Wage negotiations : a financial assessment model

Abstract

The purpose of this study is to propose a financial assessment model for use in preparation for salary and wage negotiations. Media reports covering recent salary and wage negotiations, as well as industrial action, were studied to identify financial factors that could have an impact on the negotiation process. The financial factors were grouped according to external, internal and personal financial factors. Of note is the fact that the majority of financial factors were found to be of an internal nature, that is, concerning the internal organizational environment. This group could be further divided into pure financial factors and financial factors relating to the relationship between management and the employees. The principles and calculations used in value based management were considered. Particularly the balance between direct and indirect cost, in relation to the return that is generated, as the return creates value for the owners and shareholders, but return requires input cost, which includes labour cost and should be closely managed to optimize the balance between the two. A study of negotiation preparation methodologies and practical preparations for negotiations identified financial assessment and preparation as an area that is relatively neglected when preparing for salary and wage negotiations. Although the reasons for this were not particularly researched, it can be deduced that time plays a role, as well as ready access to models and tools to assist negotiators in this area. The findings of the theoretical research were confirmed by the empirical study, which consisted of structured interviews with persons normally involved in salary and wage negotiations. Of note is the fact that several of the interviewees indicated that they are not particularly financially literate and that they therefore battle to assess the finances attached to salary and wage negotiations. A financial assessment model is proposed which incorporates the identified financial factors and the principles of value based management. The model has been designed to be simple to use and applicable to any industry or organization. It still needs to be extensively tested and developed into a software product that is interactive, simple to use and automates the calculations contained in the model.