Already a Bloomberg.com user?
Sign in with the same account.
A NEW LOOK AT EMPLOYEE OWNERSHIP
The mood in America is changing. Suddenly, CEOs are taking heat for making millions while employee wages stagnate. Before Washington intrudes with half-cocked solutions, take a look at an old-fashioned idea--Employee Stock Option Plans. ESOPs are no panacea, but in the debate over solutions for wage stagnation, it is one concept that can raise both corporate competitiveness and employee wealth without gumming up the free market (page 96).
Through an ESOP 18 months ago, United Airlines Inc. employees accepted 15% pay cuts in return for 55% of the company. The results so far? Labor costs, down 7%. Operating revenue, up 15%. Pretax operating margin, doubled, to 7.5%. Stock price, up 120%. While other airlines made smaller gains, they fired people. United has hired 7,000 employees since the buyout. The pain was shared, but so was the gain.
The key reason UAL's employee buyout is a success is that CEO Gerald Greenwald did what most other chief executives of ESOP companies do not do: listen to their employee-shareholders. Some 1980s experiments in employee ownership have foundered on bitter executive-employee battles for power. Instead of respecting employees as shareholders, those CEOs insisted on command-and-control management. Because UAL employees were treated as owners, they acted as such--pilots flew longer hours when pilot shortages developed rather than cancel flights. ESOPs are worth a look.