GE and Labor: This Could Get Ugly

The animosity is thick as CEO Immelt enters his first talks

When General Electric (GE ) Co.'s unions mounted a two-day strike in January over increases in health insurance co-payments, labor leaders considered it an opening shot across management's bow. Now, there's a full-scale battle brewing as the clock winds down on labor pacts covering the company's 24,000 unionized workers, set to expire in mid-June.

GE has managed to avoid bargaining meltdowns for many years, but a host of factors is complicating CEO Jeffrey R. Immelt's first round of labor negotiations (table). Far from backing off after the January strike, the first in more than 30 years, GE wants to shift even more health-care costs onto workers. At the same time, labor has equally ambitious demands, including a doubling of pension benefits for its graying workforce.

The atmosphere is further strained by undercurrents of ill feeling that make the outcome even more unpredictable than usual. The powerful International Association of Machinists has broken away from the 13-union coalition that historically has bargained with GE as a group. At the same time, the other 12 unions don't share all the same bargaining goals.

Meanwhile, Edward Fire, head of GE's largest labor group, a unit of the Communications Workers of America (CWA), is fuming over perceived insults made against him by GE management during a 2001 union drive at an aircraft-engine subsidiary. Ever since, Fire has refused to participate in periodic pre-contract meetings with Immelt and GE labor officials. "I don't need to go to New York [to meet with them] just to be told 'no' on every issue I bring up," says Fire.

The divisions on labor's side could work to GE's advantage by allowing it to play the unions off against one another. But they also heighten the possibility that a miscalculation by one side could trigger a walkout. Still, GE officials say they hope to reach a reasonable accord. "The rhetoric is always sky-high at this time of the talks, but we're not spoiling for a fight," says William J. Conaty, GE's senior vice-president for human resources.

Certainly, health care is one issue where labor and management could have trouble finding common ground. GE was surprised by the unions' brief walkout in January. Last summer, the two sides failed to reach an agreement over management's desire to raise annual co-pays for its managed-care plan by about $200 a year. GE decided to proceed with the hike when the plan, which also covers more than 100,000 nonunion GE workers, came up for renewal at the end of the year. Labor knew GE wanted to offset the rapid escalation in its health costs, which have climbed 45% since 1999, to $1.4 billion last year, and are expected to jump 15% more this year. But union members were infuriated that the company refused to wait the six months until official bargaining was to begin.

So the two sides came to the opening talks on May 19 already at odds. The unions insist they have already been hit hard with steep co-pay hikes. Meanwhile, GE wants to do more than just share the pain of rising annual health costs -- it also intends to shift more of the overall burden onto employees. The company's goal: to pay for only 70% of total health costs, down sharply from 81% today, says Conaty. That would sock the average union member for an extra $900 a year or so for family coverage, union negotiators estimate. "I expect the company's proposals [on health care] will probably be a very difficult pill for the unions to swallow," wrote GE's chief negotiator, Dennis Rocheleau, in a recent in-house newsletter.

When it comes to pensions, it's labor that will be making the ambitious demands. The average union member is 50 years old, with 25 years of service. Nearly one-third have at least 30 years under their belts, up from 22% when the current contract was signed in 2000. So it was no surprise when retirement emerged as the No. 1 concern on the pre-bargaining membership survey. Problem is, Fire has been raising members' expectations far beyond what's achievable. He wants GE to more than double pension benefits, to $100 a month per year of service. That amounts to $3,000 a month for a 30-year veteran. "That's ridiculous -- we'll never come close," says one union official who's worried that starting with such large demands raises the chance for a misstep in bargaining.

Another contentious matter is GE's behavior in recruitment drives, which labor periodically mounts at new GE acquisitions or at some of the company's nonunion divisions. Like most large companies, GE typically plays hardball during organizing drives, hiring union-busting consultants and sending a strong anti-union message to employees. During the 2000 talks, Fire tried to get the company to agree to remain neutral during such campaigns, but GE refused. Now, Fire plans to push that issue again, fueled by his experience at Johnson Technology (GE ) Inc., the Muskegon (Mich.) plant that makes blades for the company's aircraft-engine unit. As Fire's union tried to sign up Johnson's 600-plus workers two years ago, GE officials vilified the union and his leadership, he says. Fire took their statements as a personal insult, prompting him to all but break off relations with top GE officials. So there has been little of the dialogue that typically sets the stage for bargaining. "Cutting off conversation never seems to be the answer," says GE's Conaty.

Fire is likely to get support on the issue from the CWA, with which his union, the International Union of Electrical Workers (IUE), merged in 2000. The CWA, a 600,000-member union that runs aggressive recruitment campaigns, has signed up tens of thousands of wireless and other workers in recent years using management neutrality agreements. That's when a company agrees to let workers vote on unionization without a countercampaign by management. GE could probably offset some of the ill will over its health-care buck-passing by reaching out to CWA President Morty Bahr on neutrality. It's not likely, though; Conaty says Immelt is as adamantly opposed to the idea as was his predecessor, John F. (Jack) Welch Jr. In April, Immelt told local IUE-CWA officials in Louisville that he wanted nothing to do with neutrality.

The internal divisions among the unions will make it all the more difficult to resolve such issues. The machinists, whose leaders rejected the current pact in 2000, aren't even at the bargain- ing table. They thought Fire bungled the 2000 negotiations and intend to cut a deal of their own, leaving labor potentially divided.

Might Immelt's inexperience with contract bargaining work in labor's favor? Some union officials are hoping so. They remember how Welch granted the largest major settlement in the country during his first talks in 1982 in an attempt to start off on the right foot with labor. Of course, that didn't last -- or keep Welch from earning the moniker Neutron Jack for all the jobs he eliminated in the following years. Still, labor leaders would undoubtedly be happy to see any gesture of goodwill from GE's new CEO.

By Aaron Bernstein in Washington

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