Expert answer:Management (Compensation and Benefits) Homework

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Chapter 10
Pay-for-Performance Plans
377
Your Tur n
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
12 years’ experience
270
255
226
209
209
139
2 years’ experience
250
236
207
194
194
129
Delta
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.
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02/12/15 12:27 pm

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