Teamsters deal may play key role in YRC’s survival

Pressured to the point of trading an ownership stake for union wage concessions, YRC Worldwide Inc. has passed a crucial step to surviving 2009.

“It was a key part of our self-help strategy,” CEO Bill Zollars said. “We started working on making sure that we would have as much of a cushion as we possibly could in this downturn no matter how long or how deep it got.”

Analysts praised the $220 million to $250 million in annual savings YRC expects from a reworked labor agreement. But academics with union expertise said concessions-for-equity deals can help as well as hurt company-worker relationships.

The trucking industry — and YRC — has struggled under the weight of a downturn that began in late 2006. To help the company survive, YRC workers in the International Brotherhood of Teamsters agreed to a 10 percent pay cut and cost-of-living adjustment suspension through March 31, 2013. The changes took effect Jan. 8. In exchange, they got instruments similar to stock options for the equivalent of a 15 percent stake in YRC.

“We worked hard to draft a plan that holds the company accountable, requires equal sacrifice among all YRCW employees, gave us the ability to obtain stock in the company and placed restrictions on where the savings can be used, among other protections for our members,” Teamsters General President Jim Hoffa said in a Jan. 8 release.

The stock instruments, received at a value of $3.34 each, vest at 25 percent a year, Zollars said. Holders have a 10-year window to exercise the options. YRC stock closed at $3.70 a share on Jan. 14.

The deal doesn’t affect the current number of common shares outstanding and doesn’t include board representation. A Teamsters spokesman said the union wouldn’t comment further because it is still working out details.

Zollars said the union now must determine how to distribute the options among a work force that fluctuates with the seasonality of the business.

Non-union employees also faced pay cuts and were offered options for the equivalent of a 7 percent stake.

“This gives people the chance to benefit as the company recovers,” Zollars said. “It’s been pretty well received.”

YRC’s leadership team and board took a 10 percent salary reduction and are not eligible for the option program.

“I think there’s always concern that maybe the top people are not sharing the pain as much, so we wanted to make sure that we shared more of the pain than the average employee,” Zollars said.

He says employee ownership will benefit YRC.

“It really aligns everybody around shareholder value, which is a great thing,” he said. “The pride of being an owner in the company can have a direct tie to performance.”

Michael Belzer, associate professor of economics at Wayne State University in Detroit, said he can’t recall a trucking company taking such a step in recent years.

“(YRC) is a really big company, and it has very specific problems, and they can be identified,” Belzer said. “It’s plausible that this might work because it might help them resolve the immediate debt overhang and use those pieces to put it back together. They can do it in a collaborative way when the union and the company are playing off the same page, which this does for them.”

But the question remains whether this is simply a stopgap measure as the company unwinds its business, he said.

Employees will have to guard against dilution of the stock should YRC try to get more capital, said Roland Zullo, a research scientist at the University of Michigan Institute for Research on Labor, Employment and the Economy. And the premise that employees act like owners when they have a stake in the company can be overstated.

“Sometimes, there’s an initial euphoria over this type of transaction,” he said. “But as time moves on, you become a worker who happens to own some shares of stock in the company you work for.”

Judy Ancel, director of the University of Missouri-Kansas City’s Institute for Labor Studies, said the pain of giving up pay often harms morale and the relationship between labor and management.

“This is a pretty drastic kind of arrangement when a company is in really deep trouble,” she said. “Generally speaking, workers would rather get a decent living than have an ownership stake.”