process for management under the best of circumstances. But the management at U.S. Bank found a way for the rank-and-file to swallow the cuts. They took pay cuts themselves. In return, U.S. Bank's unionized employees are accepting a wage freeze and other cost reductions. The aim is to improve the bottom line - and maybe stave off an eventual takeover in the new rash of bank mergers. Part of the drive to stay competitive and beef up the bottom line is linked to a labor contract with workers. The bank's holding company, USBancorp, recently announced a new four-year labor agreement with Local 8204, United Steelworkers. It calls for: *A first-year wage freeze. *Increases in the second, third, and fourth years of 2%, 4%, and 5%, respectively. *Change from a traditional "indemnity" health insurance to a lower-cost managed-care program. *Partial retreat from generous profit-sharing schedules for the next three years. Meanwhile, bank officers will take pay cuts of 3% to 10% in 1996, with executives taking the heftiest cuts. "I'll be taking a 10% pay cut, which whittles my salary from $140,000 to $126,00 a year," said Orlando B. Hanselman, president and chief executive officer of the $1.1 billion-asset bank and executive vice president of its $1.8 billion-asset holding company. In addition, a modified job freeze is in effect in management ranks, where the organization is being flattened to reduce bureaucracy. Only about half the high-ranking employees who have left the organization since last spring have been replaced. "Our earnings are not at levels where we would like them," Mr. Hanselman said. He cited a corporate goal of a 13% return on equity in 1996. That would be a sharp step-up from the company's 11.14% ROE and the bank's 10.04% ROE in the first six months of this year. "We see a shared proportionate sacrifice as the key strategy to better the situation," Mr. Hanselman said. But he stressed that's only on the expense side. A new marketing push also is afoot to increase business. Much of the approach involves house calls on customers by Mr. Hanselman. In August, he visited 4,000 customer homes to talk about the institution's products and services. "An overwhelming majority of bargaining unit members ratified the new contract," the bank said. The USW represents 250 employees, about 60% of the bank's work force of 348. The steelworkers have bargained for nonsupervisory employees since the late 1970s. Paul Bayush, union president and customer service representative at a U.S. Bank branch, said the union went along with the cuts to help guard against a takeover. "The bank has to improve its performance and we're all sharing the pain," he said. Bayush said the new pact adjusts pay scales to encourage part-time and flexible scheduling to permit evening and Saturday hours at certain offices. Also for the first time, joint labor-management task forces will work on operational issues. Mr. Hanselman said the holding company's two western Pennsylvania subsidiaries, the Pittsburgh area's Three Rivers Bank and Community Bancorp, have not lagged in profits, are not unionized, and are not involved in the pay sacrifices. He described the 13% ROE target as a threshold of profitability the financial community respects. "If you're below that, you're low-performing," Mr. Hanselman said. Much of the bank's problems began in 1987, when it recorded losses of $14 million, mostly because of money lent to small, entrepreneurial businesses that didn't make it, the bank said. Ms. Swaney is a freelance writer based in Pittsburgh.

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