CHICAGO — UNITED AIRLINES is on the verge of becoming the nation's largest employee-owned company. If successful, it would be an impressive boost to the idea of Employee Stock Ownership Plans, or ESOPs
``If it's really successful, it's really going to spread it'' to other American companies, says Jan Svejnar, an ESOP specialist at the University of Pittsburgh. ``If it's not successful, it can have a very dampening effect.''
The theory behind ESOPs is that managers and employees perform better if they own a part of the company.
Some economists have long contended that large US corporations are in decline precisely because ownership and control have become fragmented between share owners with little say in how the company is run and managers who typically have little direct stake in the company.
The proposed ESOP at United would change all that. The deal will be closely watched for two reasons.
First, employees would have a big stake in the company. On Thursday, the board of United's parent company accepted a $7.2 billion bid by the pilots in which employees participating in the ESOP would have a 75 percent ownership stake.
Second, the 68,000-employee airline is so large that it would be an important test of whether an ESOP can work on such a grand scale.
An ESOP could be very helpful to United, because in return for shares of the company, the pilots have reportedly agreed not to strike for seven years, to work four more hours a month, to cut back vacation time and benefits, and temporarily to accept a 10 percent pay cut among senior pilots.
Until the ESOP deal, the Chicago-based airline had been unable to get the much-needed concessions and suffered from poor labor-management relations following an acrimonious pilots strike in 1985.
The deal still faces several hurdles.
The financing has not been completed. It is not clear that the airline's flight-attendant and machinist unions, as well as its nonunion employees will go along with the pilots' plan.
If they do, they would share with the pilots the 75 percent stake in United. British Airways, which is helping finance the deal, would get a 15 percent stake and management would eventually get the remaining 10 percent of the company.
Even if United clears these hurdles, an ESOP alone probably will not solve the airline's problems.
Research into ESOPs dating back from the 1970s suggests that these plans on average do not have much effect on productivity, says Joseph Blasi, an ESOP expert at Rutgers University.
The preliminary research does suggest, however, that employee ownership can be the first step toward a more profitable company if it's followed by greater worker participation in the decisionmaking process, Mr. Blasi adds.
Those are steps that United and its employees have not yet taken.