations observed, thus following the general conduct of strikes in this decade. According to the available data, at the end of the period strikes based on profit-related pay reached twice the number observed at the beginning of the series. Of the reasons for strikes included in the table, only bonuses (strikingly, five times higher than at the beginning of the decade), dismissal, and the minimum wage were more frequent in 2009. Among these, with the exception of dismissals, all these other items are closely linked to the relation between fixed and variable remuneration.
Main Reasons for Strikes in Industry, 2000–2009
Source: DIEESE (2012a).
A government severance indemnity fund for employees. In 1966, it replaced job stability when the employee had worked for the same company for 10 years.
Drawing upon a report made by the DIEESE for 2005 (DIEESE, 2006: 9) and considering strikes in all economic activities instead of by sector, the category of metalworkers appears as the champion of strikes that include profit-related-pay clauses: 62.2 percent of profit-related-pay strikes in that year were in the metallurgy sector, followed by construction and furniture (8.1 percent), telecommunications (8.1 percent), transportation (8.1 percent), banking (5.4 percent), petrochemicals (2.7 percent), and oil (2.7 percent). These data confirm that profit-related-pay negotiations have primarily occurred in the economically more modern and more organized sectors. Among the reasons for the outbreak of strikes in the metallurgy sector in 2005 (55 of 85), profit-related pay is the main one (43.4 percent of the cases), followed by wage increases (22.6 percent), the minimum wage (13.2 percent), and equal pay (9.4 percent).
The third indicator of the tendency for workers to pay more attention to profit-related pay negotiations than to collective convention negotiations comes from specific examples of big firms implanted in the country. In 2011, Volkswagen’s plant in the state of Paraná stopped for 37 days in what was one of the longest private-sector strikes in the post-economic-recovery period. The main reason for the stoppage was profit-related pay (O Estado de São Paulo, June 10, 2011). Strikes for the same reason occurred during the same period in two General Motors plants in the state of São Paulo, São Caetano and São José dos Campos. At Renault, which has only one automotive plant in the country (São José dos Pinhais), the mere threat of a strike led to the company’s agreeing to the union’s demands. Workers want a share of the profits stemming from economic progress (O Estado de São Paulo, May 20, 2011).
In May of 2012, the Swedish-based firm Volvo, located in the metropolitan area of a city in the south of the country, Curitiba, and a producer of trucks, buses, and diesel engines for the whole South American market, agreed to pay R$25,000 in profit-related pay per worker (4,100 employees, of whom 3,100 are metalworkers) after a three-day strike that demanded an increase in benefits in relation to the previous year. The amount is significant, even considering the high average income of metalworkers in Curitiba (R$ 4,951.65). 7 In this case, bonuses paid separately that were also negotiated during the so-called base-date period (by which, in accordance with Brazilian law, a category must renegotiate salaries annually)—that is, the period of the collective convention—ended up being incorporated in the total of the profit-related pay. According to the DIEESE, this was the largest private-sector wage agreement in the country. Another important fact about this event was that the agreement to end the strike included the three-day work stoppage in the employees’ hour bank, which meant that these days were deducted from their “balances.” This last example exhibits a hitherto unsuspected aspect: a provision that was meant for flexibilizing work time was employed with a different purpose (to pacify industrial conflict), functioning as a bargaining chip between management and workers.
The Impact of Profit-Related Pay on Management Policies
The question that remains and that has been little addressed by scholars in Brazil is the degree to which profit-related pay impacts the way labor is organized and personnel is managed. Profit-related pay can be negotiated on the basis of profits or targets. Some observers maintain that the targets were pitted against each other precisely so as to cancel each other out—for example, the client attendance target versus indirect expenses (reducing indirect expenses means holding back on client attendance) or the reduction of work-related accidents and greater safety at work versus an increased and intensified pace. In the chemical sector, for example, work-related accidents are covered up by employees so as not to affect the group’s targets; in these cases, the injured worker claims that the accident happened at home (chemical workers’ union technician, interview, 2012). If one follows the development of the series of targets since it was introduced in 1999, the example of a tool manufacturer in the São Paulo countryside (Krein and Sanchs, 2004) would appear to show that the targets were set at unattainable levels. Reports issued by the company outline the mechanism employed: monthly target tracking was done through periodic meetings with the staff that produced a general feeling of top-down demand. A set of indicators accompanied performance by comparing what had been stipulated as a target with what was achieved. The union saw this as a form of pressure for an accelerated rhythm of work, but through the periodic meetings the workers came to accept it quite naturally as “motivation” and emphasis on group responsibility for the reaching of targets.
The element of workplace discipline, a common complaint from some unions, can be perceived when one observes the types of indicators that are included as targets in company results, which are then transformed into profit-related-pay allocation figures. The indicators may be global, sectoral, or individual. Global indicators are valid in all plants and sectors of activity in which the company operates and in general are measured by the company’s global profit. Sectoral indicators may vary according to performance in the so-called business areas or cost centers of the company. Finally, individual indicators are employees’ individual performances in a specific workplace (Table 3). Therefore, the fear that individual targets will outweigh collective targets is not out of place. Confirmation comes from the electrical sector, where sectorial targets may conceal targets meant for individuals or small groups of workers (DIEESE, 2012b: 8).
Indicators, Goals, and Forms of Profit-related Pay Assessment, 2005
Source: DIEESE (2006).
The same type of indicator may appear in more than one agreement.
However, it would not be true to say that variable remuneration began with the implantation of profit-related pay. It was already a reality in some companies, especially large ones, and in the upper echelons of management before the change in the law. In other words, profit-related pay merely sanctioned an existing practice and extended it to the shop floor.
Another problem with targets is the way they are tracked: it would take watertight regulations and considerable union power on profit-related-pay committees to be able to track target for target and unmask loopholes or possible swindles. In short, to the extent to which it was conceived of as a means of conferring agility upon capital/labor relations, it would, paradoxically, require more rules, more control, and more bureaucracy, demanding the presence of specialists or specific directorates tailored to each of the topics covered by the targets.
As for profits, the major problem lies in determining what they actually are. How do you measure profit? Is it by the operational balance sheet published in newspapers and reports? It is often said among union people and production staff that workers always know when a company is doing well or doing badly; it is something that can be felt empirically, without any need for balance sheets or spreadsheets. But from a formal point of view, things look rather different. Information is key here, and information, as we have seen, is considered private. In the case of profit share, the reference is the net profit published at annual shareholder meetings.
The suspicion that profit-related pay would end up dismantling a collective standard of working-class demands—a standard that reinforces homogeneity and equality among its members (and is substantiated in wage policy)—is confirmed by the fact that it began to be incorporated into wage campaigns no longer as an accessory to the wage package but as part of it. In this sense, companies now had the possibility of offering pay raises well below the expected (based on past inflation) because in profit-related pay they had a card up their sleeve for matching union proposals. In short, profit-related pay strayed from its original purpose to become a bargaining chip on the side of the moneymen in negotiating collective conventions.
Because the amounts distributed as profit-related pay can be substantial—sometimes as much as eight times the base monthly wage (Krein and Sanches, 2004: 168), they divert workers’ attention from wage negotiations per se, where the gains obtained are more gradual and less generous. The amount allocated to each worker in the electrical sector in 2010 may give some idea of this in terms of gross numbers (Table 4). For cases in which the contractually established or collectively bargained minimum wage in the same category is reported, it is possible to compare the amounts allocated in profit-related pay with the minimum wage, attesting to the great distance between them.
Profit-Related Pay Numbers In Electrical-Sector Companies, 2010
Source: DIEESE (2012b).
The distribution of sums among the employees is a combination of a fixed coefficient and one that varies in proportion to the wage hierarchy of the company, as mentioned above. Outsourced labor, trainees, inactive employees (retirees or those on paid leave), and service providers are not included in the scheme, which can generate conflict. However, unions have sought to include clauses that substitute the salary/wage ratio for a linear criterion (i.e., equal profit-related pay for all).
Lastly, the tendency to substitute a fixed salary for variable remuneration has three further ramifications. First, it disorganizes not only the direct wage component— what we could call base salary—but also the variable component, including benefits and additional payments (some stipulated under the labor law and others established by collective conventions). The variable components affected include food allowances in accordance with hierarchical level, transport allowances, meal tickets, pharmacy discounts, medical insurance, and others. Secondly, it disorganizes scales of classification such as existing career and salary plans, with which employees are already familiar. Thirdly, it has an indirect effect on the financing of government social programs, as it is on constant and predictable taxes on fixed incomes that the implementation and continuity of housing, education, unemployment benefits, and other welfare projects (e.g., the Fundo de Amparo do Trabalhador [Worker Support Fund—FAT]) depend. 8
The Hour Bank
The hour bank is related to the work day. Under this scheme, the worker is let go when there is no production demand and recalled when production resumes. In the meantime, he can neither be dismissed nor have his pay cut. It is important to underscore that, under the prevailing legislation, employment contracts are individual, agreed upon between the worker and the employer. Collective entities (unions) cannot, by law, interfere in these contracts, though collective bargaining is permitted and can provide a benchmark for individual accords. This holds not only for the hour bank but also for other measures of the so-called labor reform (which is, in fact, a reform of the current labor law code) such as the temporary suspension of contracts or limited-duration contracts, which would greatly reduce the union’s role. The latter, in fact, has limited hiring power, and so, from this perspective, the creation of an hour bank reestablishes the collective power of the unions in contract negotiations.
At the same time, the hour bank can be seen as an “obligation to negotiate” coming from the top down and therefore something akin to the institutional innovations mentioned above. Prior to the measure (1998), there were already collective negotiations (accords or conventions) on work hours that involved a proportionality between hours worked and salary.
In some agreements, rather than reducing the extra percentage on overtime hours it was simply cut in order to be able to maintain other extras such as night-shift premiums and hazard pay. All of these measures were part of the agreements and negotiations on work-week flexibilization, involving variable reductions in pay. The hour bank put an end to this as it began to normalize compensation for the use of time, not allowing remuneration to become yet another currency of exchange. The workers, however, were used to earning premium payments, especially through overtime, and largely opposed the new measure. The unions, moral proponents of the view that workers should not “negotiate their health away” (subjecting themselves to overtime and risk in return for premiums), tried to promote the new measure as protection against being overworked during times of plenty by establishing a cap for the work day precisely when the workers were compensating for the time accumulated during the slump.
In fact, there are limits in the variation of the hours each worker can trade off, and these limits may be established through collective bargaining agreements. Among automobile assembly line workers, for example, a maximum of between 44 and 48 hours a week was established as the period in which accumulated hours were used or credited. Anything over this limit would be considered “overtime,” and each extra hour would come with an ascending premium payment (Carvalho Neto, 1999).
It is important to remember that the period during which the hour bank came into play was one of heavy unemployment and economic crisis in Brazil (1996–1999), and many decentralized agreements (e.g., in the automotive industry) were made to try to avoid layoffs by negotiating time sharing, wages, and benefits. Voluntary redundancy plans were developed in a bid to shed workforce weight. The hour bank, in the case of large corporations that had been trying to negotiate downsizing, was no novelty. 9 However, in small and medium-sized companies, where the reaction was always simply to lay people off without so much as an explanation, it brought a new paradigm for negotiations. Another aspect of the hour bank is that it adjusts working hours to the seasonality of operations, which is an inherent characteristic of many segments (such as beachwear, which has a sales peak in summertime), but also to downturns or upswings in the market due to a shortage of raw materials or some other such thing. There are evident implications for productive flexibility and for the disciplinary management of the work: hours can be deducted from the bank for days missed, recurrent lateness, leaving work early, extended bank holidays, or even dental/medical appointments. Conflict may arise as to the definition of medical leave or what constitutes justified absence.
Today, more and more collective conventions have included hour banks on their agendas—proof of its expansion as a practice in the world of work. In some cases, the conventions do not simply authorize the companies to negotiate an hour bank through collective accords but set minimum criteria for such agreements including limits on the work day under a time-compensation regime or the ratio between hours worked and rest time. Another important factor in the conflict between management and the workforce concerns the way the hours balance is handled when a worker leaves the company: in many cases, hours receivable are paid as overtime, while hours owed are deducted from the worker’s severance payment (DIEESE, 2012a: 271–273).
Whereas profit-related pay exerts great seductive power on unions’ representative base, the same cannot be said of the hour bank. It is almost always seen in a negative light by workers. 10 Therefore a declining number of hour-bank agreements may reflect a company’s lesser influence. Companies sometimes attach an hour bank to other clauses of a collective bargaining agreement. 11 Thus, using the beginning and the end of the 2000s as reference points, one notices that negotiation records of collective conventions or collective bargaining agreements containing hour-bank clauses has decreased from 35 in 2000 to 38 in 2009 and then 30 in 2010. However, since each negotiations record may contain many clauses, including the extension or reduction of work hours, the number of hour-bank clauses reveals notable stability when one compares the two poles of the decade: 2,078 clauses in 2000 and 2,075 clauses in 2010. Moreover, these figures are certainly underestimated, since the database from which they were taken considers only an annual sample of negotiations in private companies in four areas of activity (industry, commerce, services, and rural) and some state companies (DIEESE, 2011: 2). Since the 1990s, however, there has been a clear tendency toward an increase in numbers of negotiations including the hour bank. The DIEESE monitoring system found in 1996 that 3 percent of the clauses on work time in these agreements served as the basis for the hour bank bill two years later; in 2002 the percentage was 42 percent (DIEESE, 2007: 173).
One should also take into account that the hour bank may be blended with other clauses on work time flexibility such as accepted absences, shift schedule rotations, and “bridge” holidays. For it to be clear that work hours calculation is effectively the hour bank and not some other type of compensation, it is necessary for the hour balance to cover more than a week (that is, it should be transferred to the week following the one in which the worker had a day off or worked overtime).
As with profit-related pay, negotiation committees with union presence are required for hour bank accords. The unions, as in the earlier example, demand that these committees be constituted in a representative manner. However, there is a complicating element with regard to control over calculations of the hour bank “account”: not all agreements allow unions (which are obliged to be at the negotiations, even if as mere spectators) access to the bank, while monthly reports on the hour-bank balance are guaranteed to the company’s employees. This means that the hour bank is an item that is here to stay on the collective negotiations agenda between capital and labor in Brazil, even with all the problems it raises in terms of flexibilization and individualization and despite the political changes that occur.
Conclusion
If, in the past, the state was a major agent in driving industrialization and constituting a truly capitalist market both for capital and labor, it is once again on the front line in terms of making conditions more favorable for companies to adapt to the new flexibility and instability of the globalized economy. The state remains a relevant agent, at least in the South, as it provides ballast to the economic behavior of companies, and this has a ripple effect on the way manpower is managed. One of the main societal institutions the state has on its side is labor law. Though formally associated in a democracy with the independent and joint powers of the judiciary and the legislature, in Brazil it has been the state that has taken the main initiatives in recent years in terms of changes in labor law. Two of the most important instruments in this regard are the hour bank and profit-related pay. Companies use these measures as management mechanisms for their internal human-resources management policies. Profit-related pay is used as a mechanism for wage flexibilization, and the hour bank is used as a means of flexibilizing the work week.
What makes the Brazilian case interesting is that the most important unions find themselves in a dilemma. They have always been in favor of decentralized negotiations and against state intervention in the area of labor. There has never really been a neocorporativist practice in labor relations because the unions have always been subservient to the state, which has prevented any direct negotiations with the moneymen. Collective bargaining without the tutelage of the state is relatively recent (in the past 25 years). However, it is now part of the neoliberal agenda as a modularization of work time and wages in accordance with the productivity of the firm, as opposed to the average collective productivity of the Fordist age. However, the unions find themselves entering this new scenario of so-called liberty and autonomy more unprotected and vulnerable than ever, since they are the weakest party to the contract. That said, they cannot backtrack to greater state involvement, because this would be to annul their own identity as antipopulist new unionists.
This brings us to a second point of consideration: neoliberal labor reforms in Brazil were conceived originally as not directly antiunion; on the contrary, they were designed with and through the union movement as a social partner (together with the moneymen) in changing from a statist order to a more market-oriented one. Free negotiations were key in this process. Today, ambiguities regarding how far free negotiations could reach, the role of the state in labor relations, and, more important, the content of labor reform suggest that the original neoliberal strategy has not been vigorously reversed. On the contrary, the power of the large companies is growing and penetrating the domain hitherto considered the preserve of labor discourse: working conditions and the management of working life. At the same time, a politicized defense of labor rights under the previous (corporatist) order seems to be completely off the agenda for leaders in the field.
The argument, though provocative, is entrenched in a range of evidence found elsewhere, the most striking of which is the relative distance between class politics and class interests (see Oliveira, 2006). Apparently, this is the way to approach paradoxical outcomes such as the fact that strong unions committed to the new unionism are supporting changes that undermine their own power and the strength of the labor movement as a whole. The reason they do this is not simply an apparent misunderstanding of their “true” (historical) interests but rather a consequence of profound changes in the context in which class struggles usually take place due to the restructuring of production and the associated difficulties of an assumed collective identity. In the case studies in this paper, rank-and-file members strongly support labor reform, since it ultimately contributes to increasing their annual incomes as well as more flexible work hours. This pushes the leaders’ backs against the wall, as they can only maintain their influence and increase their power over their constituencies at the expense of the CUT’s political project. However, these characteristics are not exclusive to unionism in Brazil and seem rather widespread in other areas around the working world. In this sense, Brazil is in tune with the union reality under globalization. What is striking is the fact that, whether they are aware of it or not, the social actors who are supposed to be building dikes to protect against the waves of liberalization are in fact assisting the flood.
Footnotes
Notes
Leonardo Mello e Silva is a lecturer in the Department of Sociology of the University of São Paulo and a researcher at the university’s Center for Studies on the Rights of Citizenship. He has published regularly on the sociology of work, labor studies, and public sociology. He thanks the Fundação de Amparo à Pesquisa do Estado de São Paulo for funding the research that made this article possible.