Topic of the Week: Do You Like Delta’s Pay Raise?

Delta

Delta announced what, on the surface, looks like big pay raises for non-union employees this week. Wages will rise 14.5 percent. In addition, Delta will match 401k contributions at a rate of up to 6 percent of salary (vs 5 percent previously). Of course, there is a catch. While employees will still get 10 percent of all profits, the threshold for moving up to the 20 percent level changes. Today, 20 percent of any annual profits over $2.5 billion goes to employees. Going forward, only the amount of profit above the prior year’s level will be paid at 20 percent. So it pays on improved profit, not just high overall profit.

Pilots didn’t like when management tried to reduce profit-sharing in its last rejected contract, but this is a bit different than that anyway. Do you like it? Would you trade profit-sharing for wages?

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26 comments on “Topic of the Week: Do You Like Delta’s Pay Raise?

  1. I think it’s a bad idea for both employees and management but uncertain for shareholders – it makes employees think much less about the profitability of the company and focus much more on their salary.

    In effect it’s saying that if the employees work really hard one year then they lose much of the potential for 20 percent of profits in the next year. The result is that it is no longer worth doing any big sacrifices in a single year to raise profits – any future changes in how people work are likely to be slow and gradual instead with reluctance to accept big change.

    1. I’ve never understood the theory that profit sharing, versus a salary, somehow improves one’s work ethic in an environment where there is not 1) a direct correlation betweens one’s work and profit/billing 2) not structured as eat what you kill 3) there is no worker control in expenses or strategic decisions.

      A flight attendant is not in the same position, like say a lawyer, to significantly improve their companies income through their work. A lawyer’s billable, or a physician’s procedures, are a direct result of the individual themselves. A flight attendant has minimal to no control over the butts in the seat, and while great service helps, you travel for a reason, not jus to get on a plane, so it is unlikely that will increase repeat business.

  2. The real news is the 14.5% pay raise. Many times I’ve had an employer offer a bonus in lieu of raises because it costs much less long term and is a one time payroll expense. Profit sharing is no different, it’s a singular annual entity.

    There are macro factors out of control of employees that can affect profits, while hourly or salary wages are much more dependable. I’ll always take a raise over a one time bonus. Arguing over profit sharing seems short sighted to me while a 14% raise is quite significant in the private sector.

  3. It is always a tricky balance. It is nice to incentivize employees to look at company performance, but let’s be honest – one gate agent or one engineer or one analyst is not moving the needle on corporate results and so to compensate them for those corporate results (vs. individual ones that bubble up) can be unfair. I think they just got a very large pay raise which is something to celebrate.

    The downside to profit sharing is that everyone wants their share in the good times claiming they made the results happen, but then complains in the bad times talking about executives who failed.

  4. As a delta employee I do my job the best I can everyday. The increased base pay is much better for me. Profit sharing is dependant on many factors I have no influence on like fuel cost. It’s cheap now so profits are good….something bad happens and fuel goes up…..profits will go down.

    1. I agree, and I’m happy to see people compensated day in, day out for working for the customers. I am an Alaska customer (they go everywhere I want to go and their MVP program is outstanding) but I think this will make Delta workers and therefore Delta customers happier.

  5. Why would pilots dislike this? Employees are always better off with higher base wages vs bonuses that are tied to performance or profitability. And, you know Delta won’t be cutting non-union wages anytime soon unless there are dire circumstances, in order to keep them from organizing. I’m just surprised of the big increases. Yes, Delta et al are doing well, but at some point there will be another SARS, or oil price spike, or what not, and they’ll be in over their heads with huge labor costs. Giving huge base wage increases was an issue that got United into a lot of problems in the 90s/early 2000s (esp. with its pilots, who got spoiled, and were then not willing to give any back when the sh*t hit the fan). It’s nice for workers in the short-term, but it’s a risky way to go.

  6. This is an industry where the people at the bottom (gate agents, flight attendants, etc) took very big pay cuts to get the company through bankruptcy and 9/11 and should be rewarded for bringing it back. While it’s not as big of a deal as Delta (or its PR people) are making it I think it’s a step in the right direction (if you look at the 15% profit sharing from last year it’s more of a little change).

    As for the pilots the contract rejmection is more than about money. It was more about JV flying and various work rules.

  7. Tricky one, do you trade stability and predictable wages for peace of mind or vest in the company’s potential successful years with big payouts? It’s a bit like being a shareholder but then again employees are stakeholders in the company anyway.

    1. The phrasing should be “more predictable wages” because the company can whack them at its discretion.

      It’s just funny (or not, actually) that the company is revising its profit sharing program when it’s actually paying out profit sharing.

  8. I generally figure that employees are better off just being paid fairly for their work. If they want to be shareholders, too, they can buy stock with their wages. So I’d call this a good step.

    1. Same here. The other reality is that by and large, line workers’ performance only has a loose correlation with profitability. When I worked on the ramp, there were things I could do to reduce profit (damage aircraft, lose bags, make flights go out late) but little I could do to actually increase profit. I could do everything right, and the airline could still lose money.

      I’m ok with department-specific performance goals, but even then, meeting my goals doesn’t mean the company made a profit, which may very well mean that I worked hard and got no money.

      1. Yup.

        Doug Parker made a compelling (to me) case not too long ago for wages instead of profit sharing for most employees. As other have noted, the company’s share price has very little to do with how any individual employee does his/her job. Therefore, it doesn’t make much sense to tie the employees’ compensation to the share price. Customer service will benefit from happy employees, and pay is a significant factor in employee happiness. Instead, pay the employees a predictable wage, perhaps with rewards (monetary or otherwise) for doing things that actually are under the employees’ control well.

        And from an employee’s point of view, it’s lousy financial planning to be overly invested in your employer (any employer), which is effectively what profit sharing is. Get a regular wage and invest savings in a diversified portfolio.

  9. IMHO, it’s 6 of one, half a dozen of the other. When times are tough, the airline can and will cut your wages just as they cut the profit sharing when times are good. There’s no way for non-union employees to come out ahead.

    In terms of incentives for line workers to “work hard” well, what does that even mean? In a pure profit sharing environment, does that mean the customer facing ones should never ever issue fee waivers? Should they be collecting every single overweight baggage fee? Or should they look the other way when someone checks a 51 lb bag where the limit is 50 lbs?

  10. Good for employees. Bad for customers. Good to employees = pay raise = higher costs = less profit = angry shareholders / employees = need more revenue = higher fares / ancillary charges = bad for customer.

    1. If you want to fly the cheapest airline, fly Spirit or the like. I for one would like my employees happy, it just helps out in general.

      If you want the cheapest, fly the cheapest.

      1. Never mentioned flying the cheapest airline. Delta’s costs are going to rise with their pay raises. Who’s going to pay for them? Delta’s profits or fares / fees?

        Happy employees don’t always equal happy customers. I’ve been watching Delta fares vs. UA & AA for a trip I have coming up. DL’s fares are $150-$400 more. Their happy employees aren’t going to make my wallet happy for the same services on the other airlines.

        1. And before you say anything, I’ve flown all 3 in the same class of service for similar distances and found….no difference. Only difference was my wallet, which DL wanted more out of.

          1. Well DL knows across the board that they’re able to get a higher fare than their competitors. So they get it, and can use some of that to pay their employees more.

  11. I work for a competing airline whose profit sharing was taken away in exchange for a 5% raise, so DL employees getting a 14.5% raise and keeping 10% profit sharing is definitely a win/win for them. Trust me, it’s tough to swallow hearing about “record profits” and the billions of dollars made right after the airline finally becomes profitable and right after the first payout in years, they take it away.

  12. reason DL fares may be higher= because their on time performance is better, this is why business travelers that cannot afford to be late for a meeting prefer delta.

  13. as a regional employee I am inclined to thumbs down any substantial raises in the airline industry while regional are still being squeezed for concessions it was extremely shocking to see Envoy take a recessionary contract and at the same time seeing American getting substantial pay-raises. Hopefully as Delta start to bring more flying in house and less competition on the regional level this race to the bottom will be put to an end.

    1. don’t feel so bad, mainline gets the profits and the pay raise, but the contractors who also look and do the same work as mainline doesn’t get jack.

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