Why Are Financial Statements Important to Labor Unions?

Corporate financial statements are useful to labor unions and other employee representatives because they provide important information that may be used in salary or employment benefit discussions with top management. Labor unions use financial statements of a company to evaluate profitability, expense levels and business trends while also considering information from subsidiary reports.

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Labor unions find financial statements important since they contain key information about the company's health, stability, use of cash and profitability that can help with collective bargaining agreements.

Financial statements help a labor-union representative understand a corporation's financial health, its expense and revenue levels as well as its cash receipts and payments. In sum, financial statements reflect a corporation's economic standing. A labor union representative may have a stronger argument in discussions with management if operating data suggest that a corporation is profitable.

Financial statements play a significant role in a collective bargaining agreement, that is, a mechanism that allows employers and employees to reach an agreement regarding rights and duties of workers. For example, a labor union delegate may show available cash balance to top management and explain that the corporation may not experience liquidity needs if benefits were increased by a certain amount.

A labor union representative might review a full set of financial statements that a corporation prepares in accordance with generally accepted accounting principles (GAAP). These statements include a balance sheet, a statement of income (also known as profit and loss statement), a statement of cash flows and a statement of retained earnings.

A labor union delegate reviews a corporation's balance sheet to appraise its financial stability. For example, a registered nurses' union may review a corporation's balance sheet and notice that cash available is $500 million. The union representative then may attempt to persuade top management that raising employee salaries by 5% may only cost $2 million additionally, and that the increase may not adversely affect the company's financial stability.

A labor representative may evaluate a corporation's income statement to gauge revenue and expense levels. For example, the sample union's representative may note that the company's annual revenues exceed $1 billion and its expenses amount to $240 million. The union delegate may show top management that salary expenses are only 50% of total expenses and that a 5% increase in salaries may not affect the company negatively.

A labor representative may evaluate a corporation's statement of cash flows to gauge cash receipts and payments regarding operating activities, investments and financing transactions. For example, a teachers' union may review a college's operating cash activities and notice that salary expenses only represent 42% of total cash payments.

A labor union representative often may not focus on a company's statement of retained earnings because this statement only includes movements within owners' accounts. However, there are instances in which a labor union delegate may ask top management to reduce dividends paid to shareholders and increase employee salaries or benefits.