American businesses are benefiting from lower energy costs and rising sales, a fact not lost on unions and employees. Signs that employees expect a bigger piece of the pie abound everywhere, from your local McDonald’s restaurant (the symbolic focus of efforts to raise the minimum wage) to the airline industry.
The steps American Airlines has taken recently provide a glimpse into the coming higher-wage future. The airline in December voluntarily gave 4% pay raises to all employees below the director level.
American even increased pay for unionized employees already working under the terms of less-generous collective bargaining agreements.
Not everyone accepted the largesse. The airline made an $81 million offer to its flight attendants, but the union narrowly rejected it. The arbiter hearing the case wound up awarding the union an even lower figure.
So why is American being so generous? First, the airline business is doing well. Passenger demand is high and planes are full, with airlines flying at capacity.
Also, fuel prices are down, so the airline has cash to spend. American is one of the few airlines to buy fuel on the spot market instead of hedging those costs. So when fuel prices dip, American saves more than its competitors.
Also, unlike many other airlines, American has no profit-sharing plan. While brisk sales and low costs provide competitor’s employees with decent profit-sharing checks, American is countering with what it describes as “permanent and certain” pay raises to keep and lure valuable employees.
If times grown lean again, the airline’s workers will have higher pay than those of its competitors.
American’s approach allowed it to capitalize on a unique position in the marketplace to formulate a compensation plan that maximizes its competitive advantages in the race for top talent.
Advice: If your organization is contemplating pay increases for the first time in years, plan to do it properly. Of prime importance is making sure raises aren’t handed out in a discriminatory way. Before implementation, audit your pay raise plan to see if it favors particular groups or obviously short-changes others. If so, adjust accordingly.
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