It may not be exactly what management had in mind, but a new performance-based pay system at United Airlines Inc. ended up giving the carrier a critical edge during recent stormy times in the industry: labor peace. Starting in 2000, part of the compensation for top UAL executives will be tied to worker satisfaction as measured by an outside survey firm. The proposal is being adopted at the insistence of UAL's unions, which own 60% of UAL shares. Indeed, UAL is approving the plan even as rival American Airlines tallies the cost--approximately $150 million--of its latest labor dustup, a pilot sick-out over wage issues that scrubbed hundreds of flights over the Presidents' Day holiday.
Not surprisingly, CEO Gerald Greenwald and other execs didn't leap at letting workers set their pay. "They outright rejected it," recalls International Assn. of Machinists President R. Thomas Buffenbarger, who says the union presented it to management last year. After that, the IAM drafted a shareholder resolution, which would be guaranteed to pass, given the union's shareholder votes. That's when management caved, union leaders say. "It shows employee ownership means something," says Buffenbarger. The company disputes that version, saying that it long planned such a change, but moved faster because of the IAM proposal.
Either way, the result is a cutting-edge compensation system. Besides employee satisfaction, bonus pay will also be based on customer satisfaction and on-time performance. Together, the three new criteria will account for more than half of what the top 625 UAL managers receive. "This is a big change for us," says Bill Byrne, a director in United's personnel department.
DYNAMIC DUO? Now, labor says it plans similar moves at other companies where it owns shares, such as Northwest Airlines Corp. and Trans World Airlines Inc. Later, it will approach corporations in which it represents workers. But it won't be easy. "I don't think most managements would be enthusiastic about giving employees a chance to say anything about them," says executive-pay guru Graef S. Crystal. Among the few that do is Eastman Kodak Co., where employee satisfaction accounts for 20% of executive bonuses.
Even at United, the new plan won't guarantee that labor and management will continue to coexist. The two sides need to work out a new contract by 2000 and pick a successor to Greenwald later this year. But labor enters the talks with something workers at other airlines lack: They know the people upstairs will pay if things don't go smoothly.