Employee-Owners Are Profiting

Avis Inc.’s 13,500 employee-owners will double the worth of their shares in the company by selling out to HFS Inc., a real estate sales and hotel licenser.

And the $800-million cash-and-debt offer announced Monday does almost as much for the theory that says companies do better when the workers have a stake.

“It’s very positive. You can see that it actually worked,” said Ed Carberry, a worker at the nonprofit National Center for Employee Ownership in Oakland.

Avis’ return to the fold of publicly traded companies--HFS will spin off the No. 2 rental car company’s assets and debt to HFS shareholders--is the largest purchase so far of an employee-owned company, according to the ESOP Assn. in Washington.

As such, it is one of the clearest measures to date that the strategy of combining worker ownership and worker participation can work, which underlines a number of studies that have concluded that employee stakes and input increase stock prices and benefit growth.

A 1995 study by American Capital Strategies and professors at Rutgers University and the University of Baltimore, for example, found that an index of securities of publicly held companies with greater than 10% employee ownership returned 80% from 1992 on, compared with 49% for the Dow Jones industrial average.

An earlier federal General Accounting Office study likewise showed that companies’ productivity increased 52% faster after they gave majority ownership to Employee Stock Ownership Plans, or ESOPs.

Several ESOP advocates said they believe the Avis buyout might encourage other companies to choose to sell to their employees if they need a restructuring.

“There’s never been one this big,” said Michael Keeling, president of the ESOP Assn.

Avis, whose very visible owners greet airport travelers daily, may be the best-known employee-owned firm in the country. A few others are larger: Publix Super Markets Inc., Melville Corp. and United Airlines parent UAL Corp. are all at least majority-owned by their workers.

Avis was a pioneer in getting the rank and file involved in decision making. According to several studies, companies with both employee participation and ownership outperform those with only one or the other.

“Their employees have come up with a lot of really good ideas since 1987,” Carberry said. “They’re listed regularly in the 100 best companies to work for in America.”

In other words, the people at Avis really did try harder.

Of course, worker-owned companies aren’t immune to economics, and several such companies have folded or are on the ropes.

In the airline industry, which has more employee ownership than any other besides supermarkets, the turnaround at UAL since employees took over a majority stake two years ago is counterbalanced by that at pilot-owned Kiwi International Airlines, which burned through three CEOs last year without turning a profit.

Nevertheless, ESOP die-hards who have been waiting for the 500 or so totally employee-owned companies to grow in number finally have something to crow about.

Unfortunately for HFS shareholders, the real proof might come if Avis employees, once stripped of their ownership, stop performing as well.

“That’s going to be very interesting,” Keeling said. “You can clearly have strong employee participation and strong employee involvement without the ownership piece. But without the ownership, it’s much harder to maintain.”