(FORTUNE Magazine) – WHAT BEGAN a few years ago as an apparent anomaly at a few corporations has become the biggest trend in U.S. labor relations today: companies demanding concessions -- on pay, benefits, work rules -- from their unionized workers. Often the companies win these so-called givebacks. And often the tactics they use are completely at odds with the idea that you can become more competitive if you forge a cooperative relationship with employees. The question for employers now is, once you have won givebacks, what have you got? Cost savings, to be sure. But also disgruntled workers? And trouble ahead? Givebacks continue to pile up. When 11 California wineries threatened to replace 2,300 striking workers in October, the strikers sheepishly returned to the job, swallowing a 50-cent hourly wage cut and reductions in health and pension benefits. A six-week strike in June and July by 7,500 Weyerhaeuser timber workers in the Northwest ended with unions giving up wages and benefits they had enjoyed for years. When 15,000 Alcoa workers walked off the job in June, the company kept operating until they walked back five weeks later to a wage freeze, cuts in benefits, and changes in work rules. USX Corp. is patiently sitting out a three-month-old work stoppage by 22,000 steelworkers. ! The sticking point: management's demand for a giveback of $1.25 an hour in wages, among other concessions. Enough companies won givebacks in the early 1980s that it is now possible to form some conclusions about life after union concessions. The lessons for management are several: First, changes in work rules often save more than cuts in salaries and benefits. Second, if a company gets tough in securing concessions, it has to be ready to hang tough in confronting the almost inevitable backlash from workers. Managers will do better, perhaps, to negotiate concessions in as conciliatory a manner as possible. That seems the best way to win cooperation from workers that will produce continued savings beyond the original givebacks. As an example of what toughness can beget, consider Kaiser Cement's Cushenbury plant at Lucerne Valley, California. Two years ago, after unsuccessful negotiations with the cement division of the International Brotherhood of Boilermakers, Kaiser imposed its final offer on the work force. The union counted 260 different givebacks in the regime thrust upon it, including a drastic cut in seniority rights, relaxation of many work rules, elimination of five paid sick days, and a lower pay tier for newly hired employees. What is the mood at the plant in 1986? ''Disgust, hatred,'' says Ray Long, president of the union local. ''I dislike the managers and I tell them every day they're lowlifes.'' On the other hand, Myron Bernstein, the company's vice president for industrial relations, says Kaiser is saving ''at least a couple of million dollars a year'' at Cushenbury after having reduced the work force by 45 or 50 people. Says Bernstein: ''We're producing at the same level as before with a lot fewer man-hours. But we didn't want to get into a perpetual dispute with our employees.'' In the first three months after Kaiser put the new arrangement in place, the union filed 4,000 grievances. Bernstein says most employees refused to work overtime and some resorted to acts of sabotage, like sending metal tools on conveyor belts into cement-grinding mills. Union officials deny the allegations of sabotage but say that the members adhere precisely to the letter of the company-imposed settlement, doing only what they are asked. They admit that their aim is to drive up labor costs, but legally. Kaiser compensated. In March 1985 it cut hourly wages $5 across the board and created a fund into which it put $50,000 each month to cover any expenses the company attributed to sabotage. Anything left over after the tab for sabotage was calculated each month was paid out in wages. In a sabotage-free month, workers could recoup about $1.50 per hour. Of the $1 million that has gone into the fund through September, only $370,000 has been paid out in wages. In the situations that make for givebacks, the pressure on both sides, companies and unions, is usually intense. Kaiser, for example, was hard hit by imports. Companies in industries fighting off competition from abroad -- including auto, steel, rubber, cement, mining, agricultural and construction equipment, and meatpacking -- have led the way in asking for and winning concessions from unions. Deregulation pushed other companies to get on board. Airlines, trucking, and telecommunications companies necessarily became more cost-conscious, and the pressure to get leaner brought sometimes meaner managers to the bargaining table with gritted teeth and long lists of demands. Says Audrey Freedman, a labor economist at the Conference Board: ''It's competition that is forcing these issues -- competition that's come from abroad and from deregulation and from new non-union businesses in the United States.'' The unions that companies confront often are staggering from other blows. Government statistics show a steady decline in the percentage of workers who belong to unions -- down from 29% in 1975 to only 18% in 1985. Low inflation has weakened the argument for big wage increases. Unemployment remains high enough to give potential strikers second thoughts. In the 12 months ended in June, union members received raises 40% lower than non-union workers. ''Even companies that are making a profit are saying the time is now to recapture the rights of management,'' observes Martin F. Payson, a White Plains, New York, labor lawyer who often negotiates for corporations. While cutting pay was usually the primary goal in the past, many companies lately are finding that they save even more by loosening work rules. ''The heavy emphasis now is on productivity -- fewer paid days off, more flexibility in manning, and the elimination of arbitrary and burdensome job classifications,'' says Payson. ''Some companies are even willing to give a pretty generous wage offer if they can get these concessions.'' BUT DISCARDING work rules produces a fundamental change in the relationship of the parties. ''Essentially work rules have given unions the right to tell + management what to do,'' argues Freedman. Adds Harley Shaiken, an expert on work and technology at the University of California at San Diego: ''Historically unions have built up their power through work rules, so when we talk about changing them we're talking about a shifting balance of power in the workplace away from unions.'' In Kaiser's case, new technology at the Cushenbury plant ''made all our old rules obsolete,'' says company executive Bernstein. The company was prepared to take a strike on the issue but found that when it imposed its terms, the 250 union members stayed on the job. ''We believed a strike would lead to a situation we could not win,'' says Tom Balanoff, a tactician for the national union. In a climate where companies can afford to be tough, management may be tempted to overreach, going for concessions in a heavy-handed way that may lead to trouble in the future. By its actions in getting short-term givebacks, for example, AT&T may have jeopardized its ability to win union cooperation for cost savings over the long term. In June 155,000 members of the Communications Workers of America walked out over issues including the company's demand to drop a cost-of-living adjustment to pay. After a 26-day strike, the company won concessions, among them the suspension of COLA payments.

Soon after the strike began, the company launched an aggressive defense of its stance in newspaper ads and letters to members' homes. That, says CWA President Morton Bahr, challenged the credibility of the union's local and national leadership and has offended them. Before the strike, AT&T had been trying to involve union officials in the development of new cooperative management schemes. Bahr says these programs have been seriously set back. Even in situations where companies appear to have won givebacks without any labor turmoil, trouble may lurk beneath the apparently placid surface. United Parcel Service, which has one of the largest unionized work forces in the country, now faces increasing restiveness among its workers, at least partly because of givebacks initially secured in 1982. UPS isn't known for being particularly solicitous of its rank-and-file employees. But in its last two agreements with the International Brotherhood of Teamsters, which represents about 100,000 UPS workers, the highly profitable private company got even tougher: It won significant givebacks from the union's top leadership. A three-year 1982 pact allowed UPS to pay newly + hired loaders and sorters only 60% of what currently employed workers made, and diverted the money that had formerly gone into cost-of-living adjustments to pay for health and welfare benefits previously covered by the company. Then in 1984, at the union's suggestion, the two sides talked quietly and extended the agreement to 1987. ''It's a very healthy company and we want to keep it healthy,'' explains Dan Darrow, director of the Teamsters' United Parcel Service division, who says he doesn't consider the changes givebacks. He says, for example, that the two- tier system was not a concession but a case of ''the parties recognizing what the real world is all about.'' But others have a more invidious explanation. ''The Teamster hierarchy is in bed with the company,'' says Ken Paff, national organizer for the Teamsters for a Democratic Union (TDU), a Detroit-based dissident group. Ron Carey, president of the country's largest UPS Teamster local in New York and no friend of Darrow's, says the key is that national officers who negotiate the contract are elected by local leaders, not the rank and file. The national officers, he alleges, make sweetheart deals with UPS that ensure a growing number of dues-paying union members. The rank and file ratify the contract because they are led to believe they can't get more. UPS workers may not continue to be so tractable, however. Company employees already represent the single largest group of employees in the dissident TDU, and the group's officers say they are enlisting more every day. The lesson for management? Alternative approaches to securing givebacks -- less hardball, less disputable -- hold out the possibility of greater savings in the long run. Not even a history of management-labor animosity has prevented some companies that have seen the light from cooperating with unions to cut costs. It took farsightedness and a lot of work, but National Steel accomplished just such a turnaround. In the Seventies and early Eighties the company treated the union pretty much as the enemy. But, says Senior Vice President Stan Ellspermann, ''It had become clear that wasn't getting us anywhere.'' After a major modernization program and lots of layoffs, National was operating near capacity in 1984 but still wasn't earning much money. One big problem: labor costs. Negotiations weren't scheduled until 1986, but National officials decided to try what Ellspermann calls ''nonadversarial problem solving'' with representatives of the United Steelworkers of America. At the first meeting, company and union officials each went into separate rooms and compiled a list of problems and a list of hopes for the future. ''When we got back together and compared the lists, we found they were 80% the same,'' says Ellspermann. After that auspicious start, the process continued for 16 months. MUTUAL TRUST developed, says Buddy Davis, the USW's chief bargainer at National and director of one of the union's Midwest districts. But what really convinced him of the need to reduce the company's work force was the thorough look the union and its financial advisers got at the books. ''We analyzed their projections as well as their past data and performance,'' says Davis. ''It was clear they had two problems. One was cash flow. The other was productivity.'' This spring the union gave up $1.51 per hour in wage and benefit cuts, and committed itself to keep working with management to relax work rules and increase efficiency so that the work force can shrink 25% over the next five years. In exchange the company agreed to make the cuts only through attrition. ''We got there through a lot of patience and hard work,'' says Ellspermann. ''You don't just walk in and tell the union 'Hey, trust me, I'm a good guy.' You have to earn that trust.'' The effort continues to pay off. Ellspermann says joint efforts since the contract was signed have already resulted in significantly fewer restrictive job classifications in the company's plants. Stephen Cabot, an attorney known for taking a hard line in negotiations with unions, advises clients to bring out the books when major concessions are desired. Says Philadelphia labor lawyer David F. Girard-diCarlo: ''It's a balance between persuasion and candor that will get results.'' CWA President Bahr says that at the same time AT&T was insisting on its inability to grant union members a COLA, it was divulging little about management compensation. He says that was one reason the union had to strike. Companies that have worked to foster communication and trust over the years may find the union actually coming to them with ways to cut costs, especially if jobs can be saved by doing so. At Xerox's copier manufacturing operation outside Rochester, New York, the Amalgamated Clothing & Textile Workers Union's members have long been involved in decision-making and problem solving. In 1981 Xerox set a goal to cut unit manufacturing costs by half to ^ compete with proliferating imports. Periodic layoffs had been straining the union-management relationship, but in 1982 a full-blown crisis arose: Xerox decided to contract out the manufacture of wiring harnesses, which employed about 150 workers. Union leaders volunteered to sit down with managers to figure out a way to keep the work in-house. They recommended relaxing work rules. For example, they were willing to widen job definitions that prevented, say, machine operators from making minor repairs on their equipment. In addition, the union agreed to help study ways to cut costs still more. Other money-saving givebacks ultimately included the dropping of six paid days off a year, cuts in medical insurance, and adoption of a much tougher absenteeism policy. In exchange for all this, the company promised no layoffs for the three-year term of the agreement. ''I see nothing wrong with making a plant more competitive if there's a job guarantee,'' says Leslie Calder, an ACTWU vice president. ''I'd rather save a plant with 1,000 jobs than lose one with 2,000 jobs.'' In this year's bargaining the no-layoff policy was extended; most provisions of the 1983 agreement remain in effect. The estimated savings to Xerox so far in the wire- harness division: over $3.5 million a year. Calder says Xerox's history of openness with the union created a problem-solving atmosphere. ''We recognize the company is faced with the same problems as a lot of American industry, and we want to help.'' SIMILARLY, creative bargaining with a Detroit union local won Chrysler a contract this summer that should afford the automaker some big savings. It will also radically change the way the company and its employees work together -- both sides think for the better -- right down to matters of dress. At the huge Jefferson Avenue assembly plant, the United Auto Workers relaxed its tightfisted grip on job classifications so that 90 narrowly defined categories could be reduced to ten. Small teams of workers will share responsibilities and coordinate their overtime and vacations. In exchange for this more efficient system, Chrysler promised to replace the now-crumbling factory, saving several thousand jobs. As an added inducement, and to help boost the spirit of cooperation with workers, the company will dispense with several symbols of labor-management separation. Time clocks will be out, common eating and parking facilities will be in. Perhaps the most unusual managerial giveback: neckties. Managers and ! executives at the new Jefferson Avenue plant will leave their cravats at home.

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