Organizational Pay Analysis: a Case Study of Southwest Airlines

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Organizational Pay Analysis: A Case Study of Southwest Airlines

By: Aric Hall Completed in Partial Fulfillment of the Requirements of OM 5218 – Managing Compensation and Rewards Capella University Spring 2008 Name: Address: City, State, Zip: Phone: E-Mail: Instructor:

Abstract Title Organizational Pay Analysis: A Case Study of Southwest Airlines Abstract This report begins with an overview of Southwest Airlines, its strategies, and its compensation and benefit structure. The author considers how the human resources department can use a compensation strategy to strengthen the strategic and business strategy of the organization.

Hall, p. i Table of Contents Table of Contents Organization Overview Analysis of Strategy SWOT Analysis Rewards System Role of Human Resource Management Compensation and Benefits Strategy Metrics – Assessing the Effectiveness of HR Conclusion References i 1 1 4 5 7 9 10 11 12

Hall, p. 1 Organization Overview Southwest Airlines is known for its fun-loving corporate culture and its 32 years of consistent profitability. The company has a unique strategy, and that strategy is implemented by upper-level and functional managers. Human Resources has a key role in recruiting, hiring, selecting, promoting, and training personnel who will be a good fit with the strategy and with the fun-loving organizational culture. Analysis of Strategy Southwest Airlines was created in response to the high price of intra-Texas flights (Freiberg, 1996). The airline’s fares were originally set to compete with car and bus travel. Over time, the little upstart would withstand time, legal challenges, a growing need for additional capital, and would survive challenges with major air carriers. For the most part, Southwest is still a no-frills carrier, not providing food, movies, reserved seats, or a first class. There service strategy is based on a short-haul, point-to-point direct flights, accomplished with rapid turnaround times. Given that strategy, Southwest has a strong majority of the market share in those point-to-point markets. The mission of Southwest Airlines is dedication to the highest quality of customer service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit (Mission…, 2007). Southwest states that the customer comes second, because the employee comes first. Southwest provides stability and equal opportunity for employee growth, and employees are encouraged to be creative and innovative in solving organizational problems. Employees are treated with the same respect and support they are expected to provide to customers in return. The company has been ranked highly in employee satisfaction. As such, the organization must

Hall, p. 2 have a compensation and rewards strategy that supports this mission and customer service strategy. Southwest claims that their primary goal is to make air travel affordable to all (Freiberg, 1996). The market value of Southwest was at one point greater than all other airlines combined (Gittell, 2003), and the airline was once called the most successful in history by Fortune. When many airlines reduced routes, cut service, and laid off employees after September 11, Southwest used their cash reserves and low debt/equity ratio to expand their low-cost model to new markets. Southwest’s model benefits from good management-labor relations, fast turnaround times at the gate, the faster speed of operations afforded by small airports, and that model benefits from strong leadership, strategy, culture, and coordination. Southwest’s functional strategy is to achieve competitive advantage, by offering the lowest fares for comparable services or greater service. Strategy and operational effectiveness may be applied differently in each company (Porter, 1996). Southwest uses a marketing strategy of presenting itself as a low-cost leader, even though Southwest may not always be lowest. Efficiency is achieved by doing more with less. Business-level strategy...
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