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American Airlines: Compensation and Cost Reduction

Submited by
Sushma C S (107), Mahek Dagha (125), Shivi Shrivastava (143) PGDM HR

The Airline Industry in 1990s


The airline industry in USA got deregulated in 1978 which lead to the entrance of many small and big airlines to enter the industry. This led to the increase in competition in the airlines industry. During the 1990s the Gulf war made the airline industry worse causing the American Airline to adopt to cost cutting techniques. American Airlines Corporate Strategy was Commitment to Diversity Leadership and to ensure that customers and communities receive excellent service delivered by dedicated and passionate people AA tried to align the HR strategies with the company strategy using the following steps : Corporate strategies Business Unit Strategies HR Strategies Strategic Compensation Decisions Compensation Systems Employee Attitude and Behavior Competitive Advantage

Workplace Attitude required to Support AAs Strategy To go ahead with the strategy of reducing cost and increasing customer satisfaction, following attitudes would be desired by the airlines. Operational Efficiency High productivity Customer oriented Commitment towards a common goal Loyalty

Job satisfaction Trust between employer and union/employees Job Security

In order to get more from less, the operational efficiency would be desired. Higher productivity would lead to making the company a cost cutter and help them focus on efficiency. It would also lead them to focus on system control and clarify work specifications. Having a common goal that is shared between the management and workers would enhance the chances of realization of the goal through commitment. The management would also espouse that the workers are loyal to the airlines, are satisfied with the work they are doing and have trust in the management. Job security was an attitude that was already prevailing in the organization and the management would want that to continue. HR Initiatives to be taken The management should try to make the performance based pay more lucrative to the employees. This could be done by giving specific job descriptions. Effective goal setting should be initiated in the organization which will help the employees work towards achieving a goal which is entwined with that of the organization. Performance appraisals should be done taking into consideration the goals met by the team during the period of evaluation. The wages that were given should be benchmarked with the industry and employees shown the difference that AA was providing them with higher wages than the industry average. This would increase the loyalty and trust factor between the employees and the management. HR should make the employees accountable for what they do. Penalty should be given to the employees for non-performance. This can be done by initiating a daily reporting system wherein the employees work is recorded and signed off by the supervisor. Any complaint from the customer or the management would not go unnoticed and the employee would be held responsible for it. This way, all the employees will try to improve their productivity and minimize their mistakes. On the contrary, management should take into consideration situations which are not in control of employees while dealing with non performance. Eg. bad weather, air traffic situations. Proper standards should be set by the management in deciding the performance of all the employees. Bonus that is to be disbursed among the employees should be made more objective. Metrics should be kept in place which will measure the productivity of teams and bonuses should be given accordingly. Customer feedback should be taken and based on the rating, the bonus could be distributed. Since there is a lot of discomfort amongst the employees as far as wage disparity is concerned, Management can keep the policy transparent and make the employees understands the reason behind the difference between the wages if any. TWU, agents etc should be made to understand the reason behind wage disparity between them and the pilots (eg. Pilots get more share because of the skills, risk involved, kind of job etc). This will lead to more trust and healthy work environment.

Last but not the least management should ensure that their employees across all levels are engaged in their work. It is very important for management to have high engagement levels amongst employees. Management can ensure this by various means like: communication and information flow Intangible benefits (Recognition eg. Employee of the month) Family Welfare Programs Such initiatives can offset the risks involved in keeping the two tier wage system. Also management can chalk out a career plan for their employees so that they are less threatened with the uncertainty and feel more secured in their job. As far as relationship with unions is considered, management should ensure a cordial relationship with them. At the same time they should see to it that the unions do not have very high bargaining power as it can create chaos for the management if they go on a strike. As it is the industry is going through a slow down and difficult times. Management can achieve this by forming a works committee or a joint management council or having a uniform procedure using a union contract etc. This will ensure that the employees are involved in the management decisions in some capacity which will thereby reduce unions bargaining power.