Costs and benefits of EWCs assessed

Research published in the UK in June 2000 evaluates the costs and benefits of establishing European Works Councils (EWCs) in 10 major multinational companies. The costs of annual EWC meetings were found to vary significantly between companies, with the major factor being the cost of translation and interpreting. Most companies perceived the benefits of EWCs as largely symbolic.

In June 2000, the UK Department of Trade and Industry (DTI) published a study of the costs and benefits of European Works Councils (EWC s) prepared on its behalf by independent consultants. The report ("Costs and benefits of the European Works Councils Directive", Tina Weber, Peter Foster and Kursat Levent Egriboz, DTI Employment Relations Research Series No. 9) is based on case studies of EWCs in 10 leading multinational companies with operations across the EU. Six of the companies are headquartered in the UK: Barclays Bank, BOC Group, Caradon, GKN, HSBC Holdings and Tate & Lyle. The others are General Electric Plastics (headquartered in the USA), Matsushita Electric Europe (Japan), Nestlé (Switzerland) andSodhexo Alliance/Gardner Merchant (France). Eight of the 10 companies established EWCs by means of voluntary Article 13 agreements, while two (Caradon and General Electric Plastics) concluded Article 6 EWC agreements via the Directive's special negotiating body procedure. The researchers interviewed senior managers from the companies' employee relations or human resources functions. Since the study aimed to investigate the cost to employers, employee representatives were not interviewed. The report therefore reflects only the views of management.

Key findings

The cost of meetings

The report notes that gathering detailed information on the costs associated with EWCs proved difficult. As the companies perceived EWCs as a statutory requirement, none had carried out a cost-benefit analysis prior to establishing an EWC or assessed the costs involved. Moreover, while the cost of the venue, interpreting, accommodation and travel tend to be centrally-funded items, generally met from personnel/employee relations budgets, several other items tend to be absorbed into the local running costs of the subsidiaries involved and, because of the relatively small sums concerned, are not directly measured. In most cases, this applied to management time, paid time off work for employee representatives, administrative costs and dissemination costs.

Based on the information available, however, the report found that the running costs of an annual EWC meeting ranged from GBP 15,000 to GBP 88,000, with an average of GBP 53,000. The overall cost was found to be influenced by:

• the size and composition of the employee side;
• the availability of company-owned venues;
• the number of languages required for translation/interpretation; and
• the method of selecting employee representatives, particularly in the UK (eg a requirement for balloting).

Across the case study companies as a whole, the breakdown of the total meeting cost was estimated to be as follows:

The research found little association between cost per meeting and company size: costs were most directly related to the number of EWC representatives. Cost per employee representative ranged between GBP 900 and GBP 4,500. However, when the most variable element in this calculation – the cost of interpreting and translation – was excluded, the range was narrower: in seven out of the 10 companies, the cost per representative was between GBP 900 and GBP 1,900.

As already noted, the cost of translation and interpreting is among the highest costs associated with EWCs. The report points out that, unlike accommodation and hospitality, which some companies are able to provide in-house, this is a facility which has to be purchased externally and can require specially adapted meeting rooms. However, the number of languages needing to be covered, and therefore the cost, is directly related to the number of countries from which EWC representatives are drawn. As the companies covered by the survey provided translation and interpreting into between one and nine languages, the cost varied significantly - from GBP 1,000 per meeting (for a company whose UK employees constituted over 90% of its European workforce) to GBP 35,000, with an average of GBP 15,000.

EWC meetings are usually held at a hotel or conference venue, but some of the larger multinationals use their own venues and accommodation (as with Nestlé, HSBC, Sodhexo and Tate & Lyle), enabling them to reduce substantially the cost of holding meetings.

The cost of select committee meetings is reported to be comparatively low as a result of reduced costs for venue and interpretation. The cost of such meetings ranged from GBP 1,500 to GBP 2,000. The cost of extraordinary meetings involving smaller numbers than full EWC meetings is also put at a similar figure.

As regards total running costs, the report suggests that, based on the average costs across the case study companies, an annual EWC meeting plus two select committee meetings and an extraordinary meeting every other year would amount to about GBP 60,000 per year.

Set-up costs

Estimated set-up costs for the 10 case study companies ranged from GBP 3,600 to GBP 105,000, with an average of GBP 38,000. Low costs appear to be associated with simplicity of negotiation: Nestlé had relatively low set-up costs because it already had some transnational machinery in place and negotiated its EWC agreement with officials of theInternational Union of Food, Agricultural, Hotel, Restaurant, Catering, Tobacco and Allied Workers? Associations (IUF). However, the report states that there was no sign of a general difference in set-up costs between Article 13 and Article 6 agreements. The largest item of expenditure in all cases was management time, typically representing a quarter of total costs, with interpreting costs again featuring prominently. A number of companies provided initial training to EWC representatives, but the report says that none of them accounted for management or staff time spent on training. In some cases European Commission funding was accessed for such purposes.

Non-quantifiable costs and benefits

In terms of actual or potential negative consequences, as viewed by management, the main concerns expressed were that the EWC had raised employee expectations of what the forum could achieve, particularly as regards influencing management decisions in relation to restructuring, employment and working conditions, and that EWCs increased bureaucracy for management. The great majority of respondents did not consider that EWCs jeopardise confidentiality, slow down management decision-making or result in unnecessary rigidities in employee relations, but four out of the 10 expressed some concern that EWCs might foster future calls for transnational collective bargaining. A summary of the companies' perceptions of the possible negative employment relations consequences of EWCs is set out in table 1.

Source:"Costs and benefits of the European Works Councils Directive", DTI (June 2000).

In terms of the employment relations benefits of EWCs, most of the companies saw EWCs primarily as having "symbolic value" by demonstrating a positive commitment to employees. Half the companies said that their EWCs had been beneficial in enabling them to exchange information with employee representatives and to involve employees more closely in the business. Three companies said that the EWC had improved employees' understanding of the reasons for management decisions, and two more anticipated that this might happen over the longer term. Table 2 summarises the companies' perceptions of the potential benefits of EWCs.

Source:"Costs and benefits of Directive", DTI (June 2000).

Finally, the report makes the point that EWCs are still evolving. A "significant number" of the case study companies reportedly expressed ideas for changing the current structure of their EWC to allow a "greater sectoral/business unit focus" with a view to making the process of European-level information and consultation "more meaningful". At the same time, in a number of companies employee representatives are said to have asked for training to help them understand the business and financial information provided by management. The report concludes: "It is therefore possible that EWCs will evolve into more targeted and active structures for information exchange and consultation."

Commentary

EWCs clearly have significant financial implications for companies, but a striking feature of the research findings is the considerable variation between companies in the overall costs incurred. The report does not give figures for the running costs of EWCs per employee, so it is not possible to make comparisons with the European Commission's estimate at the time of the adoption of the Directive that EWCs could cost EUR 10 per employee per annum. The report does note, however, that companies with similar-sized workforces had quite different costs. A more important factor in the cost of EWC meetings is the number of employee representatives and spread of countries/languages involved. Despite the wide range of costs found by the research, the figures produced do at least demonstrate that initial fears on the part of some employers' groups that EWCs could cost as much as GBP 250,000 per meeting were substantially wide of the mark.

In the DTI's view, the research shows that "clear benefits" from informing and consulting at European level can be achieved "without inordinate cost". However, the findings provide little evidence that senior managers generally perceive EWCs as bringing concrete benefits to their businesses. Of the potential positive effects of EWCs, only being able to exchange information with employee representatives and involving employees more closely in the business were cited by as many as half the companies covered by the survey. It appears that managerial scepticism about the value of EWCs continues to be widespread. (Mark Hall, IRRU)