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Merits of Employee Ownership Tested at United

Pilots rejection of wage deal reflects continued discord within the airline, even though its stock price has soared

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In management circles, United Airlines was seen as a high-flying star in a jaw-dropping air show because of its experiment with employee ownership. But the innovation has lost some of its luster.

United's 8,500 pilots bailed out of a proposed wage deal last Thursday. The contract rejection came a week after a similar vote by 13,900 mechanics and technicians. "Pilots are sending a very loud and strong signal that we're disappointed that the cultural values within United have not changed," says Kevin Dohm, spokesman for United's branch of the Air Line Pilots Association. "There must be respect between management and labor." United employees have expressed resentment over the high bonuses received by top executives.

The labor snub is a rude downdraft for a firm that touts itself as America's largest employee-owned company. Both workers and management seem to be shaking apart a 1994 arrangement in which UAL Corp., United's parent, traded 55 percent of the firm's shares with employees for concessions over wages, benefits, and work rules.

"United Airlines is the most high-profile case of majority employee ownership in the entire world, and every corporate observer has been watching it," says Joseph Blasi, professor of labor relations at Rutgers University in New Brunswick, N.J. "A stumble in this case really will make everybody think twice about majority employee ownership."

Still, the turbulence at United should not be seen as a smirch on the growing trend of the worker buyout, which is often hailed as an alternative to downsizing, management experts say. In fact, when it comes to employee ownership, United is as much an instructive exception as a cautionary model. The experts note:

*Unlike in most employee stock-ownership plans (ESOPs), United confronted special challenges because of its complexity and huge size (80,000 employees). Rather than just handle one union or no unions at all, it must simultaneously satisfy the needs of several unions rewarded at vastly different wage rates.


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