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Profit Sharing: Does it Make a Difference?
During the past decade, a major new development in the relations between American workers and businesses has been quietly taking place. Ignored by most business leaders and government officials, it has also been overlooked by the press, which has been preoccupied with the damage downsizing has done to workers’ lives. It is a trend toward a new kind of corporate culture in which the interests of managers, shareholders, and workers are closely and deliberately linked. The devices linking them include profit sharing and employee stock-ownership plans.
The experience of a number of successful companies, as well as large-scale statistical studies, show that these “collaborative” methods can improve productivity and raise workers’ incomes. They can also increase employment and thus help to ease the deep economic uncertainty that affects many American workers. Although it is true that such developments are taking place only among a relatively small number of companies—perhaps 10 percent, perhaps more—it is also true that the number of companies that are experimenting with them is increasing.
The appearance of collaborative corporations is heartening because, in spite of rising stock markets, low inflation, and low unemployment, the American economy still has deep problems. Whatever the outcome of the current controversy over whether average earnings have been falling for the last twenty years, in which many of the arrangements that traditionally were made between workers and their employers—including relatively stable jobs with benefits such as health and retirement plans—have been eroded.
Perhaps the best-known example of the alternative, collaborative approach is United Airlines. When its employees acquired 55 percent of the company’s stock in July 1994 in exchange for reduced wages and benefits and other concessions valued at approximately $5 billion, the sheer size of the country’s largest employee buyout caught people’s attention. So did the arrangements by which United employees gained majority voting rights in the company as long as they continue to own at least 20 percent of the company’s stock. They also got increased job security and three out of twelve places on the board of directors, as well as veto power over major company decisions. Labor Secretary Robert Reich hoped that such a highly visible example would make employee ownership a more likely possibility for companies trying to reduce costs and increase productivity and profitability. “From here on in,” he said, “it will be impossible for a board of directors to not consider employee ownership as one potential business strategy.”
While this prediction has turned out to be overoptimistic, United has made a promising start under employee ownership. The company quickly …
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