Agreement signed on reducing labour costs and managing redundancies in banking

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In February 1998, the ABI employers' association and the trade unions signed an agreement that lays the basis for a profound restructuring of the Italian banking sector. The innovative aspects of the agreement concern the reduction of labour costs, the creation of a redundancy fund, the reform of pay scales and the bargaining system, and the introduction of greater flexibility in employment relations.

The need for reform of the Italian banking system, in order to increase its efficiency and enable it to withstand growing international competition, has been repeatedly pointed out by the Governor of the Bank of Italy, Antonio Fazio, by members of the government, and by the sector's employers' organisation, the Italian Banking Association (Associazione Bancaria Italiana, ABI) (IT9704304F).

Since the mid-1990s various changes have occurred which indicate that the banking sector is beginning to acquire greater dynamism. First of all, privatisation has genuinely got underway in Italy. At the beginning of the 1990s, with the exception of two large banks belonging to the IRI public holding group, privatisation largely consisted of a change in the legal form of banks: they were transformed into joint-stock companies, but it many cases were still publicly owned. However, in 1997 the effective privatisation began of some of the most important Italian banks. Moreover, the concentration process has mainly involved banks of medium-to-large size. Thus, following a number of mergers, in 1997 the top seven banking groups attained a share of the assets market amounting to 50%, compared with their 30% share in the early 1990s.

The agreement

Despite the changes described above, two critical issues still persist: labour costs and overstaffing. In fact, according to estimates by ABI, the cost of labour in the Italian banking sector is the highest in Europe. Yet the lack of "social shock absorbers" to accompany and mitigate redundancies (IT9802319F) has made it difficult to handle the job losses that result from restructuring. In 1997, talks were held specifically on these matters between the ABI and the trade unions.

After negotiations which lasted almost a year (IT9706115N), on 28 February 1998 ABI and the banking sector unions - both the confederal unions (Fisac-Cgil, Fiba-Cisl, Uib-Uil) and the independent ones (Fabi and Falcri), as well as one of the management unions (Sinfub) - signed a framework agreement which lays the basis for the reduction of labour costs. The agreement defines parameters and rules that must be respected when the sector's national collective agreement is renewed, negotiations over which are scheduled to begin in the next few months. The agreement provides for a reduction of between 8% and 9% in labour costs by 2001. It introduces a change in pay scales which reduces the automatic increments, while increasing the forms of pay flexibility tied to company performance. Moreover, the agreements simplifies the contractual structure based on the level of qualification. Instead of the three contracts that now apply (for executives, officers and clerks), there will be only two - one for senior executives and one for middle management and clerical staff.

Another important feature of the agreement is the establishment of a redundancy fund. In fact, two funds will be created, one for all banks and one for the cooperative banks, and financed not by the state but by a contribution of 0.5% of the total paybill, which will be paid partly by the employers and partly by the employees. The creation of these funds will introduce a sort of cassa integrazione, or wages guarantee fund in the banking sector, since it will be possible to finance income-support measures for those workers who, in the event of a crisis situation in a bank: have to attend retraining programmes; whose working hours have been reduced; who have been laid off; or who have been declared redundant.

Finally, the agreement envisages an increase in continuing training with a view to human resources development, and the introduction of greater flexibility by means of the increased use of part-time labour, fixed-term contracts and temporary agency workers.

Reactions by the social partners have been substantially positive. For the ABI, the agreement will enable the Italian banks to regain competitiveness against foreign competitors. For the unions, the agreement lays the basis and provides the means for a restructuring of the banking sector which will reduce occupational pressures.

Federdirigenti, one of the bank executives' unions, however, has been highly critical and has refused to sign the agreement because it views the streamlining of the contract structure as penalising its members.

Commentary

The changes now taking place in the Italian banking sector can be summed up as the transition from a protected system to a market system. In fact, the provisions introduced by the banking law of 1936, the intention of which was to ensure the stability of the sector, gave rise to a a fragmented market characterised by limited competition. Thus the individual banks could be profitable without being particularly efficient, and without pursuing aggressive commercial strategies. Thus, despite their high costs, at least until the early 1990s, the Italian banks were able to achieve high profit levels due to a spread between lending and borrowing rates wider than in other EU countries, and due to the fact that limited competition enabled them to offload their high costs onto prices.

The problem of curbing costs grew most serious in 1994, when many banks were hit by a profitability crisis. This crisis was due not only to conjunctural factors like those that affected many firms in the industrial sector, but also to structural ones: now added to the traditionally high labour costs of the banking sector were the major investments made in opening new branches, as well as increased competition, which both reduced interest margins and impeded the transfer of costs onto prices.

This, therefore, is the background to the agreement signed on 28 February 1998, which, as well as reducing labour costs and introducing measures to deal with the problem of overstaffing, should introduce new criteria for personnel management, eliminating rigidities and automatic career advancement. On the other hand, the Italian banks should seek to increase their efficiency not only by acting on labour costs but also by restructuring. (Marco Trentini, Ires Lombardia)

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