The day was dreary, the rain cold, as steelworkers picketed company headquarters last March, protesting the use of outside employees while union members were losing their jobs. It was a common scene, with one twist: The company was Weirton Steel Corp., which was bought by its workers in 1984 through an employee stock-ownership plan (ESOP). Those were the owners on the picket line. One marcher, Mark G. Glyptis, unseated the union's president in June on a platform of putting workers ahead of public shareholders, who recently bought 30% of Weirton. "I don't believe in maximizing profits at the expense of losing jobs," Glyptis says.
This clash reveals a pitfall of worker ownership: "It doesn't rewrite the laws of capitalism," says J. Michael Keeling, president of the ESOP Assn., a Washington trade group. "The bottom line is the bottom line--not guaranteed jobs."
The lesson is being driven home this year. Weirton Steel, the mainstay of Weirton, W. Va., has eliminated 1,000 of its 8,200 jobs, furloughed 200 other workers, and says 700 more jobs will be cut. McLouth Steel Products Corp. in Trenton, Mich., has laid off about 600 of its 2,200 workers, who own 87% of the place. At Bliss-Salem Inc., a maker of heavy machinery in Salem, Ohio, that is 100% owned by employees, 22 of 340 workers are gone because of slumping orders. And Pittsburgh Forgings Co. in Coraopolis, Pa., a maker of transportation and defense components that is 80% owned by employees, has cut its work force by 27%. The fired owners are angry but face Hobson's choice: "You just don't keep them on because they own the company," says Harry E. Lester, the United Steelworkers official with jurisdiction over McLouth, "or there's not going to be any company to own."
SACRIFICES. Weirton's workers sensed that right away. Upon taking over, they accepted a 20% pay cut and a six-year wage freeze. Weirton soon showed better margins than its Big Six rivals. So in 1989, it embarked on an overdue renovation of its continuous caster, which forms molten steel into slabs, and of its hot strip mill, which processes slabs to customer specifications. To help raise the needed $740 million, the Independent Steelworkers Union agreed to more sacrifices. Profit-sharing payments were slashed from 50% of annual earnings to 33%. And the employees agreed to sell 4.5 million shares to the public, sparing management the estimated $40 million cost of buying back the shares as the ESOP agreement had required.
But the honeymoon ended last fall. Demand sank for sheet steel used in appliances and construction, a product that generates half of Weirton's $1.2 billion in annual revenues. Competition cut Weirton's sheet steel market share to 3.2%, from 4.4% in 1988. Then, its modernization program hit snags. A new rolling machine went haywire and cost $18 million to fix. A fire in a computer room cost $10 million more. Unable to meet delivery on 300,000 tons of steel, Weirton paid competitors $10.8 million to roll slabs that it then finished on its own equipment. These setbacks led to the company's first losses as an ESOP, including $48 million in this year's first half. After going public at 14 1/2, Weirton's stock hovers around 4. President Herbert Elish has eliminated the 16~ dividend, docking employees about $280 a quarter. ESOP or not, says Elish, "management has to do what the management has to do at any company."
Including run the place efficiently. As modernization raises productivity, Weirton will need fewer workers. So far, Elish has used attrition and an early-retirement program to make permanent cuts. But employees are still unhappy, and they elected Glyptis to make that clear. "One of the questions from workers was: `How can we be laid off if we own the company?' " says Virgil G. Thompson, Glyptis' predecessor.
NEW FACES. One especially sore point, more symbolic than not, is the handful of employees who work for the contractors that are updating Weirton's mill. Elish says that Weirton's in-house construction crew didn't have the time or staff to help install the equipment. But that doesn't satisfy Glyptis, who vows to avoid such situations in the future. He also warns against any method but attrition for making permanent job reductions. "You can't throw someone out like an old shoe," he argues. "If you sacrifice, you're part of the team."
It's unclear how prickly Glyptis can be, since after all, it's his company, too. Elish says the employees "will do whatever it takes" to make Weirton prosper. He had better be right. "This company is run strictly for the employees," gripes Greg Melvin, portfolio manager at Federated Growth Trust in Pittsburgh, which holds 260,000 Weirton shares. That's the last thing the steelmaker needs now: a battle between its public shareholders and those inside the plant.