The productivity-related scheme will be introduced at plant level
A potentially revolutionary 20% productivity-related element has been included in this year's wage agreement between seven major associations of clothing manufacturers and the dominant union in the industry, the South African Clothing and Textile Workers' Union.
The agreement, signed on October 1, makes provision for two options: the standard wages that a bargaining council has set, or a 20% discount on the bargaining council wages with a productivity incentive scheme attached.
It is likely that more productive workers will opt to switch to the productivity-related pay structure.
This scheme will be introduced at plant level, which may result in employees earning 100% or more above normal minimum wages, depending on how productive they are.
The agreement allows employers to pay 20% less than the stipulated minimum wage for new entrants to the industry, or to employees who agree to join the scheme. New entrants are defined as people who have not worked in the industry for three years. Existing workers are not obliged to join the scheme.
Johann Baard, executive director of the Apparel Manufacturers' Association of South Africa, says the few productivity-related wage agreements in the manufacturing industry have generally been over and above basic wage levels and have thus not been widely applied.
Cumbersome applications
In the clothing industry, for instance, employers have considered basic wages to be too high for significant productivity incentives to be added.
Baard says the delegation of the productivity-related schemes to plant level is important because it will prevent cumbersome applications being brought to the national bargaining council for exemptions to the standard wage model.
However, the agreement provides that a "national framework agreement" for plant-level agreements must be negotiated within four months – and this agreement will provide guidelines and examples.
Baard believes that employees will want more than 20% in productivity-related pay. He says international research shows that for productivity-related pay to motivate workers and be worthwhile for employers it needs to be at least 25% to 30% of the package.
Another important clause of the agreement gives certainty about the difference between metro and rural wage rates for the first time. It provides for a 6.5% increase for metro-based workers and a 7.2% to 8.5% increase for workers outside those areas.
At the union's insistence these gaps are being narrowed, but the narrowing process will end at a 100:75 permanent ratio in three years. This is important for retailers who want to calculate whether they can repatriate orders for certain clothing lines to South African factories.
Resentful
The new incentivised wage clause cancels and replaces the previous entry-wage rates. These rates were agreed a year ago and provided 30% lower for entry-level wages in metro areas and 20% lower in non-metro areas. This agreement was subject to a number of conditions, including job creation targets. The new agreement has no conditions.
The previous agreement proved to be a disappointment because new entrants became resentful of their lower pay once they attained skills levels equivalent to those of their colleagues. It also created tension between workers. Relatively few job opportunities were created as a result.
The willingness of the textile union to endorse a scheme that is more likely to be successful, says Baard, is a reflection of its mature understanding of the clothing industry and the "unforgiving and brutal international environment" in which it operates.
Although the industry is the subsector of the manufacturing industry with the lowest profit margins, it has the propensity to employ large numbers of unskilled workers and impart skills to them. However, wage rates are generally far below those in wealthier industries such as mining.
Another important outcome of the agreement is that the industry's national bargaining council will not move to execute writs to close down companies that are paying wage rates lower than those stipulated, provided that these companies are paying at least 80% of the wage rates.
The agreement allows these companies another 18 months to reach full compliance (100% of bargaining council rates). They will also have to pay their accumulated arrears in that time. This reduces the likelihood of about 500 factories being be closed down, resulting in about 20 000 job losses.
Worst offenders
Baard says that the bargaining council is working with its auditors to find the "worst offenders" and writs will be executed against them. He expects about 30 factory closures initially, all in KwaZulu-Natal.
Manufacturers who are not compliant may be in the majority, because many are not registered with the bargaining council. These companies are mainly concentrated in KwaZulu-Natal because the Natal Clothing Manufacturers' Association was not a signatory to the October wage agreement.
Although non-compliant factories do not have to join the bargaining council system, the institution of a productivity-related wage structure, if expanded, might resolve the dispute between compliant and non-compliant factories.
Non-compliant manufacturers claim that a wage system that is substantially linked to productivity, as is the case in the huge clothing industries of Mauritius and the East, would be acceptable to them and could even create new jobs.
They also say that compliant manufacturers take advantage of their lower wage rates and subcontract much of their low-margin "cut, make and trim" work to them.
Once the bargaining council has adopted the agreement, it will be submitted to the minister of labour for extension to cover all parties, even those who have not signed the agreement.
A possible snag is that the department of labour has, for the first time, refused to grant the bargaining council a certificate of representivity because the number of employers represented has dropped to 27.5%. The union has made representations for the certificate to be reinstated.
Without the certificate, it is doubtful that the minister will extend the agreement to those who are not party to it.