Rewards Connected to Performance
One of the issues that comes up during difficult times is always the issue of executive pay. With Herb Kelleher and his people at Southwest Airlines (LUV), they were commited to low price fares, and as a result most officers were paid below the industry average by about 30 percent.
The regular workers were pretty much at or above the average pay of those in their industry. It's one of the reasons there wasn't the man-created tension between workers and management. The workers knew that the leaders were doing it by example, and had a lot of respect for them as a result.
When workers were at times called on to sacrifice for the good of the company, it was rare that there was ever a problem on solving the issue at hand by working together.
With Kelleher the strategy was to make up the difference by offering stock options to the executives, but that was always connected to performance. To me that's as it should be, although I know that not everybody agrees with that view.
But when you look at the results of Southwest, and others that operate in the same way, you find that not only on the bottom line does it have a great impact, but upon all the other aspects of a company as well.
When you look at pay for performance, it not only has a strong effect on the rewards for management, but also on workers as performance makes it better for them as well. Think of our auto industry and the lack of performance there and how many people it has an effect upon.
I think it's just good business to run a company in the way Kelleher did on this issue. I think we need to align rewards with performance.
Other Herb Kelleher Sources:
ENTREPRENEURS: BORN OR MADE? A CONVERSATION WITH HERB KELLEHER OF SOUTHWEST AIRLINES
Herb Kelleher An Entrepreneur For All Seasons
Herb Kelleher: The Thought Leader Interview
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