Employee Ownership Taking Flight
By Mark D. Uehling
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
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
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
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
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,
"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 email@example.com.
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