Harvard Case - Xiamen Airlines: Pay for Performance
"Xiamen Airlines: Pay for Performance" Harvard business case study is written by Wenhua Wu, Ann Peng, Gerard Seijts. It deals with the challenges in the field of Organizational Behavior. The case study is 16 page(s) long and it was first published on : May 26, 2015
At Fern Fort University, we recommend Xiamen Airlines implement a comprehensive, multi-faceted approach to performance management that addresses both individual and organizational goals. This approach should incorporate a robust performance evaluation system, a clear and transparent compensation structure, and a strong focus on employee development and engagement. By fostering a culture of high performance and rewarding contributions effectively, Xiamen Airlines can enhance employee motivation, improve operational efficiency, and ultimately achieve its ambitious growth targets.
2. Background
Xiamen Airlines, a rapidly growing Chinese airline, faces a critical dilemma: balancing its commitment to employee satisfaction with the need to maintain profitability and achieve aggressive growth targets. The airline's current pay-for-performance system, based on individual performance and seniority, is perceived as inadequate by employees, leading to low morale and potential talent flight. The case study highlights the tension between the company's desire to maintain a positive organizational culture and its need to incentivize high performance.
The main protagonists in the case are:
- Mr. Che, the CEO: He is committed to Xiamen Airlines' success and believes in the importance of a motivated workforce. He faces the challenge of balancing employee expectations with the need to maintain financial stability.
- The Human Resources Department: They are responsible for developing and implementing the company's pay-for-performance system and ensuring its effectiveness.
- The Employees: They are the backbone of the airline and are seeking a fair and transparent compensation system that recognizes their contributions.
3. Analysis of the Case Study
This case study presents a complex organizational challenge that can be analyzed through several lenses:
Organizational Behavior:
- Motivation Theories: The case highlights the limitations of the current pay-for-performance system in motivating employees. The system is perceived as unfair and does not adequately recognize individual contributions.
- Organizational Culture: The company's culture is characterized by a strong emphasis on teamwork and loyalty. However, the current pay-for-performance system creates a sense of competition and undermines this culture.
- Leadership Styles: The CEO's leadership style is described as 'democratic,' but his decision-making process is not transparent enough to address employee concerns.
- Employee Engagement: The case indicates low employee engagement due to the perceived lack of fairness in the compensation system.
Human Resource Management:
- Talent Management: The company faces a challenge in attracting and retaining top talent due to the perceived shortcomings of its compensation system.
- Compensation and Benefits: The current compensation structure is not aligned with the company's growth strategy and does not adequately incentivize high performance.
- Employee Performance Management: The existing performance evaluation system is not effective in identifying and rewarding high performers.
Strategic Management:
- Growth Strategy: Xiamen Airlines' ambitious growth strategy requires a highly motivated and engaged workforce to achieve its goals.
- Corporate Strategy: The company's strategy needs to be aligned with its human resource management practices to ensure long-term success.
Decision-Making Processes:
- Power and Politics in Organizations: The case highlights the influence of various stakeholders in the decision-making process regarding the pay-for-performance system.
- Organizational Justice: The current system is perceived as unfair, leading to dissatisfaction and undermining employee trust.
4. Recommendations
To address the challenges outlined above, Xiamen Airlines should implement the following recommendations:
1. Develop a New Performance Management System:
- Focus on Individual and Team Performance: The new system should evaluate both individual and team contributions, recognizing the importance of collaboration and teamwork.
- Implement a Multi-Rater System: Performance evaluations should be conducted by multiple stakeholders, including supervisors, peers, and subordinates, to provide a more comprehensive assessment.
- Clearly Define Performance Goals and Expectations: Specific, measurable, achievable, relevant, and time-bound (SMART) goals should be established for each role, ensuring clarity and alignment with organizational objectives.
- Regular Feedback and Development: Regular feedback should be provided throughout the year to support employee development and identify areas for improvement.
2. Redesign the Compensation Structure:
- Implement a Merit-Based Pay System: Compensation should be directly linked to performance, rewarding high performers with higher salaries and bonuses.
- Introduce Performance-Based Incentives: Offer incentives for exceeding performance targets, such as bonuses, promotions, or other rewards.
- Develop a Transparent Compensation Policy: Ensure that the compensation structure is clearly communicated to all employees, fostering transparency and trust.
- Consider a Competency-Based Pay System: This system can be implemented to recognize and reward employees for their skills and knowledge, encouraging continuous learning and development.
3. Enhance Employee Engagement and Development:
- Invest in Employee Training and Development: Offer opportunities for professional development, including training programs, mentorship, and coaching.
- Create a Culture of Recognition and Appreciation: Recognize and celebrate employee achievements, fostering a positive and motivating work environment.
- Establish Employee Resource Groups: Create groups based on shared interests or demographics to foster a sense of community and belonging.
- Promote Work-Life Balance: Offer flexible work arrangements, employee assistance programs, and other benefits to support employee well-being.
4. Improve Communication and Transparency:
- Regularly Communicate with Employees: Hold town hall meetings, employee surveys, and other forums to provide updates on company performance and address employee concerns.
- Involve Employees in Decision-Making: Seek employee input on key decisions, fostering a sense of ownership and responsibility.
- Promote Open and Honest Dialogue: Encourage open communication between management and employees, creating a culture of trust and respect.
5. Basis of Recommendations
These recommendations are based on a thorough analysis of the case study and consider the following factors:
- Core Competencies and Consistency with Mission: The recommendations align with Xiamen Airlines' mission to provide safe, reliable, and efficient air travel while fostering a positive and engaged workforce.
- External Customers and Internal Clients: The recommendations aim to improve employee satisfaction, which will ultimately lead to better customer service and improved operational efficiency.
- Competitors: The recommendations are designed to help Xiamen Airlines remain competitive in the increasingly challenging airline industry by attracting and retaining top talent.
- Attractiveness ' Quantitative Measures: The recommendations are expected to result in improved employee performance, increased productivity, and reduced turnover, leading to positive financial outcomes.
6. Conclusion
By implementing these recommendations, Xiamen Airlines can create a more effective and equitable pay-for-performance system that aligns with its growth strategy and fosters a high-performing, engaged workforce. This will enable the airline to achieve its ambitious goals while maintaining a positive organizational culture.
7. Discussion
Other alternatives not selected include:
- Maintaining the current system: This would continue to perpetuate the existing issues and potentially lead to further employee dissatisfaction and talent flight.
- Implementing a purely seniority-based system: This would not incentivize high performance and could lead to stagnation and a lack of innovation.
- Focusing solely on individual performance: This could undermine teamwork and collaboration, which are crucial for success in the airline industry.
The risks associated with these recommendations include:
- Resistance to change: Employees may resist changes to the existing system, requiring careful communication and implementation strategies.
- Increased costs: Implementing a new performance management system and compensation structure may require additional resources.
- Potential for unintended consequences: The new system may need to be fine-tuned and adjusted over time to ensure its effectiveness.
8. Next Steps
To implement these recommendations, Xiamen Airlines should:
- Form a task force: Establish a cross-functional team to develop and implement the new performance management system and compensation structure.
- Conduct employee surveys: Gather feedback from employees to ensure their voices are heard and incorporated into the design process.
- Pilot test the new system: Implement the new system in a pilot group of employees before rolling it out company-wide.
- Communicate regularly with employees: Provide regular updates on the progress of the implementation and address any concerns.
- Monitor and evaluate the system: Continuously monitor the effectiveness of the system and make adjustments as needed.
By taking these steps, Xiamen Airlines can successfully implement a new pay-for-performance system that fosters a high-performing, engaged workforce, ultimately contributing to the company's long-term success.
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Case Description
On June 6, 2014, the deputy general manager of the human resources department of Xiamen Airlines, based in Xiamen, Fujian Province, China, discussed his company's "best practices" at China's first national forum on aviation security. Since 2009, a significant reform in the company's pilot compensation system had aimed to promote a stronger linkage between their pay and performance. Initial outcomes had been positive, with improved productivity and job satisfaction. Yet, there were ongoing challenges in recruiting and retaining pilots due to increasing shortages of qualified personnel in the domestic and global aviation labour market and greater competition from both state-owned and new private airline companies in China. How could Xiamen Airlines become an employer of choice? Was the high compensation sustainable if the industry became less profitable? What else could the company offer to retain talented pilots?
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