This week’s announcement that American’s CEO, Doug Parker, would henceforth be paid solely in company stock—no cash—was lauded by shareholders and the financial community as a sure sign that Parker is “all in” on American.
That is to say, his financial wellbeing and that of American’s shareholders are now tightly aligned. Both stand to gain or lose as American’s stock price rises or falls.
So, stockholders and Parker stand to gain from the new executive-compensation arrangement. But what about the airline’s other stakeholders: customers, employees, communities? How will they fare when maximizing the company’s stock price is job #1?
There’s no definitive answer, obviously. But at least as far as American’s customers go, the focus on stock price should be more worrisome than reassuring. Maximizing profit, which is the primary driver of stock price, rarely goes hand in hand with maximizing customer satisfaction.
Spirit is a prime example. As a result of its intense focus on revenue-maximization, the ultra-low-cost carrier is among the industry’s most profitable airlines. It also generates the highest number of consumer complaints, relative to its size.
Southwest is also highly profitable. But it achieves those profits by following a business model that puts the customer first.
There is, in other words, more than one road to profitability.
American has chosen to put stockholders’ interests ahead of the interests of its customers. That decision is bound to have consequences.
Here’s an idea. Make a portion of Parker’s compensation payable in AAdvantage miles. That would align his interests with those of American’s loyalty program members. More to the point, they’re the company’s best customers, and the source of its profits.
Reader Reality Check
How do you expect the new compensation scheme to affect customer satisfaction?
This article originally appeared on FrequentFlier.com.
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