Profit Sharing Disparities

[eolesen]

CO just changed their profit sharing plan for the next five years, going with the same formula used by DL and WN.

Here's how profit sharing for the Big Six stacks up:

	 Percent of pre-tax income paid under program 
DL	15 % of first $2.5 B annual pre-tax income
	  20% shared above $2.5B	  
CO	15% of pre-tax income
WN	15% of pre-tax income
US	10% of annual pre-tax profit for margins of 0.1- 10 %
UA	 0% of the first $10MM in pre-tax earnings
	  15% of pre-tax earnings exceeding $10MM
AA	 0% of first $500 MM in pre-tax earnings
	   15% of pre-tax earnings over $500 MM

DL, CO, WN, and US are the most likely to pay out, since it's based off of pre-tax income without any qualifiers.

UA and AA have thresholds beyond a simple pre-tax profit. I don't know why UA's threshold is there and so small. but AA's threshold has proven insurmountable in the past few years.

Seems to me matching DL, CO, and WN would be a simple change and a lot less likely to be questioned by employees.

 

[FWAAA]

The Jan proposal to the TWU included the following:

•THE PLAN ACCUMULATES:

•30% OF THE FIRST $250M
•25% OF $250M TO $500M
•20% OF >$500M

http://aanegotiations.com/documents/V1Mand...ATED_011310.pdf

Didn't CO or one of the other airlines have a similarly stepped profit sharing program?

 

[jersey777]

AA has also proposed a much improved profit sharing plan with the APFA. The problem I have with this plan is that I want a raise that I can count on to pay my bills day in and day out. I don't want a profit sharing plan that replaces a structural increase in wages. I want a profit sharing plan that complements real wage increases.


As a history reminder, some of the best profit sharing checks the flight attendants received in the 1990's occurred while profit sharing was not a contractual issue. Once upon a time, profit sharing was a reward for a job well done and was not used as a bargaining chip.

 

[BoeingBoy]

DL, CO, WN, and US are the most likely to pay out, since it's based off of pre-tax income without any qualifiers.

I don't think it's what you meant by "qualifiers" - i.e. a minimum amount of profit before any profit sharing is paid - but US does calculate it on pretax profit excluding special items. That could cut either way - a profit due to special items wouldn't pay profit sharing or a loss due to special items could pay profit sharing.

Jim

 

[Hopeful]

The Jan proposal to the TWU included the following:

•THE PLAN ACCUMULATES:

•30% OF THE FIRST $250M
•25% OF $250M TO $500M
•20% OF >$500M



This may sound quite generous to some. But let's look at it.
Let's start with 30% of $250,000,000.00....

$75,000,000.00...Still sounds generous.
But depending on how each worker's payout is calculated be it salary based or the same for everyone, the generosity diminishes.

Suppose the $75m is divided by, for instance 75,000 employees, ( I am not sure of the exact workforce count) leaves only a $1000 each.
Some may say it is better than nothing....

For me, I would rather take the $1000 in salary as it will affect OT and Holiday pay and, more importantly, retirement pay.

Personally, I do not want profit sharing nor do I want stock options as part of my compensation. Give me the straight increase and pay and leave all the "feel good" performance rewards to the suits.

This reward for performance is a joke. "give us 100% and we reward you when we make money....blah blah blah."

Using the above example, 75,000 people would share $75,000,000.00, but as we all know from past practice, 400 or so top managers have shared wAAy more than that.


Sound fair?

 

[eolesen]

I don't think it's what you meant by "qualifiers" - i.e. a minimum amount of profit before any profit sharing is paid - but US does calculate it on pretax profit excluding special items. That could cut either way - a profit due to special items wouldn't pay profit sharing or a loss due to special items could pay profit sharing.

Maybe I need to dig into the SEC filings a little deeper, but my understanding is that all four of the plans I mentioned are based on operating profit before specials.

 

[BoeingBoy]

To get the details, you have to go to the contracts, specifically the transition agreement which modified certain parts of both East and West contracts. The pilot's contracts set the profit sharing pool which is then divided by employee group and finally by the members of that group. Each group's percentage is based on their percentage of total concessions from BK2.

"A profit sharing pool, based on the consolidated profits of US Airways Group, to be established at 10% of pre-tax profit excluding unusual items (as reported, according to GAAP accounting practices) for pre-tax margins ranging from 0.1% to 10%. In addition to the above, 15% of pre-tax profit excluding unusual items (as reported, according to GAAP accounting practices) for pre-tax margins above 10%."

The 0.1% profit margin effectively sets a roughly $10-12 million earnings level before profit sharing is paid since US has been running between $10 and $12 billion a year revenue. Not really a high enough threshold to be worth talking about.

Jim

 

[Hopeful]

The 0.1% profit margin effectively sets a roughly $10-12 million earnings level before profit sharing is paid since US has been running between $10 and $12 billion a year revenue. Not really a high enough threshold to be worth talking about.

Jim

Let's simplify this debate.....Just like the financial wizards of Wall St. like to refer to the bottom line in "cents on the dollar," ......

What are we talking here? HOW MUCH PER EMPLOYEE IS PROFIT SHARING ON AVERAGE?

 

[BoeingBoy]

I have no idea. First, profit sharing has only been paid 2 years of the 4 since it went into effect. Second, each group gets a defined share of the profit sharing pool and there are different numbers of employees in each group. Last, different unionized groups each decide how to distribute that group's share of the pool, so one may elect to give every member of the group an equal share while another may base each member's share on W-2 income. Finally, even if you want to average all that out by dividing the total profit sharing by the number of total employees, there's no absolutely accurate number of total employees that get a share of the profit sharing publicly available.

But if you want to, you can do a rough average. The total amount of profit sharing should be in the annual reports for 2006 and 2007 (the only profitable years since profit sharing was put in place), as well as some indication of total employees at the end of the year.

My only point was that US does put a qualifier on the profit sharing and that at US it's not just pre-tax profit margin that counts.

Jim

 

[Hopeful]

The point I am trying to make is that the company, in the case of AA's proposal to the TWU, like to throw out 30% of this, 25% of that, blah blah blah. It makes them sound so generous especially when the are playing the PR game.
But in my example of 75,000 workers sharing $75,000,000 where each person getting $1000 is not so generous in actuality.

This topic should be about profit sharing disparities between management and labor rather than disparities between companies.

 

[FWAAA]

Well, the grownups were having a discussion about the different airlines' profit sharing plans . . .

This topic should be about profit sharing disparities between management and labor rather than disparities between companies.

Nearly every other thread in this forum is a rant about how little you make and how much management makes. This thread's topic is a comparison of AA's profit sharing plan with other airlines' plans. As always, feel free to begin a thread to discuss your favorite topic.

Back to the topic: In 1999, AA paid out a record $341 million in profit sharing based on 1998's profits; I don't have the terms of the 1984 profit sharing plan in front of me, so I don't know if it was based on AA's net profit of $1.063 billion or if it was based on AMR's $1.314 billion. Either way, that payout was more generous than even the recent proposal to the TWU. At the time, AA trumpeted that most employees would receive about a month's pay, on average. IIRC, many employees received at least $3,000 that year.

 

[BoeingBoy]

This topic should be about profit sharing disparities between management and labor rather than disparities between companies.

While you're right, don't hold your breath waiting for a change. For whatever reason, rightly or wrongly, a BOD will only have a few "qualified" candidates for the exec slots when a replacement is needed/desired and none of those are going to take the job for what the average worker at that company makes - whether salary, profit sharing or whatever.

Plus when dealing with just a small number of execs the profit sharing pool could be 1% of what the rank and file gets and the individual payout would still be much larger. Your $75 million that yields $1,000 per employee would be $750,000 total and $50,000 each for 15 execs.

Jim

 

[Hopeful]

Plus when dealing with just a small number of execs the profit sharing pool could be 1% of what the rank and file gets and the individual payout would still be much larger. Your $75 million that yields $1,000 per employee would be $750,000 total and $50,000 each for 15 execs.

Jim

Well put. the executives are better than anyone else because of their titles. I could care less what they earned prior to our concessions...
But when they try to sell a contract with profit sharing as a "performance" payout, I have to be critical because the formulas they use are way too disproportionate.

They will post the latest updates on AANEGOTIATIONS and people will read it and say "not bad, these unions are greedy for rejecting such a generous offer.

But there will always be those who say "Yeah, $50,000 per top 15 execs is fair and $1000 per average lowlife worker is fair because the suits have more education, and compared to executive3s at other firms, blah blah blah,,,,"

Corporations are very skilled at the PR game. And the current state of the economy makes their message that much easier to get out.

I suggest we all continue to show the company exactly how we fill every time we got to work.

 

[BoeingBoy]

Well put. the executives are better than anyone else because of their titles.

Well...I'd put it a little differently. The execs have a track record at the upper levels of a large company. They also have an earnings history and generally won't take less for doing the same or higher level job. They also know that there's not much chance of someone with more or less the same background, experience, etc taking the job for much if any less.

Compare that to the average applicant for pilot, FA, ramper, agent, whatever. They are competing with 10-20-whatever other people for the same job and would often take the job at lower compensation if it was a "lowest bidder gets the job" proposition.

Put it all together - these points and those in my other post - and add in the "old boys club" and you've got the situation where the execs make what they do while you make what you do (or the pilots/rampers/etc).

Doesn't mean the wide gulf between exec and worker compensation is right, just that it's not going to change meaningfully anytime soon. To me a worker only a few choices - let the situation eat away at themand become bitter, accept it as a fact of life and get the best they can for themselves and their group (which may mean the least possible reduction), or go somewhere else/do something else where the grass looks greener.

Jim

 

[Hopeful]

BoeingBoy, the execs have created their own worth. they sit on each others BOD compensation committees and, well, you know the rest,,,,,One hand washes the other!