08 Oct American and Delta Airlines

American and Delta Airlines

Most of the Your Turns in earlier chapters asked you to apply your knowledge of a specific chapter to answer a real world question. Now we are going to move one step further and give you information about two companies that operate in the same industry—Airlines. American Airlines and Delta both make information available about base wages and profit sharing.* Below we provide base wages and profit sharing information obtained from multiple sources. These data are only for Airline pilots. The pilot is the number one authority, and in charge, in the cockpit of an airplane. Mistakes and heroic good decisions are likely to be attributed to the pilot in most circumstances. In this exercise we would like you to deduce what these two airlines believe about:

1. The importance of base wages relative to variable pay (profit sharing)

2. The likely behavioral impact of profit sharing in this case, assuming the payout is based on overall net revenue of the organization. Some impacts might be positive or negative. What is your assessment of the use of profit sharing, given what we’ve said about when to use such a compensation tool?

3. How important is seniority in each of these situations? Should the importance be more or less? Why?

4. Do these airlines pay for skill acquisition? What data do you have to support your position? Should skill acquisition be rewarded?

5. Do you have any predictions about attraction and retention for each company?

6. Does the external environment influence any of your answers?

2014 Wage Figures Represent Base plus Profit Sharing

American Type of Plane 777 767 757 A319 A 320 E190 12 years’ experience 230 195 195 181 181 123 2 years’ experience 212 180 180 167 167 113 Delta 12 years’ experience 270 255 226 209 209 139 2 years’ experience 250 236 207 194 194 129

Note: 1. American Airlines Base Wages are 7 percent above market. They pay no profit sharing for pilots.

2. Delta wages include a 16 percent profit sharing bonus for 2014. *These numbers, although taken for published sources, are solely for educational purposes and may not accurately represent current compensation practices at these airlines.