Steve Knott, Chief Executive

Ensuring Competitiveness Through Productivity: The importance of workplace

relations reform

12/03/2015

AOG Conference 2015

AMMA’s vision: “To ensure Australia’s resource industry is an attractive and competitive place to invest, employ people and do business.”

Our Board: Our Board Reference Group:

• Ian Smith, Managing Director & CEO, Orica Limited (AMMA President)

• Graeme Hunt, Managing Director & CEO,

Transfield Services

• Richard Owen, Chairman, ExxonMobil Australia

• Richard Weston, Executive Vice President Australasian Region, Goldfields

• Johnpaul Dimech, CEO, Sodexo Australia

• Michael Utsler, COO, Woodside Energy Ltd

• BG Group • Chevron Australia

• Compass Group

• ConocoPhillips • Downer EDI

• ExxonMobil Australia • Farstad Shipping

• Fluor Australia

• Fortescue Metals Group • Inpex

• Leighton Contractors • MMG

• Newcrest Mining

• Newmont Australia • Orica

• Origin Energy

• Peabody • Queensland Alumina

• Roy Hill • Santos

• Shell

• Sodexo • Thiess

• Woodside Energy • Worley Parsons

The AMMA Employee Relations Charter

1. The right of all employees to:

• Work in a safe environment

• Join or not join a union • Be free from harassment and discrimination

• Voice concerns or complaints without fear of recrimination.

2. Remuneration and conditions that are fair and allow scope for recognition and reward.

3. A clear understanding of an employee’s role and

requirements and having all people in our industry

productively engaged in their work.

4. A shared understanding of business direction and performance through open communication.

5. The obligation of all employees to:

• Work safely; • Act with integrity and honesty;

• Perform their duties effectively; and

• Act in accordance with the lawful and reasonable directions of their employer

A need for industry leadership… …and a need for workplace reform

“In some respects the industry took its eye off the

ball. Now it’s about getting back to the fundamentals and actually connecting with the workforce.”

Ian Smith, CEO, Orica, (2014)

“People have this v iew that productivity is about

working harder, but working smarter has got to come first… we have got to be as efficient as we can.”

Graeme Hunt, CEO, Transfield Services (2014)

“Industrial relations regulation is arguably the

most crucial to get right. Productiv ity growth comes from working harder or working ‘smarter’ (and) people in workplaces are central to it.”

Gary Banks, Productivity Commission (2010)

“We hope that there will be more commitments

in the areas of infrastructure and labour… more focus in general on job-market reforms (will) help us with both growth and jobs.”

Christine Lagarde, Managing Director International Monetary Fund (2014)

1.2

0.1

1.8

0.6

Note: Real wages grew by 21.5% under Howard Source: Parliament of Australia Research Paper (2013) Economic indicators: Fraser to Rudd/Gillard Government

Real Wages Growth % (Annual Average)

PRODUCTIVITY COMMISSION REVIEW 2015 A mandate for fundamental second-term changes?

TIMELINE: Issues Papers released: 22 Jan 2015 Submissions due: 13 Mar 2015 Draft report released: July 2015 Further consultations: From July Final Report tabled: November ‘15

“The Australian Government has asked the Productivity Commission to undertake a public inquiry to examine the performance of the workplace relations framework and identify improvements to it.” pc.gov.au/inquiries/workplace-relat ions

KPMG Report, commissioned by AMMA Workplace reform options for Australia’s resource sector

Part 1: Economic Contribution of the Resource Sector • GDP (2013-2014): $155bn or 10%

• Gross Value Added (GVA): 9% or $128bn

• Accounts for 24% of all corporate tax receipts

= $15bn annually

• Total (direct and indirect) employment estimated at 10% or 1.1 million jobs

• Investment increased from 2% of GDP to 8% of GDP over the past decade.

• Increased real wages by 6% and household disposable income by 16%

• ASX listed resource companies average a 16% annual dividend = twice S&P average

Part 2: Australia’s Competitive Challenge

Capital spend to build a tonne of new thermal coal capacity, 2007 and 2011/12

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Rest of World: 45% increase from 2007 – 2011/12

Australia: 189% increase from 2007 – 2011/12

Cost of offshore service vessel in the oil and gas industry (supply chain costs for LNG / oil projects)

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European OECD member South-East Asian nation

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“It is nearly 150 per cent more expensive to staff the same vessel in Australia compared to a European OECD member.” - KPMG

Comparison: Cost of Project Construction

Wage escalation in the offshore construction sector

Source: Port Jackson Partners 2012, Opportunity at risk: regaining our competitive edge in minerals resources, report prepared for the Minerals Council of Australia, Port Jackson Partners

Resource and energy sector project construction wages, 2012

Note: Rates include superannuation as well as shared ablution payments and are based on 3/3 rosters.

These rates are from publicly available EBAs registered with the FWC

Are we getting strong productivity for our high cost base? Part 2: International competitiveness of the Australian resources sector

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Mining Manufacturing

Construction Wholesale Trade

Retail Trade Accommodation and Food Services

Financial and Insurance Services

Multifactor productivity (source: ABS) Labour productivity (source: ABS)

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Mining Other industries

Part 3: Reforming the Fair Work Act 2009

What does AMMA want the workplace system to achieve?

• A stable environment for investment

• Growth in productivity, decline in wage

inflation

• Enhanced equity and flexibility in the

workplace

• Reduction to business compliance costs

• Support for continued employment growth

What are the major areas of concern for resource industry employers?

• Agreement making & bargaining framework

• Industrial (strike) action

• Union site entry laws

• Unfair dismissal & adverse action

• Focus and structure of our employment tribunal

Agreement making & bargaining framework

“…there is a significant risk that some bargaining practices

and outcomes associated with greenfields agreements potentially threaten future investment in major projects in Australia.

“This is because the existing prov isions effectively confer on a

union (or unions) with coverage of a majority of prospective workers a significant capacity to frustrate the making of an appropriate greenfields agreement at all or at least in a

timely way.” DEEWR 2012, Towards m ore productive and equitable workplaces: An evaluation of the

Fair Work legislation, Department of Education, Employment and Workplace Relations

Graphic: Fair Work Ombudsman

Union site entry rules (“right of entry”)

What was promised...

“I’m happy to do whatever you would like. If you’d like me to pledge to resign, sign a contract in blood, take a polygraph, bet

my house on it, give you my mother as a hostage, whatever you’d like … we will be delivering our policy as we have outlined it.” - Julia Gillard, Deputy Opposit ion Leader, National Press Club Address, 8/11/2007

What happened...

• Fair Work Act 2009 removed key criteria, opening up workplaces for union recruitment campaigns.

• In 2010, 56% of employers responding to AMMA’s IR survey said unions were v isiting for the first time ever.

• In 2010, Pluto LNG Project had more than 217 entry requests in just four months. Extended to 450 in six more months.

• In 2011, Worsley Alumina had 180+ union site v isits in 12 months.

• In 2013, Bill Shorten furthered the ‘open slather’, expecting employers to accommodate and subsidise union v isits to remote

mine sites and offshore oil and gas facilities.

AMMA’s recommendation…

A return to the pre-2009 balance will significantly reduce cost and disruption caused by excessive union site v isits.

Industrial Action (strikes)

Teekay Shipping, 2014, AIMPE representing

50 workers threatening to strike:

“We have a very small group of people who have extreme monopoly power over not only

their employer, but all of the companies that use

that port… this impacts on people. What's wrong with our system that we can have this happen?“

Nev Power, Fortescue CEO, 2014

Cumulative impact to exporters such as BHP Billiton, Fortescue Metals Group and Atlas Iron

would be about $100 million per day.

MUA strikes against maritime industry,

2009-10:

• Protected action was undertaken by the MUA against various vessel operators

during 2009 and into 2010.

• Maritime unions used ongoing strikes to

secure 37% pay rises and a $200 per day allowances in return for no productivity

commitments.

• Two 24 hour stoppages and three 48

hour stoppages, amounting to $5.6 million cost for one major vessel operator.

Leadership / Decision Making

Business Leadership

Union Leadership

Employees Members

The decision makers on Industrial Action are employees

Unfair Dismissal & Adverse Action

6,707 5,758 5,173

6,067

7,994

11,116

12,840 14,027

14,818 14,796

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4,000

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2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

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Source: Australian Industrial Relations Commission 2009, Annual Report 2008-09; Fair Work Australia 2010, Annual Report 2009-10; and Fair Work Australia 2011, Annual Report 2010-11.

Unfair dismissal claim applications A number of issues associated with the

current employee protections framework:

• ambiguity regarding scope of ‘adverse

action’ provisions;

• regulatory costs associated with proof of sole or dominant reason; and

• escalating number of unfair dismissal

claims.

The need for a dedicated IR appeals bench…

Overruling management decisions on matters breaching clear community standards:

• A transport company ordered to pay $16,000 compensation to a former employee sacked for

urinating on a client’s property.

• Port employer DP World being ordered to reinstate an employee who kicked his supervisor in

the head.

• A ferry master being reinstated by the FWC after being sacked for crashing a passenger vessel

and then failing a drug test.

• Australia Post employees ruled to have been dismissed unfairly after distributing explicit

pornography to co-workers.

Recap – what are the objectives of AMMA’s IR reforms?

“To help ensure Australia’s resource industry is an attractive and competitive place to invest, do business, employ people and contribute to the national wellbeing.”

What would be the national benefits if all of AMMA’s reforms were enacted?

KPMG modelling scenarios

Scenario 1: Resource sector labour productivity up 5%; investment up 8%

Scenario 2: Resource sector labour productivity up 2%; investment up 3%.

Employment impacts: Between 11,500 new jobs and 36,000 new jobs

GDP impact: Between $11.7bn and $30.9bn

Investment: Increased by up to 4.1% across whole economy

What happens to the broader economy when we apply these scenarios to the resource

industry?

Key focus areas for AMMA’s ongoing reform advocacy:

• Union Entry to Workplaces

• New Project (“Greenfield”)

Agreement Making

• Protected Industrial Action

• Allowable Matters

• Agreement-making Options

• Adverse Action

In Conclusion…

The resource industry has a critically important role to play in future reforms that will:

• Support national productivity growth,

• Create new employment opportunities

• Deliver increased living standards for all Australians.

KPMG has found that AMMA’s reforms would:

• Benefit the operation and future growth of the sector.

• Influence the sustainability of wages and conditions and the cost of managing workplaces.

• Improve the stability and competitiveness of the Australian resources sector. • Improve productivity and investment in major resource and energy projects.

Get the KPMG Report: www.amma.org.au

Steve Knott, Chief Executive

Ensuring Competitiveness Through Productivity: The importance of workplace

relations reform

12/03/2015

AOG Conference 2015