When American Airlines chief executive Doug Parker announced on Wednesday that the carrier will be offering a profit sharing plan to its employees, my first question to him was what changed your mind.
Parker routinely told employees, Wall Street investors and the media that he firmly believed that airline workers deserved to be compensated with higher wages in their weekly pay checks instead of waiting for lump-sum payments at the end of the year if an airline was profitable.
He says he still believes higher wages are the right way to compensate employees but realizes that the lack of a profit sharing plan at American was hurting management’s relationship with the carrier’s front-line workers.
Here’s more from my interview with Parker about the new profit sharing plan.
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ST: What changed your mind on having a profit sharing plan for employees?
Parker: We listened to our team and we spent a lot of time, as I think you know, all of us, out talking to our employees and this issue has continued to come up and every time it does, we walk through, and I personally, me more than anybody else, have been in the position of walking through the rationale as to why we thought it made more sense to have a philosophy around, putting it all in the base wages and not having our employees wait for something later that may or may not materialize, depending on airline profitability but take that same amount of what the company views as compensation and make it less at risk. That philosophy, when we would describe it...first off, we haven’t changed that philosophy. I’ll get to that later. That philosophy remains and we believe that still.
But if you walk through that issue with employees and with our team members, you know, they would get it. Absolutely. We would get nodding heads in the room. People understand and understand the philosophy. But you always get the sense that it didn’t really, really resonate. Everyone would get it in their minds but we weren’t getting it in their hearts. And you could just tell by talking to people. No one would say ‘That’s just wrong.’ I think everyone gets it on an analytical perspective, but like I said. You’d get it in their mind but you couldn’t get in their hearts...But the result of that is we thought it was hurting our ability to really build the team that we want to. While everyone can get there on an analytical basis, you just couldn’t help but have the sense that we were losing the opportunity to really have everyone feel like shared sacrifice and team building and pulling together.
Because through our negotiations we had put in place higher base pay and had no profit sharing plan and other airlines in their negotiations had lower base pay and profit sharing. We were the ones who didn’t have one and it left us with this...perhaps less of an ability to make everybody feel like we’re all in this together. So we listened to this is the short answer.
What I think is important here is, and what I feel good about, as a result of listening, we’re doing this not through the old labor negotiations process the way that every other airline got their profit sharing. We’ve got negotiated contracts in place and they don’t have profit sharing in them and we’re not asking for anything as a result. We’re just going to add profit sharing to all of our employees. It’s indicative of the new American. We have listened...
The other point on this is what I said before, it doesn’t change the argument we made in the past. We continue to believe the best way to pay the people at American Airlines is to give them a higher, rates that are above their peers at their peer airlines when we negotiate a contract. And on top of that we’ll have this profit sharing. We still believe that’s the best way to compensate people we just also believe that we were missing a piece of it, so we’re going to have the best of both.
ST: Did the board of directors have to vote and approve this plan?
Parker: What our board realizes as well as the management team is this is good for our shareholders because we are removed to a world now where what we know is the biggest difference in product going forward is going to be employee engagement and making sure that those of us that has the employees that are the most engaged and excited and have the tools they need to do their jobs and feel empowered to do those jobs are going to be the biggest difference in what airlines consumers choose to fly...It’s a big expense and it involves a major decision. It was a decision, that at the end of the day, was easy for us to make because we know it’s the right thing to do.
ST: How do you think the announcement of profit sharing will affect the culture issues at American?
Parker: We wouldn’t do it if we didn’t think it would help us do a better job of bringing the team together. That is why we’re doing it. We want to make sure, a couple of things, really that I think this does for the team 1.) it shows them it’s a new American. Never in the past would American or any other airline would the company have announced setting aside 5 percent of its earnings for its employees without negotiations. Almost 90 percent of our employes are unionize. We didn’t talk to a union about this. We didn’t ask anybody for anything for it. We’re just doing it because we think it’s the right thing to do. So that’s new. So what I’m hopeful is the employees recognize this is our indication that this is a new American. And 2.) they recognize that we listened. And they listened.
ST: How do you expect Wall Street to react to the profit sharing announcement?
Parker: They should view it as a positive because we are indeed in their world where the biggest difference you can make for your shareholders is have the best product. And we’re all doing all sorts of things such as investing in $3 billion over and above new airplanes in things like lie-flat seats and Wi-Fi and Admirals Clubs and things that are really important to our customers. What matters the most to our customers is the engagement of our employees, giving them the tools they need to do their jobs, having them excited about being there for their jobs to take care of our customers and make sure they are safe and make sure they have what they need and make sure their flights are on time that’s what most important to our customers and our employees drive that. So us doing something that gets our employees more engaged is good for our shareholders and I think they should recognize that.