After two years of saying higher wages was a better way to reward airline employees , American Airlines chief executive Doug Parker announced it will offer a profit-sharing plan to over 110,000 employees.
The Fort Worth-based carrier said it will put five percent of every pre-tax dollar it earns in 2016 into a profit-sharing pool that will be shared by pilots, flight attendants, mechanics, ground workers and all non-management level employees. If American is profitable in 2016, the profit-sharing payment will be made to employees in early 2017.
“We are taking this step because we have heard from many of you that a profit-sharing plan is important to our success as a team,” American CEO Doug Parker said in a letter sent to employees on Wednesday afternoon. “By eliminating profit sharing in exchange for higher base pay rates, we inadvertently have eliminated some of our shared sense of teamwork — and that was never our intent.”
American Airlines CEO letter to employees about profit sharing
United Airlines, Delta Air Lines and Southwest Airlines all offer employees a profit-sharing plan, which generally start with ten percent of pre-tax dollars being set aside. Delta paid out $1.5 billion in profit sharing to its workers for 2015 while Southwest paid out $620 million.
American’s union workers used to have profit-sharing plans as part of their contracts in 2014, receiving an $85 million payment for the company’s performance as it exited bankruptcy. But the carrier had rarely reached the goals in the program to trigger profit payments and union leaders agreed to permanent pay raises instead of profit sharing when Parker negotiated the merger between American and US Airways.
Parker routinely told employees during meetings that he believed workers preferred fixed pay increases instead of uncertain annual payments tied to profitability.
We are not changing the philosophy that we should have higher base rates but we recognize that we should have a profit-sharing plan as well.
American Airlines CEO Doug Parker
“Everyone could get it in their minds but we weren’t getting it in their hearts …The result of that is we thought it was hurting our ability to really build the team that we want to,” said Parker said in an interview on Wednesday, referring to employee meetings where questions came up about profit sharing.
5 percent of American’s pre-tax profits will be set aside for employee profit sharing
In 2015, American generated over $7.6 billion in profits with revenues over $41 billion. When the earnings were announced, union leaders pointed out that employees, who were working hard to make the company successful, were not sharing in the company’s financial success.
“This is definitely a step in the right direction. I am pleased to see management is assigning value to employee morale and I look forward to building on this progress,”’ said Bob Ross, the president-elect of the Association of Professional Flight Attendants. In an interview last month, Ross said he believes that profit sharing should not be negotiated but simply, “part of the game plan.”
The Allied Pilots Association, which had recently complained to Parker that the “toxic culture” at American was returning, said profit sharing helps to motivate employees, who now feel that they can benefit from the company’s success.
“In ongoing contacts with industry analysts, institutional investors and the news media, APA has repeatedly cited the value of profit sharing in engaging and motivating employees,” said APA president Keith Wilson in a hotline message sent to pilots. “We have pointed out how in a service-intensive business such as ours, effective employee engagement is critical.”
The new profit-sharing plan is identical to the plan legacy American union employees ratified as part of contracts negotiated during the bankruptcy process. That profit-sharing plan never paid out as the company entered its merger with US Airways the same year.
Parker said the executive team has been discussing the possibility of implementing a profit-sharing plan for the past couple of months. American’s board of directors approved the plan this month.
“It’s the best of both,”’ Parker said. “We are not changing the philosophy that we should have higher base rates but we recognize that we should have a profit-sharing plan as well.”