When Wall Street talks, people listen. But perhaps we should listen less and actively question those attitudes more. Take, for example, the recent case of American Airlines.
On April 26, American Airlines (AAL) CEO Doug Parker announced modest pay boosts for his workers. Immediately, stock market analysts blew their gaskets. Several Wall Street analysts accused AAL of excessive consideration to its workforce, depriving investors of their due.
But the spectacle of Wall Street complaining of wage hikes for working people, while rolling in six and seven figure bonuses, is not likely to earn much sympathy. And rightly so.
First, the pay increase was modest. The raises were for 5 percent to 8 percent for flight attendants and pilots respectively, and AAL offered the adjustment because salary levels had fallen behind their peers. Had they not raised salaries, AAL executives would likely have faced turnover costs. Plus, the salary increases were an affordable commitment, given the company’s budget. The raises, therefore, entail a mere 0.57 percent of AAL’s operating expenses, which reached $40.18 billion in 2016. Should Wall Street analysts and investors put maximizing profits above keeping a commitment to the working people that power the enterprise?
Second, better pay can yield better service and lead to higher revenues, which is no small consideration. The flying experience is increasingly an uncomfortable course of crowded airplanes, ancillary charges, and retreating perks, and airlines are under fire for high profile cases of customer mistreatment. Plus, pilots and flight attendants are essential to keeping travelers safe. In an emergency, do we want the pilots and flight attendants who cost the least? A company that loses its best employees to competing airlines with better compensation, retaining a crew of disgruntled workers, will fail customers and lose revenues. Investments in customer experience and safety are aligned with financial performance, not in lieu of it.
Third, the analysts’ rhetoric may be ill serving many investors. Look beyond the analysts’ eye-catching quotes to their actual positions.
Evidently the egregious expropriation of shareholder profit to employee pay hasn’t pushed the company stock rating to a “sell,” as many analysts’ ratings remained at “hold” or even “buy.” Investors would be better off to follow the rating over the ranting. In the week after AAL’s company announcement, the stock dipped briefly by about 5 percent. But by week’s end, almost all was recovered with the price just down 0.22 percent. And if past trends hold, this would indeed be a stock you would rather keep than exit. Over the last year AAL rose 26 percent, outperforming the DJIA (16 percent). It also outpaced legacy carrier Delta (11.4 percent) and bargain airlines JetBlue (9 percent) and Allegiant (-8.2 percent).
Finally, there’s reason to trust the leadership skills of AAL executives. CEO Parker over four decades in the sector has demonstrated insight and leadership at crucial turning points. In early 2017, AAL was recognized as Airline of the Year by Air Transport World. The industry journal noted the phenomenal achievements by American’s leadership and employees, citing the practically flawless integration of American and US Airways despite it being the largest, most complex airline merger in history. Do analysts know better than AAL leadership?
The average $40,000-per-year flight attendant will garner about $166 more per month from this AAL salary increase. That’s a nice help, but not a bank buster. And every bit helps the economy more broadly. Effective demand from consumer spending, driven by rising incomes, is more of a concern in our current economy than any scarcity of investable capital.
In 2017, America has a jobs problem: It’s not that we don’t have enough jobs, but that we don’t have enough good jobs. We all lose when pay raises for workers – despite rising productivity and quality service – are unreasoningly restrained.
Corporate leaders say things like, “Our people are our most important asset.” The problem is that too few act like they believe it. And too many face Wall Street brickbats when they do. It’s time to turn down the distraction and up the voices for reasonable investment and due consideration to our workforce. If finance and investing take the right aim, the switch will be made to more good companies and good jobs.
Mark Popovich is the Director of the Good Companies/Good Jobs Initiative at the Aspen Institute. Maureen Conway is Executive Director of the Economic Opportunities Program at the Aspen Institute.