old mentor
Member
- Joined
- Oct 5, 2005
- Posts
- 8
Rejection of the pay raise by SkyWest pilots and comments by many pilots about their work and pay ignore the economic conditions that control money flow in the airline industry. In the distant past of our profession, when airlines were growing, government subsidies substituted for lack of cost control by management, and pilots were few, airline salaries climbed without restriction. Those conditions no longer exist.
For pilots contemplating their pay scale, it is advisable to consider relevant conditions that do exist. These are best seen by considering some fundamental , economic facts that apply to employees of any for-profit or non-government entity operating in a free market (that's us). Money is essential for a company to exist and operate as a going concern. The money has to come from 2 sources: investors and customers. Neither source just gives its money freely to a company. People in the company have to earn it;if they do not, investors and customers direct their money to companies that do.
Successful investors put and leave their money in a company only if there is a return on investment that is commensurate with the risk. If an investor can earn 5% return on a zero-risk government obligation, he/she will not invest in a company where the maximum potential return is not greater than 5%.
For a customer to spend his/her money with a non-monopoly company (that's us) he/she must believe that he/she receives good value for the goods or services purchased. To evaluate such value, customers compare prices among competitors. Competition between companies is the constant struggle for survival that controls the price limit a company can charge for its service or product.
A long-lived company must make a profit - take in more than it spends. Labor expenses are influenced by all the other categories of a company's expenses. Categories of expenses are not equal in terms of control by the company. Setting of individual salaries is preceded by a budget process. This involves making a projection of all income, expenses, and other obligations, then setting a budget amount for each category of expense, one of which is total labor.
While the budgetary amount for total labor is commonly discussed in salary negotiations, the person responsible for the company's financial health has ultimate responsibility to set the amount of total labor, considering both the company's past financial performance and estimated future financial performance. In determining feasibility of increasing the total labor budget, it is near pointless to say, "The company had a profit of $x last year, so salaries should increase". "A profit of $x" is meaningless without considering the capital investment that produced that profit. Thus, financial performance is evaluated with terms such as, "return on investment", "return on shareholders equity", and "profit margin". To decide whether your company's total labor cost is reasonable, look at its recent past and estimated future financial performance using the above terms. Companies that budget for labor and other categories of expense based on past performance alone, without accurate estimates of the future, often experience unpleasant events such as layoffs, salary reductions, shrinkage, and failure.
Allocation of the company's total labor cost among individual employees or classifications of employees is where salary negotiations arise. An individual's salary is properly proportional to the amount of the company's profit that results from that individual's efforts and is influenced by the availability/cost of other individuals willing and able to perform the job. The necessity for an employee to "carry his/her load" and contribute to the company's profit is a continuing requirement, as the company's need for profit is a continuing requirement. The concept of "I have paid my dues by longevity and therefore I should be paid more than my contribution to the company's profit is worth" is not a valid argument for a particular salary leve. If a company yields to that argument, the resulting paycheck is a charitable donation and not pay for service received. Past perfomance is a legitimate criterion for us to recognize and respect fellow employees, but company survival depends upon performance today and tomorrow.
An employee's contribution to company profit arises not only from his/her direct labor, but also through the impact he/she has on other employees' performance. Consider 2 empoyees in identical jobs: one who enhances the performance of others is more valuable than one who degrades others' performance. What coach of a sports team would keep a player who degrades the performance of others by expressing discontent, defeatism, or disloyalty? This kind of freedom of speech leads to freedom from groceries.
Nice things such as pay increases, job security, and pleasant working conditions come only through a company that is financially successful - they cannot be provided by a union, government legislation, childish actions, or whining. As we have seen, there are conditions, events, and mistakes that can destroy companies, even though all levels of employees were doing their best. That's risk. Pilots know risks. We minimize the risk of corporate and individual failure by making our best effort toward company strenth and encouraging our fellow employees to do the same.
For pilots contemplating their pay scale, it is advisable to consider relevant conditions that do exist. These are best seen by considering some fundamental , economic facts that apply to employees of any for-profit or non-government entity operating in a free market (that's us). Money is essential for a company to exist and operate as a going concern. The money has to come from 2 sources: investors and customers. Neither source just gives its money freely to a company. People in the company have to earn it;if they do not, investors and customers direct their money to companies that do.
Successful investors put and leave their money in a company only if there is a return on investment that is commensurate with the risk. If an investor can earn 5% return on a zero-risk government obligation, he/she will not invest in a company where the maximum potential return is not greater than 5%.
For a customer to spend his/her money with a non-monopoly company (that's us) he/she must believe that he/she receives good value for the goods or services purchased. To evaluate such value, customers compare prices among competitors. Competition between companies is the constant struggle for survival that controls the price limit a company can charge for its service or product.
A long-lived company must make a profit - take in more than it spends. Labor expenses are influenced by all the other categories of a company's expenses. Categories of expenses are not equal in terms of control by the company. Setting of individual salaries is preceded by a budget process. This involves making a projection of all income, expenses, and other obligations, then setting a budget amount for each category of expense, one of which is total labor.
While the budgetary amount for total labor is commonly discussed in salary negotiations, the person responsible for the company's financial health has ultimate responsibility to set the amount of total labor, considering both the company's past financial performance and estimated future financial performance. In determining feasibility of increasing the total labor budget, it is near pointless to say, "The company had a profit of $x last year, so salaries should increase". "A profit of $x" is meaningless without considering the capital investment that produced that profit. Thus, financial performance is evaluated with terms such as, "return on investment", "return on shareholders equity", and "profit margin". To decide whether your company's total labor cost is reasonable, look at its recent past and estimated future financial performance using the above terms. Companies that budget for labor and other categories of expense based on past performance alone, without accurate estimates of the future, often experience unpleasant events such as layoffs, salary reductions, shrinkage, and failure.
Allocation of the company's total labor cost among individual employees or classifications of employees is where salary negotiations arise. An individual's salary is properly proportional to the amount of the company's profit that results from that individual's efforts and is influenced by the availability/cost of other individuals willing and able to perform the job. The necessity for an employee to "carry his/her load" and contribute to the company's profit is a continuing requirement, as the company's need for profit is a continuing requirement. The concept of "I have paid my dues by longevity and therefore I should be paid more than my contribution to the company's profit is worth" is not a valid argument for a particular salary leve. If a company yields to that argument, the resulting paycheck is a charitable donation and not pay for service received. Past perfomance is a legitimate criterion for us to recognize and respect fellow employees, but company survival depends upon performance today and tomorrow.
An employee's contribution to company profit arises not only from his/her direct labor, but also through the impact he/she has on other employees' performance. Consider 2 empoyees in identical jobs: one who enhances the performance of others is more valuable than one who degrades others' performance. What coach of a sports team would keep a player who degrades the performance of others by expressing discontent, defeatism, or disloyalty? This kind of freedom of speech leads to freedom from groceries.
Nice things such as pay increases, job security, and pleasant working conditions come only through a company that is financially successful - they cannot be provided by a union, government legislation, childish actions, or whining. As we have seen, there are conditions, events, and mistakes that can destroy companies, even though all levels of employees were doing their best. That's risk. Pilots know risks. We minimize the risk of corporate and individual failure by making our best effort toward company strenth and encouraging our fellow employees to do the same.
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