Discord threatens labor-management peace at American

In [% 1285743 | | a recent blog entry %], I discussed American’s corporate restructuring efforts and applauded the carrier for making a good-faith effort to reinvent itself without resorting to a bankruptcy filing.

Proving just how tough it is to do well by doing good, the architect of American’s survival plan, Gerard Arpey, has reportedly run afoul of the unions he was trying so hard to make nice with.

At issue is Arpey’s 23-percent pay raise and stock-related compensation. By industry standards, Arpey is paid modestly. And he showed symbolic solidarity with employees whose salaries have been slashed by foregoing raises in 2004 and 2005. But in the eyes of American’s pilots union, Arpey has compromised his commitment to the “Pull Together/Win Together” program of sacrifice shared between management and labor.

According to a union spokesperson, “Despite their protests to the contrary, senior management abandoned ‘Pull Together/Win Together’ when they succumbed to temptation and rewarded themselves ahead of everyone else who made American Airlines’ recovery possible.”

Employees are understandably outraged to find their leaders richly rewarded when their own fortunes have been ravaged. Corporations need highly competent executives, like Arpey, and must pay market rates to hire and retain them. So friction is inevitable.

In a service industry, where customer service levels directly reflect the morale of front-line employees, the company with the least friction wins.