British Airways’ operations ground to a halt last week due to a pilots’ strike. The airline’s flight crews argued that they should be rewarded with a cut of the company’s rising profits, having previously taken hits to their pay when BA struggled.
While the pilots have called off a strike due to take place on 27 September, it’s worth examining how BA could meet their demands. The obvious way would be through a staff profit-sharing scheme, rewarding pilots when the airline as a whole does well.
Modern schemes come in various guises and may pay out shares, options, or cold hard cash. Some schemes are government-backed and attract tax exemptions for shares distributed through them. The most prominent example in the UK is that run by John Lewis, which famously distributes a bonus to each employee every year – depending on the retailer’s profits.
The chief incentive of setting up a profit-sharing scheme is straightforward. It provides a more perceptible link for staff between the work that they put into the company and the financial reward they receive. The expectation is for this to lead to better staff motivation and engagement, and thus higher profit – a beneficial feedback loop.
However, there can be drawbacks. If profits take a hit for whatever reason, staff remuneration will drop.
It’s important to bear in mind that things like substantial capital investment will also mean employees’ pockets will be partly bearing the cost, even if it is to the company’s benefit in the long run.
At BA, strikes by other parts of the airline will also hit profits, as the pilots are represented by a union that is different from other BA staff.
In addition, the typical cost to the employer of an incentive-based package has always been that the guaranteed pay-out element will be small with no artificial impact on salaries. Profit-sharing packages take that away, potentially leaving swathes of disgruntled staff that are suddenly less well-paid than competitors in years where a company fails to meet targets.
There is also the issue of “star performers” seeing themselves receiving the same reward as their less industrious colleagues, despite an imbalance in contribution – at least in their own perception. This means that, in practice, many companies offering these schemes will also have to offer individual performance bonuses too.
Exactly who can be involved will depend on the scheme chosen: some government stipulate that they must be offered to all employees of the company on equivalent terms, while others are only available to companies below a certain size.
However, for those prepared to sacrifice the tax saving, there are no limitations on how a scheme can be structured or what benefits can be offered. Crucially, none of the tax-
advantageous schemes allow for rewards to be paid out in cash – only shares or options.
A company can choose to reward whatever subset of employees it likes, and on any basis. Profit-share bonuses could be paid as a flat percentage of profit to all employees equally, or proportionate to their salary, or against sales targets; the bonus could be capped at a certain limit, or only activate above a certain profit threshold.
BA’s pilots feel that their role means they should earn something extra, and indeed their strike is not on behalf of all BA staff – cabin crew, ground staff, and engineers have already accepted the deal on the table via Unite and GMB.
Only the BA pilots are holding out for this additional perk. If the pilots keep striking – which costs BA about £40m per day, according to analyst estimates – there may not be much profit left to share.