Question: Air Canada Employee Morale Flies Low

Air Canada, Canada's national airline, has cut costs extensively in recent years while fighting possible bankruptcy. However, the difficulties faced by Air Canada have taken a toll on employee morale to the extent that staff could derail the company's current course of action. Much of employee anger is directed toward CEO Robert Milton. Employees were particularly upset when Milton negotiated a $20 million bonus for himself from proposed new investor Victor Li of Li Investments, on the condition that Milton remain in the top leadership position for four years. Meanwhile, Milton asked his employees to take over $1 billion in cuts to their pay and benefits. Despite severe financial trouble in the airline industry in recent years, some airlines have been a success. For example, Southwest Airlines of Texas has been listed among the 100 best companies to work for in America. The company uses a no-layoff policy as a positive motivator. Southwest is a profitable airline known for recruiting the best and brightest people it can find, and has a reputation for providing its staff with excellent compensation packages, opportunities for rapid advancement and professional growth, and challenging and interesting assignments. Management uses special interviewing and screening methods to hire people who can have fun on the job and demonstrate outgoing personality traits that create a high-spirited, fun-loving inflight atmosphere for passengers.

The hiring process is so selective that only 3 percent of people who apply at Southwest are offered jobs. While Air Canada employees may question Milton's style, the CEO does have supporters. Karl Moore, a leadership and aviation expert, claims that Milton is one of the top airline CEOs in the world. Sunny Gordon of Li Investments believes that leaders should have a stake in their companies to produce expected results. He also believes Milton deserves a bonus if results are appropriate and Milton is able to repair relationships with employees. Canadian-born Don Carty provides an example of what happens when airline employees feel they have not been treated fairly. Carty joined American Airlines (AA) as CEO in 1998. His employees agreed to almost $2 billion in concessions in 2003 to try to save the company from bankruptcy before discovering that the year before, Carty and other senior executives were quietly offered big bonuses ($1.6 million just for Carty) to encourage them to keep their jobs. Outraged employees threatened to back out of their agreements and Carty resigned. For Carty, the mistake was not just in accepting the bonus but in hiding it as well. Carty's message to Milton: "If you take a bonus while your employees take cuts, your credibility is shot."

1. Using needs theories of motivation, explain how Southwest Airlines motivates its employees.

2. How can expectancy theory, equity theory, and fair process explain the outrage employees at American Airlines felt when they found out about Don Carty's hidden executive bonus? What could senior management do at American Airlines to improve motivation?

3. One Air Canada employee stated, "Milton treats us all the same-complete disregard and hatred." Using the lessons and examples from Southwest Airlines and American Airlines, how can CEO Robert Milton rebuild morale and improve motivation?