At Philip Morris, Blue Chips For Blue Collars

First, executives got it. Then middle managers got in on the action. Now, it's factory workers' turn to get stock as part of their pay.

On Mar. 15, 7,800 tobacco workers at Philip Morris Cos. ratified new labor pacts that give them stock in lieu of pay hikes during the next two years. The novel trade-off is part of a larger trend by companies to tie pay to company performance. And while it leaves Philip Morris workers less certain about how much they'll make, union leaders plan to pursue the concept at other companies. "It's a gamble, but it's one we're willing to take," says Steven Spain, the chief negotiator for the International Association of Machinists (IAM).

Philip Morris isn't the first employer to give shares to workers. Many have employee stock-ownership plans or offer company stock in their 401(k) retirement plans. But these schemes are designed to encourage ownership or savings. Usually, workers can't withdraw the stock until they retire or leave the company. And the shares aren't counted as part of current income, so employees pay no taxes until they receive them.

"NEW LEVEL." Other companies have set up stock-option plans for workers. For instance, last month Bristol-Myers Squibb Co. gave employees a one-time chance to buy 200 shares at a set price. And Southwest Airlines Co.'s pilots recently agreed to take options instead of pay hikes. But, says Corey Rosen, head of the National Center for Employee Ownership: "Philip Morris is taking the idea of risk-sharing with employees to a new level."

Indeed, Rosen and other experts believe that Philip Morris is the first company to make stock part of its workers' take-home pay. The tobacco giant's pact with the IAM--one of nine unions that have signed off on the plan--gives 94 shares to each of the union's 1,200 workers. They also get a 2% wage hike in 1997. Employees can elect to take the stock after 12 or 24 months. In the interim, employees can't sell or vote their shares. And they lose them altogether if they quit or are fired before the period expires.

Employees won't know how much of a raise this amounts to until they get their hands on the stock. Philip Morris was trading at $60 when the pact was agreed to on Feb. 15, and its dividend is $3.30. The total amounts to $6,260 after two years, or about 6% a year for IAM members, who average $24 an hour. The share price already has jumped to $63--though that's still far from its 1992 peak of $86. The union is betting that it will rise 5% to 7% a year--though workers acknowledge that if it tanks, they lose. "I think it's worth [the risk]," says Tom W. Preston, an electrician at Philip Morris' Richmond (Va.) plant. "If the stock takes a real downturn, then I'll have more problems than just my raise."

DRAWBACK. The other catch is taxes. The company will subtract all federal and state taxes employees owe on the date they ask for the stock. So if an employee cashes in after a year, Philip Morris will multiply 94 shares times the stock price on Mar. 15, 1996. It will withhold the taxes due on that amount and give the employee the number of shares that the remaining sum will purchase. The union thinks this will be about 60 shares. The employee then can keep the stock or sell it and take the money.

The deal is good for Philip Morris. Employees' base pay won't rise. Nor will benefits, such as pension and life insurance, which are tied to annual wages and total 29% of pay. And current stockholders' shares won't be diluted, since workers probably will get less than 500,000 shares out of 850 million outstanding.

Will the idea spread? If it does, factory hands soon may be watching the wire as closely as anyone in the executive suite.

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