VI. Your Turn: Comparing Airlines
Summary of Case
Mistakes and heroic good decisions are likely to be attributed to the pilot in most circumstances.
Learning Objective
Most of the Your Turns in earlier chapters asked students to apply their knowledge of a specific
chapter by answering real world questions. The authors move a bit further here asking students
to make deductions about the two companies based on wage figures.
Teaching Guideline
You may want to have students complete this assignment outside of class. You also could review
the information during class and break into groups or initiate a class discussion answering the
questions.
Discussion Case Questions
1. What would you deduce these two airlines believe about the importance of base wages
relative to variable pay (profit sharing)?
is that wages are lower for Delta during downturns in profitability of the firm. This will
help Delta ride out any economic downturns, but also might affect their ability to get top
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?
Why wouldn’t American use profit sharing for this group. It would be very difficult to
stable and with forecasted shortages of pilots in the future this could become important.
3. How important is seniority in each of these situations? Should the importance be more
or less? Why?
and Delta has profit sharing because of their serious brush with bankruptcy).
4. Do these airlines pay for skill acquisition? What data do you have to support your
position? Should skill acquisition be rewarded?
The skill differential is considerably bigger than the seniority differential. The different
5. Do you have any predictions about attraction and retention for each company?
should be better in the long run.
6. Does the external environment influence any of your answers?
Yes! The huge profit sharing payout is attributable almost solely to lower gas prices,
Answers to Review Questions
1. As VP of HR at Pilsner Roofing, the eleventh largest roofing company in the world, you
are experiencing turnover problems with the employees who actually install roofs
(roofers) General Manager Roy Cranston has asked you to fix the problem. While your
primary emphasis might be on having a competitive base pay, you need to decide if
there is anything you can do in the incentive department. Before you can make these
decisions, what information would you like about (a) pay (base + incentive) at major
competitors, (b) the nature of the turnover, and (c) next year’s labor budget?
Pay (base + incentive) rates for similar jobs at major competitors in the local market are
increase.
In revamping the compensation program, the first step is to convene a meeting of the
involved managers and supervisors to gather their inputs regarding the objectives of the pay
Based on the above, the first recommendation is to establish a base wage that matches the
market rate (based on salary survey data). Since employees will not be working in teams, an
individual incentive plan must be selected. The most suitable plan is lump-sum bonuses.
Since the target employees, relevant performance measures focused on this work must be
2. How is an earnings-at-risk plan different from an ordinary gain-sharing or profit
sharing plan? How might earnings-at-risk plans affect attraction and retention of
employees? How does the 2008–2010 recession affect the viability of earnings at risk
plans?
In an earnings-at-risk plan, employee base wages can be affected either positively or
shift part of the risk of doing business from the company to the employees. Employees who
have an aversion to risk, or who need to have a stable income will avoid employment
companies which had been following this plan would have met with increase in employee
dissatisfaction and high attrition. If at all companies plan to follow this plan, it would not be
3. You own Falzer’s Tool Coating Company, a high-tech firm specializing in the coating of
cutting tools (e.g., drill bits, cutting blades) to provide longer life before resharpening is
needed. You are concerned that the competition continues to develop new coating
methods and new applications of coating in different industries. You want to create a
work environment where employees offer more new product ideas, and suggest new
industries where these ideas might be applied. What type of compensation plan will
you recommend? What are some of the problems you need to be aware of?
The recommended compensation plan is based on management setting objectives that are
a new idea results in cost savings or increased profits for a company, a percentage of the
savings can be returned to the employees. Another type of incentive could be an annual
incentive plan implemented, the employees must perceive them as fair and meeting their
4. Why do the new accounting standards make stock options less popular?
As of June 2005, companies were required to report stock options as an expense. Prior to
the stock option is said to be “underwater” and is not exercised). If the executive bought the
like Cisco still report options accounting for 13 percent of profits this year, versus non-tech
companies like Microsoft, Dell Inc., Pfizer Inc., etc have either stopped granting options or
5. You are the teacher in a class where team projects account for 25 percent of course
grades. Each student is assigned to a team and that team is responsible for all team
assignments. Students comes to you and complain bitterly about one of their members
who does absolutely nothing. You know this will affect your teacher ratings if you
don’t do something about it. What should you do?
You have several choices:
b. take the information from the students and confront the malingerer, explaining that
Appendix 10-A: Profit-Sharing (401k) at Walgreens
3. The plan allows the employees to contribute up to 50 percent of their annual salary to the
Profit-Sharing Plan, up to the IRS limit.