Employee Ownership Taking Flight

By Mark D. Uehling

Chicago, Ill.

As winter storms pounded the eastern seaboard earlier this year, pilots at United Airlines - even when snowbound in the wrong cities - volunteered to fly new routes at unscheduled times to work the kinks out of the carrier's twisted schedule.

The reason for the extra effort? They and many of their fellow employees have owned more than half the company since the summer of 1994, when they gave up nearly $5 billion in wages and other concessions in return for 55 percent of the company's shares.

"The mood of this enterprise has changed dramatically in one-and-a-half years," said pilot Hank Krakowski. "We still have contentious issues. We just handle them in a more collaborative way. But a lot of that contentiousness - I'm management, you're labor - is starting to fade."

Regina Fraser, who works in United's promotions department, recalls that a thick glass wall once barricaded the company's executive suite, creating a special zone for the top brass, who seldom emerged. Within a week after the arrival of the new employee-chosen regime, she said, the glass wall came down. People like United chairman Gerald Greenwald emerged and actually started chatting in the cafeteria line. "I have always been dedicated because you gotta to do the right thing. But for the first time in many years, I feel like it's appreciated," said Fraser.

Yet not everyone feels the same way. Some of the discontent is coming from flight attendants, whose union did not go along with the employee buyout. As they see it, the changes since then have been largely "window dressing," said union president Patricia Friend, herself a flight attendant. And it is clear that the move to employee ownership has come at a cost for United employees.

The once-stubborn pilots did their share of yielding. At Shuttle by United, an arm of the larger firm, pilots agreed to take a 20 percent cut in their usual salaries and to work two or three hours a day longer than at the parent airline.

Now, with United stock selling at double what it was the day employee ownership took effect, pilots stand a good chance of making up those losses - and more - when they sell their stock. According to Krakowski, those and other concessions allowed Shuttle by United to turn back Southwest Airlines, an upstart carrier that once threatened to blow United out of California.

While employee buyouts in the airline industry - including the giant TWA and the tiny Kiwi International Airlines - have captured media attention in recent years, the buy-your-company, hire-your-boss phenomenon affects almost every industry. Through what are called employee stock ownership plans, or ESOPs, workers now own the majority of shares in many small and some large companies, including Publix Supermarkets owned by its 95,000 employees, the high-tech research firm Science Applications by its 17,000 employees, U.S. Sugar by its 4,100 employees and W.L. Gore Associates - which makes no-leak Gore-Tex cloth - by its 6,000 employees.

In all, roughly 15 million workers own part or all of 14,000 companies, according to the National Center for Employee Ownership, an Oakland, Calif.-based organization that tracks and promotes the trend. In the last five years, the number of employees owning stock in their companies has doubled, and their stocks are now worth approximately $500 billion, or 6 percent of the total corporate equity in this country.

The trend is traceable in part to a growing realization that companies will find it hard to survive in rough markets unless their workers gain a greater sense of control and ownership, according to analysts. Companies that choose the route of employee ownership tend to be more profitable than their competitors, said Corey Rosen, head of the Oakland center. One study by his center found that after introducing employee ownership plans, company sales grew 3.4 percent faster and employment grew 3.8 percent faster per year than expected based on prior performance.

Not all employee-owned companies are profiting so well, though. The ones that do best tend to give workers not only stock, but also more voice in decision-making, said Rosen. These more participatory companies are expanding 8 to 11 percent faster per year than would have been expected without the changes, according to the employee-ownership center.

Crucial to success, said Rosen, are the various forms of participation such as teams in which workers manage themselves and learn each others' jobs, as well as the sharing of financial information with workers. "It's involving workers in actual, day-to-day workplace decision-making that seems key," he said. What was "fairly unique" about the United deal is that work-level participation was a main thrust of the employee-ownership plan, he added. For this, Rosen gives the unions a lot of credit. It is "a rule of thumb that employees who are in a union as they go into this (negotiating) process tend to end up with wider, more extensive workplace decision-making mechanisms in the final ESOP."

Today at United, pilots, mechanics and clerical employees have three seats on the board of directors and have the proxy to vote on behalf of the 55 percent of stock controlled by employees. And workers seem to be using their clout.

Officials in the pilots' union say one reason United recently decided not to pursue a purchase or merger with rival USAIR was employees' concern about whether USAIR workers would accept the sacrifices associated with ownership that United workers had. In addition to the board involvement, United has also created two dozen task forces throughout the company where employees and managers get together regularly to solve problems and look for ways to make the company more productive.

Not all United employees joined in the 1994 buyout or share Fraser's and Krakowski's positive views. Flight attendants did not participate in part because the buy-out arrangement did not include job security, explained Friend, head of the Association of Flight Attendants based in Washington. Management now claims it is "working with employee teams, so it doesn't have to make any real changes," she said. "You're dealing with a corporate culture that said for years - 'rule by fear.' No ESOP is going to change that overnight."

Fraser, however, has noticed that some changes can surface in unexpected ways. She recalls needing a conference room for an important meeting but none was available. Then a secretary suggested an empty conference room usually reserved for the exclusive use of the number 2 person at the airline, John Edwardson.

"At first it was a little uncomfortable," Fraser said. As a lower-level employee, asking for the room meant subtly challenging the pecking order typical of most firms. "But then I thought 'This is what it means when you're employee-owned,'" and proceeded with the request. She had the meeting there and it went off without a hitch.

Fraser, who accepted a significant pay cut in exchange for a share in ownership, said that now she is so curious about United's future and so interested in playing a role in it that she might not retire when she is first eligible in 18 months.

"This is really fun again. I like the way things are going. I may want to stick around," she said. "I think in these years before I retire, I can make a difference. That's even more important than losing the dollars."

Mark D. Uehling is a Chicago-based journalist who formerly worked for Newsweek. He is currently contributing editor at Popular Science. This article is distributed free of charge by the American News Service. For information, call 1-800-654-NEWS or e-mail ans@sover.net.

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