Airline Companies: Remuneration and Effective Performance

Executive summary

Human resource (HR) management is the most critical link between organisations and customers. The HR department deals with the well-being of employees. Employers are increasingly becoming aware of the fact that employees are the most valuable assets in an organisation. Therefore, companies have come up with diverse ways to motivate employees in a bid to remain competitive using unparalleled service delivery, which is one of the elements that customers consider when making purchase decisions. In the modern world of globalisation, customers know what they want in terms of preferences and choice. Therefore, it is critical for employees to offer exceptional services in a bid to gain the customers’ trust and loyalty. In essence, it is fundamental for organisations to invest in employee motivation in order to gain competitive advantage.

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Employees interact with customers directly and the quality of such interaction determines if a client will make a repeat purchase or not. Repeat clients are the pillars of any organisation because, customer acquisition in very costly in most cases. Therefore, it is important for organisations to keep their employees motivated for positive outcomes. This research explores how remuneration and performance management are approached in Hainan Airlines, Delta Airlines, and Southwest Airlines. All airlines use recognition and reward programmes to recognise and motivate employees. Furthermore, they concentrate on teaching and progress as well as decent working circumstances to appeal and preserve a talented labour force. Managers use performance management to improve individual outcome and align workers towards the achievement of the set goals.

Introduction

In the contemporary globalised world, organisations are facing challenges related to competitive advantage. Modern businesses are confronted with the growing need to motivate employees due to changing paradigms on transparency and effective remuneration. The global marketplace has changed dramatically and in order to keep up with the changing employees’ needs, managers have established effective performance and remuneration management. Competitiveness has become one of the most crucial assets for organisations. Businesses are operating in a turbulent environment, which requires effective performance management. Organisations see performance management as a tool for motivation and talent management in order to gain a strategic business advantage.

Effective performance management requires HRM to align individual performance with the goals and objectives of a firm in a bid to achieve competitive advantage. Remuneration and performance management should encourage employees to demonstrate behaviours that are consistent with organisational goals. Moreover, effective performance management should support organisational culture by aligning all workers towards achieving strategic goals of the firm. In addition, remuneration and performance management should be entrenched on reshaping employees’ behaviour so that they remain focused in achieving the set goals. However, keeping reward and performance management at the desired level within the organisation and behaviour outcome is not easy. Failure to put in place effective reward system can result in systemic bad behaviour. This paper evaluates performance management and reward system in Delta Airlines, Hainan Airlines, and Southwest Airlines in order to establish how these factors contribute towards creating competitive advantage.

Reward and performance management literature

There has been a growing emphasis on effective performance management where employees are exerting more pressure to be engaged in reward strategy. As highlighted by Cadwallader et al. (2010), this pressure resonates from the fact that more and more employees are mobile and they are often assertive about what they expect from organisations. Effective reward system ensures that employees are motivated to deliver task behaviour. Remuneration can be defined as the total reward paid to employees for services rendered. Compensation comprises both secured and adjustable constituents of the workers’ welfare. However, managers must seek new ways to maintain an optimal combination in order to maximise the employees’ performance.

On the other hand, performance management can be referred to as the process by which firms goals and objectives cascaded down to an individual employee’s key performance areas (Schermerhorn 2011). Individual performance targets are then linked to the workers’ performance to determine the rate of remuneration. According to Begbie, Bussin, and Schurink (2011), the main objective of performance management is to better individual outcome, thus improving organisational performance. In order to achieve an effective performance management system, all workers must align with organisational mission and objective through effective communication.

Role of remuneration and performance management in motivating employees

The firms’ reward systems moderate the effect of the workers’ perception toward the rendered services. The main aim of remuneration is to attract, retain, and motive employees to deliver toward organisational goals and objectives (Shields 2007). In order to attain competitive advantage through the human resource, managers must engage workers. Engaging employees heightens the emotional connection between the organisation and workers. In addition, it encourages employees to exercise unrestricted effort in their work. Biron and Bamberger (2010) postulate that organisations that engage workers when coming up with reward system increase the employees’ productivity, reduce turnover, and enhance the employees’ loyalty toward the organisation. Consequently, a firm gains a competitive advantage since all workers are motivated towards a common goal.

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According to Resurreccion (2012, p. 21), the reward system ‘can be explained by equity theory, which considers remuneration as a measure of input against which employee reward is compared’. As Tippet and Kluvers (2009) posit, this mechanism is usually reflected on the employees’ performance either in the short or long-term. The equity theory extends other motivation theories. It incorporates how employees perceive the practice of equity within an organisation. Employees compare themselves with others within the organisation. This comparativeness often results in a sense of what is fair based on the inputs or efforts that a person puts in work and the outputs or rewards gained in return (Waddell, Jones & George 2011).

Analysing the effect of equity sensitivity within an organisation based on the equity theory, Yiu and Law (2011) found that where employees perceived equity in the organisation, there were higher satisfactory employee behaviour outcomes as compared to situations where they perceived the lack of it. Kreitner and Kinicki (2009) agree with this viewpoint by noting that the equity theory is important in determining the employees’ motivation since pay, rewards, recognition, or working conditions are not enough in motivating employees. Employees need to perceive a fair balance in rewards between them and other workmates, who provide almost similar work efforts or inputs. On the other hand, Resurreccion (2012, p. 21) posits that the ‘expectancy theory introduces an interesting instrumentality and valence to the motivation perspective’. According to the instrumentality perspective, workers believe that successful performance should be followed by similar rewards to commensurate their work.

According to Tippet and Kluvers (2009), individuals who are satisfied and value the existing reward system tend to perform excellently. Therefore, Resurreccion (2012, p. 21) maintains that managers ‘must explain the reward system associated with high performance and offer rewards that commensurate the workers’ efforts toward the organisation’s objectives’. An effective reward system must have the capacity to empower employees to perform by providing reasonable reward system. Therefore, it is deemed critical for firms to be explicit about reward system to individuals who devote their lives and energy toward service delivery in an organisation. In addition, a good reward system is likely to attract talented individuals who are more likely to offering high performance.

Herzberg also explained the impact of reward system toward motivating employees. The Herzberg’s two-factor theory is based on two factors, which he noted affected the employees’ satisfaction and dissatisfaction (Lundberg, Gudmundson & Andersson 2009). These were hygiene and motivation factors. Hygiene factors such as company policies, salary earned, job security, and working conditions among others are primarily responsible for increasing employee dissatisfaction while motivation factors such as job design, job content, career growth, meaningful growth, and work recognitions among others are responsible for increasing the employees’ satisfaction with their jobs (Bassett-Jones & Lloyd 2005).

Herzberg’s reasoning in this theory is that the employees’ satisfaction and dissatisfaction are inherently different and they cannot be evaluated on the same continuum since different factors influence them. In this sense, while hygiene factors are important in ensuring that the motivation level is reasonable, it does not increase motivation (Lundberg, Gudmundson & Andersson 2009). Koontz and Welhrich (2008) argue that based on the theory, effectively combining the proportions of both factors is imperative in maintaining high satisfaction levels as well as reducing the level of complaints from employees due to hygiene factors. Although this theory has received criticism over the years due to its approach to treating satisfaction and dissatisfaction as taking place within different continuums, one string concept that the theory developed is job enrichment (Waddell, Jones & George 2011). The idea of job enrichment is making a job challenging and interesting for a person in a way that it motivates him/her to complete it. Based on the Hackman and Oldham’s model, the core strengths of job enrichment is that it enables employees to do their work in their own unique and innovative way, learn new skills, and improve quality of performance and career growth and development (Casey, Hilton & Robbins 2012).

Southwest Airlines

Southwest Airlines is an international airline company headquartered in Dallas, Texas, in the United States. According to the Southwest Airlines (2015, par. 5), ‘the company has been in operation for more than 43 years and in 2013, it unveiled a new corporate slogan intended to motivate employees’. It has employed more than 46,000 employees who are motivated to work toward achieving a common goal (Southwest Airlines 2015). Southwest Airlines has clear-cut vision and mission statements. In order to achieve this goal, the airline has communicated its main purpose explicitly. The airline portrays itself as the best as far as connecting people, reliability, and low-cost travel is concerned.

Communication is done through storytelling to remind the employees of the company’s purpose, thus helping them to deliver first-class services to customers to achieve this purpose. In order to motivate employees, Southwest Airlines has a strong set of values that align with company’s mission and vision. These values establish the code of conduct at all levels within the organisation. Southwest Airlines values the employees’ well-being and it places significant importance to every individual assignment. Top managers invest in employee training and development meticulously, which in turn creates a feeling of recognition thereby motivating workers.

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Reward and recognition

Southwest Airlines understands the fundamental importance of meaningful recognition and reward for performance. The organisation explores different conceivable techniques to recognise excellent performance. Moreover, managers have established strategic approaches of recognising excellent performance directly in proportion to personal accomplishments. Galanou et al. (2011) argue that these approaches generate a contagious collective energy among employees, thus creating eagerness and joy. By rewarding excellent performance, Southwest Airlines has been in a position to maintain talent works, job satisfaction, and personal motivation.

Performance management

Southwest Airlines understands that transparency is the key to effective performance management. The organisation measures performance of the employees’ well-being and customer satisfaction. Southwest Airlines emphasises the meticulous tackling of tasks and rewarding individual employees through clear and immediate feedback in order to enhance job satisfaction within the organisation. Objectives and tasks are communicated plainly to everyone. Employees know the basis upon which performance is measured coupled with ways that they can improve the organisation to achieve set goals. Workers know their individual, organisational, and departmental performance, which gives them direction on areas of improvement in individual motivation setting (Browning 2006).

Hainan Airlines

Hainan Airlines is one of the leading confidentially owned carrier corporations in the People Republic of China. It operates over 500 domestic and international flights from Hainan. The company is headquartered in Haikou China. It assumes position four among leading carriers in China. In addition, Skytrax rated it as one of the best five-star. Hainan Airlines mainly provides charter flight services, freight-air transportation services, and passenger-air transportation services (Hainan Airlines 2013). The company has been performing more impressively as compared with other major airlines in China. It was reported that the company had approximately 108 fleets during the same year – including 13 Airbus aircrafts, 3 Boeing 767 aircrafts, and 92 Boeing 737 aircrafts (Reuters 2013).

Reward and remuneration programs

Hainan Airlines uses competitive pay based on local and international standards, friendly work environment, and training to motivate workers. The airline recognises excellent performance by rewarding workers proportionally to their input. For instance according to CAPA (2015, par. 1), ‘the airline is now offering one of best foreign pilot programs of China…its packages offer excellent combinations of remuneration and rotation options and it also offers the best comprehensive packages of health and loss of license insurance and education allowance’. This aspect creates a good emotional connection between workers and employees, thus motivating them to work meticulously toward organisational goals. Moreover, workers that undergo continuous training intend to empower them to learn new skills in service delivery. The company also offers impressive working conditions with excellent opportunities of progressing in new careers. The company has a coaching program that enables workers to be responsible and independent in their jobs.

Delta Airlines

Delta Airlines is one of the international airlines in the US. The airline operates more than 54000 flights daily in more than 64 countries worldwide. It is also one of the co-founders of SkyTeam airline alliance, which operates together with other joint ventures under the brand name Delta Connections (Delta Airlines 2015). The airline mostly provides chartered flights, air transportation services, and passenger transportation services.

Performance management

Delta Airlines is transparent about the way performance is measured by engaging employees. The airline supports a training curriculum that addresses performance standards, individual performance goals and objectives, and methodologies of assessment. Employees are encouraged to undergo performance management via instructor-led workshops in order to be empowered through continuous learning. Furthermore, the airline offers a balanced learning corporate training for senior managers to harness performance coaching and good corporate leadership. The balanced learning program incorporates web-based learning to support workers with basic knowledge on service delivery skills.

Although Delta Airlines has implemented sound remuneration and performance management systems, managers should focus on establishing the link between the workers’ performance and organisational goals. This link is vital for the establishment of shared values and making it explicit about what and how it should be achieved (Kwak & Lee 2009). Performance review in Delta Airlines does not clearly offer useful information regarding the employees’ contribution toward organisation goals. Managers should focus on establishing a well-designed performance management in order to gain competitive advantage through its human resource capital.

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Reward and remuneration

The company uses competitive reward and remuneration program. For instance, the best performers get paid vacation, while all employees are entitled to paid sick time. In addition, the company has sponsored a 401(k) program to take care of its employees. Most workers get health insurance, which covers dental health in some cases. Moreover, the willing employees can invest in stocks under the facilitation of the company coupled with getting mobile phones at subsidised prices.

Conclusion

Amidst the current trend in globalisation in the airline industry, this study has shown that effective remuneration and performance management can be a tool for motivating workers to gain competitive advantage. A well-designed human resource management has the potential to encourage and motivate employees in the airline industry. This literature established that the employees’ benefits were the most effective drivers of motivation. The Southwest and Delta Airlines are giving more emphasis on non-monetary benefits to gain competitive advantage and sustain a motivated workforce. Hainan Airlines has a competitive performance management policy, which takes into account transparency in the evaluation and measuring performance.

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