Share option scheme considered at KLM

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In anticipation of the spring 1997 collective bargaining round, pilots at Royal Dutch Airlines (KLM) are considering contributing to the company's cost-cutting programme by exchanging salaries for share options and an increased say in company policy. Unions are divided over this exchange.

Royal Dutch Airlines (KLM) announced a cost-cutting programme in November 1996, with pilots expected to sacrifice 20% of their salary. There are approximately 2,000 KLM pilots, all of whom are members of the Association for Dutch Airline Pilots (Vereniging van Nederlandse Verkeervliegers, VNV). In advance of the bargaining round for the 1997 collective agreement at KLM, the VNV has asked the American pilots' union US-ALPA to verify the implications of the cost-cutting measures. The chair of the VNV has stated that if this verification reveals that the cooperation of the pilots is necessary to carry out KLM's cost-cutting objectives, then they will be prepared to make such a contribution. However, it will be agreed only under the following conditions: that a proportion of the salary paid should be in shares or share options and that pilots should be given a representative on the company's supervisory board.

The system of remunerating airline employees with shares and share options stems from the American aviation sector. Several years ago, United Airlines handed over the majority of its shares to its employees who, in turn, abandoned their wage demands. KLM has proposed profit-dependent compensation with a share and option variant being open to discussion. Share option plans provide employees with a right to buy shares in the company they work for at a fixed price for a given period of time. Any capital gains are tax-free.

In the Netherlands, share option schemes are becoming increasingly widespread. Large companies such as Unilever, Aegon, ABN-AMRO and ING have already introduced similar schemes for their Dutch employees. Proponents maintain that they increase employee involvement and commitment towards a company. Opponents fear that such loyalty becomes directed primarily towards the employees' own income, based on the company's share price. Vervoersbond FNV., the transport sector union of theDutch Federation of Trade Unions has stated that share option schemes cannot replace an increase in basic pay.

The pilots' demand for representation on the supervisory board is supported by Vervoersbond FNV and Vervoersbond CNV, the transport sector union of theChristian National Labour Federation, which have been arguing for an employee seat on the board for a long time. On the other hand, De Unie, a union that represents mainly senior staff, is not convinced of the additional value of an employee representative on the supervisory board.

Vervoersbond FNV is afraid that the pilots may be unwilling to contribute as much as the rest of the staff at KLM towards achieving the necessary reduction in costs. This might cause a split between the VNV and the organisations representing other KLM employees.

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