LETTER FROM AMERICA: Lack of transparency has far-reaching consequences

American Airlines' recent failure to be open and transparent over the issue of senior executive bonuses could damage the firm's relationship with employees, writes US commentator Paul Holmes.

Ever wonder why Southwest Airlines, the most heavily unionised player in a deeply troubled industry, is the most profitable of all the major American carriers?

There are lots of reasons, but one is that it's hard to imagine Southwest's management making an error in judgement as monumentally stupid as that which may condemn rival American Airlines to bankruptcy.

Two weeks ago, American union members voted to accept a plan that called for £1.1bn of concessions to help the company stave off bankruptcy. Within days, labour leaders learned that at the same time they were asking members to make sacrifices, American was putting in place huge retention bonuses for seven top managers and creating a special trust to protect the pensions of 45 senior executives.

Workers were outraged, and by the end of last week Association of Professional Flight Attendants president John Ward had sent American chairman and CEO Don Carty a letter, telling him the union intended to reballot its membership.

Given that the airline's plan was approved by the slimmest of margins, and that workers' confidence in Carty and his team must now be about zero, it's possible the flight attendants will now reject the plan.

There's certainly room for debate about whether the retention bonuses were appropriate. They are not unusual in these circumstances, and are often justified on the grounds that key personnel might otherwise be lured away from a troubled company.

On the other hand, they are rarely tied to performance, and undermine the notion that 'we are all in this together', which is key to motivating employees to rally around.

But there's no room for discussion about the company's failure to be up front about the bonuses. Executive compensation should be totally transparent, because it can completely undermine the relationship between an organisation and its employees.

If management doesn't believe it can convince employees its compensation is justified, the chances are it isn't.

To his credit, Carty quickly announced he was scrapping the executive compensation plan (although not the pension protection scheme) and admitted that failing to disclose it during the negotiations was a big mistake.

Not surprisingly, Ward was unimpressed. He said: 'No doubt, this cancellation is only a result of the fact that they were caught with their hands in the cookie jar.'

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