Using Interest Based Bargaining as a Tool for Strengthening Long-term Relationships By Doug Stevenson Personnel Analyst City of Brea

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1 Using Interest Based Bargaining as a Tool for Strengthening Long-term Relationships By Doug Stevenson Personnel Analyst City of Brea The merits and disadvantages of using interest based bargaining (IBB) techniques to secure a labor agreement with an employee association are common knowledge. Sometimes the process works and sometimes it does not. The purpose of this report is not to outline the how to of IBB or focus on the merits of using IBB to achieve an agreement. Instead, this is a case study that will examine the effects IBB has had on the long-term relationship between the City of Brea s police association negotiation team and the management negotiation team. The following is an interest based bargaining success story, not only because a major hurdle and possible impasse were avoided, but also because the process brought a positive change in the long-term relationship between the negotiation teams. This proved crucial when an issue arose that put the relationship between the teams to the test. It s all about relationships In the City of Brea during the early 1990 s, the climate between management and the employee associations was fair at best, and in some cases could be described as strained. Like a marriage that had lost something, these relationships needed assistance. In response, the City management negotiation team investigated the possibility of employing interest based bargaining (IBB) to help improve these relationships. After initial research, Brea brought in a retired state mediator, noted for his expertise with IBB, to educate the management team about how this innovative negotiation process worked and how it could potentially help us. The police association contract was expiring at the end of Assuming that the City may as well start with the biggest and most visible group, we contacted the Brea Police Association (BPA) and asked if they would be willing to give this process a try. Additionally, in theory, if the process was ultimately successful with the police group, we hoped that the other employee associations would be less skeptical of trying something they might view as very foreign and potentially risky. The mediator provided several days of IBB training for the management and police association negotiation teams. Using a neutral former state mediator also brought a greater sense of legitimacy to some of the more skeptical members of the BPA team. Some of the techniques were difficult for both sides to embrace wholeheartedly. Concepts such as working together in a problem-solving mode as opposed to the traditional trading of proposals and counter proposals were difficult for all.

2 Another hurdle was that the IBB process is time consuming. For some issues we were tempted to shortcut to an obvious solution. However it was important at the outset that a process mind-set be established. By validating the legitimacy of the process, and focusing on the merits of various options, we avoided playing on personalities or the power of the teams, so everyone stuck to it. Building on small steps, a relationship began to develop among the players. The key was openness and trust in the process and in each other. When we dealt with the more contentious issues, the days were long (but productive) as the now cohesive team approached each issue as a challenge. The spirit of cooperation held up as the trust that had been built actually grew to be more important than the issues themselves. It was amazing to witness members of the same team challenge each other to focus on interests and options as opposed to traditional positions and playing on the personalities involved. There were times when it was hard to tell which side a person was representing since the focus was on the issue itself and not on where the idea originated. The players wanted to work together as a team and solve the problems in a way acceptable to all in the room. The process was beginning to mold and guide the relationship. The first attempt at IBB was long and exhausting, but in the end a successful two-year agreement was achieved. When the first contract created using the IBB process was expiring there was little dissent from past participants that IBB would be employed again. At least that was the opinion of those who were involved with the last negotiations. Others who were not direct participants did not necessarily share this view. Some association members felt they did not fare as well with IBB as they could have using traditional means, and were distrustful of the process. Some vocal rank and file members felt the association s team must be at some sort of disadvantage since this process was so encouraged by management. Since there were a couple of new members on the police association negotiation team, the education process was repeated, almost from scratch. The same mediator returned and long sessions were again the rule. However, once the new players had a chance to see first hand how the process worked they too became believers. Their problem then became trying to convince any distrustful association members that the process was indeed fair and did not favor management in any way. This was not an easy task, but they were successful enough that the membership did accept the negotiation team s decision to continue with IBB and wait until the entire package was presented for their review before passing judgment. After many long sessions the teams again reached an agreement, this time for a three-year contract. The association did not get everything it wanted, but the negotiation team felt they had a fair agreement and presented it to their membership for a vote. While there were dissenters, especially on certain points, the team was able to sell the agreement as an entire package. The dividends of having a good relationship One dividend of this process was that the new relationship expanded into other ongoing labor relations issues. When handling a grievance or an interpretation of a city rule or regulation, the parties felt comfortable that they were all dealing with people they could trust. Throughout the life of the contract, when an issue arose that could have been contentious, members of these negotiation teams felt free to discuss it with each other. There was a sense of needing to give each other the benefit of the doubt. We were no longer dealing with us and them. We felt more like partners working through a misunderstanding. However, this relationship was put to the test during the negotiations of 1999/

3 The Brea Police Association MOU was expiring just as the ink was drying on state legislation creating a new PERS 3%@50 retirement formula. The word from the police negotiation team was that without 3%@50 there would be no contract. This was not stated as a threat, the negotiation team was simply relaying the feelings of their membership. They could not overemphasize how crucial this issue was to the association. On the management side, we wondered how we were going to convince a skeptical city council that it was in their best interest to provide an expensive benefit that virtually no other city was currently providing to its employees. Why would we want to encourage our most seasoned officers to retire early in a recruitment environment where attracting new officers was difficult? Clearly the two negotiating teams were between the proverbial rock and a hard place. For this contract it was decided that the 3%@50 issue would be the last one tackled. We would work through IBB on all the other issues individually first, judging each one on its merits. The plan was to not have the other cost issues overshadowed by the big ticket retirement item. After resolving the other issues, we now faced what seemed an insurmountable cost issue. A complicating factor was the interest from the fire association in 3%@50 and the fact that their contract would not be expiring for another year. Should the City bifurcate this and deal with the fire association when their contract expired? Should we assume that if police received 3%@50, fire would also be getting this retirement plan as well? In reality, it did not seem possible to put off the fire association until their contract expired, so we looked at that as well. Also, it made sense to bring in the police management and fire management associations at the same time since they obviously had a stake in this. We had to look at the bigger picture. There appeared to be three cost issues associated with implementing 3%@50: 1. Short-term costs due to an immediate PERS rate increase. 2. Depletion of the City s PERS account surplus within five years (as well as determining who owned the surplus). 3. Without a surplus, long-term costs caused by our PERS rate increase. At the time of these negotiations the City s PERS account was so well funded that we were looking at not paying any PERS costs for the next seventeen years. Implementing 3%@50 for both police and fire would severely impact the City s PERS surplus and PERS would start billing the City again. Assuming that both associations would receive 3%@ 50, our short-term costs were estimated at 4.36% of safety payroll. This figure was determined to be the cost difference between the current 2%@50 plan and the 3%@50 plan. If implemented, by the time we were five years into a contract amendment, our entire PERS surplus would be erased and the rate would jump to %. This number represented the normal costs without a surplus added to the 4.36% cost of enhancing the plan. How could the negotiation teams justify to the council a change from 0% cost (for the next seventeen years) to a % cost in only five years? Using IBB, several options were considered, ranging from the association paying the entire expense, to the City paying the entire expense. We also considered dropping the issue entirely and letting the chips land where they will. None of these options met the participants interests. However, everyone stuck to the process, and after several days of exploring possible options in order to reach consensus on ways to offset costs, a plan emerged. 3

4 An obvious method to save costs and pay for the plan would be to forgo salary increases for a predetermined length of time. However, the City has agreements with all its associations to survey virtually every classification possible against a ten-city labor market, setting salaries at 0.1% above the median of those cities. We did not want to fund the 3%@ 50 costs by abandoning that policy for three reasons: 1. The policy has worked very well and there is rarely any disagreement or hostility over the size of the salary increases, because they are driven by the labor market. 2. Since the policy is driven by the labor market, (as opposed to across the board ) individual positions do not get ahead or fall behind in their value, and we know we are paying the right salary for the job being performed. 3. Since we are paying the correct rate for the job, we are able to successfully attract candidates from the labor pool because we are competitive with the market. Considering the problems cities are having attracting police candidates, the last thing we wanted to do was become less competitive by forgoing salary increases to pay for 3%@50. While forgoing salary increases was always an option, it was never seriously considered. There had to be other ways to accomplish the goal The association was asked to find out how many of its membership would take early retirement over the next three years if 3%@50 were to be implemented. They brought back names and dates. The management team then calculated the salary savings that realized from a top-step Captain retiring and being replaced by the promotion of a lower-step Lieutenant. A lower-step Sergeant would in turn replace that top-step Lieutenant. That top-step Sergeant would be replaced by a lower-step Police Officer. An entry-level academy graduate would replace the top-step Police Officer. For each position retiring, these calculations were conducted for years one, two and three of the expected three-year contract. This produced significant salary savings that could be applied towards the costs. The same calculations were conducted for fire personnel. The City had also long desired to end a Master Police Officer (MPO) program that in essence resulted in the vast majority of top-step officers getting a 5% bonus for doing not much more than what should be expected of a veteran officer. The members of the association team even acknowledged the program did not meet its intent of producing and rewarding superior performance, but knew removing the bonus would be difficult because it was important to those who received it. However, the amount of cost savings that would result from eliminating the MPO program was enough, combined with the early retirements, to totally pay for the first three years of the police side of the PERS contract amendment. The process with fire went fairly smoothly because a great deal had already been accomplished by our work with the police association. We knew what would work and what would not. With minimal discussion, it was decided that fire s share of the costs could be covered through a combination of early retirement salary savings and their willingness to take on the responsibility for their member s long-term disability insurance coverage. Another issue was how to address the surplus that would be erased if we amended the PERS contract. For the past several years the City s share of the PERS rate was zero. Only the employees share was being contributed. It could easily be argued that much of the surplus was generated by overpayment on the 4

5 employees share of the formula. Had we not had to pay the standard 9% employees share, any surplus remaining would be significantly smaller. The interest earned on the surplus also compounded the size of the amount of money in our account. How much of the overall surplus was attributed to the City s past contributions and how much was the employees share? No one could answer that question. For these reasons the impact on the PERS surplus was considered as equally shared costs. While the short-term costs were covered for the duration of the MOU s, and the surplus issue was resolved, how would the City address the long-term costs? Again, using IBB, several options were reviewed. Finally, a plan emerged that could meet the council s goal of staying competitive with the labor market while not incurring costs beyond what the labor market could justify. The police association members were very convinced that all California cities would have 3%@50 in a very short time. The management team was not convinced it would happen as fast as the association predicted, but felt that most agencies would eventually amend their contracts. That became a selling point to the council, as we could show them that this was the time to get the MPO program back. If we did not do it now, we would eventually have to provide 3%@50 with nothing in trade simply because the labor market would dictate it. The fact that the association was so strongly convinced, and actually relying on the assumption that every city would quickly have this retirement plan, was something we could work with. The City, being concerned about the long-term costs of 4.36% of payroll, made a point of noting the association s assumption when it proposed letting the labor market determine how we would pay for those costs. We suggested that at the end of the three-year contract, we should survey our ten-city labor market to determine how many of those cities were providing 3%@50. If none of the cities had 3%@50, then the association would be responsible for paying 100% of the 4.36% of long-term costs. If all of the cities provided the benefit then the City would absorb the costs as a means of staying competitive. If a certain percent of our labor market was providing it, then the City would absorb whatever that percentage turned out to be. Each year we would survey again, with the assumption that eventually, the City would end up absorbing all costs. At first, the association team was reluctant to commit to something that could result in a payroll deduction or other financial loss over time. However, one of their strongest selling points made to the management team was their feeling that the City had to provide 3%@50 if they were to avoid falling behind in the labor market. The association predicted that the City would lose employees and not attract new ones without the enhanced retirement plan since everyone else would have it and would market this benefit to their advantage in recruiting. In essence, to support their assertion, the association had to take on part of the risk as well. If they did not, their labor market argument would lose credibility. Of course, the management team was sympathetic to the association s claims and was even able to help them with their employee recruitment and retention argument. We were in a position to demonstrate to the council the bigger picture of how difficult it is for agencies across the nation to attract and retain police employees. We had articles from national periodicals and local newspapers showing how both large and small agencies had dramatic drop-offs of candidates applying for these positions. We had examples of academies suggesting we overlook past drug convictions in candidates. The academies were noting that 5

6 they were no longer attracting the number of quality people as in past years and were saying, in essence, take what you can get. We also had records of our past recruitments showing similar drop-offs in the number of candidates. The police candidate numbers and articles were a quantifiable method of painting a picture showing how the labor market has changed. Sometimes it is how you say it. The teams had worked together to find a way to cover the short-term costs and the surplus issue. They had even devised a means to address the long-term funding. They all felt that between the association showing their commitment to take on part of the risk, and the logic of staying competitive with the labor market, the council might be willing to amend the PERS retirement contract. The police association negotiation team felt that since their number one goal of attaining 3%@50 was now actually feasible (there had been some serious doubts going into the negotiations), that their membership would consider the terms of the plan to be reasonable and worth the tradeoffs. The next issue was how to best present this plan to our respective constituencies since clearly the plan had risk involved and would probably not receive unanimous support from either side. This was yet another instance where the long-term relationship that had developed from years of IBB would pay off. We had spent considerable time examining each other s interests. We knew where both sides had strong selling points and weak links that could fail the plan. The relationship everyone had developed made us sympathetic towards each other s needs. Before we knew it, the teams were working together to help each other frame issues for presentation to their constituencies. We looked for ways to help each other present a package that, while possibly tough to accept, still came across as the best (if not only) chance for success. And quite frankly, the teams were proud of what they had accomplished and wanted to see their plan not only accepted, but also embraced. After carefully detailing their plan, both sides took their proposals to their constituencies. As expected, the results were not unanimous, but they were very favorable. To our credit, many association members felt this was one of the best contracts enacted in their tenure with the City. Additionally, the city council members were happy to have an agreement in place that they felt was fair, cost efficient, and competitive with the labor market. In conclusion Without the good long-term relationship developed between the City and the association negotiation teams, it is hard to imagine this level of success. Without our practicing IBB over a long period of time, the sessions could have easily deteriorated into a contentious, ugly process leaving both sides frustrated. Failure to resolve the 3%@50 issue could have caused long-term hard feelings that might have tainted negotiations for years to come. Interestingly, the long-term costs of 3%@50 are not even addressed in the MOU, the relationship between the parties is so strong that we have an understanding. We have reached a point where, today, a handshake is all we need. Additionally, even though the City of Brea has a zipper clause in the MOU, the association negotiation team knows that the City is open to discussing whatever may unexpectedly arise. It speaks volumes about IBB s ability to foster trust, loyalty, and the integrity both sides feel they need to display in both words and actions. 6

7 Yes, Interest Based Bargaining is time consuming and takes commitment over the long haul. But isn t that usually the way it is when you try to develop and maintain any positive relationship? After all, think of the alternative. In the City of Brea s case, the long-term application of IBB was the tool that kept the parties focused on the goals and fostered open lines of communication. It truly made the negotiation teams become partners. As players change and new issues arise, will IBB continue to fill that role? Only time will tell, but all indications are that in the City of Brea it will for the foreseeable future. Doug Stevenson Personnel Analyst City of Brea Personnel Department 1 Civic Center Circle Brea, CA (714) dougs@ci.brea.ca.us September

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