Xiamen Airlines reformed its pilot compensation system in 2009 to better link pay to performance. Initial results were positive with improved productivity and satisfaction, but recruiting and retaining pilots remained challenging due to shortages and competition. The new system provided incentives like increased pay for extra hours flown and bonuses for achievements. Outcomes included pilots flying more hours, saving on hiring, experienced pilots training newcomers, and lower attrition. Profits increased nearly 500% from 2009-2010 under the new system. However, questions remained about sustainability if the industry became less profitable and what else the airline could offer to retain talent.

1. Hrm case
analysis –
xiamen
airlines
Mahi TejaR S

2. Abstract:
On June 6, 2014, the deputy general manager of the human resources
department of Xiamen Airlines, based in Xiamen, Fujian Province, China,
discussed his company’s "best practices" at China's first national forum on
aviation security. Since 2009, a significant reform in the company’s pilot
compensation system had aimed to promote a stronger linkage between their
pay and performance. Initial outcomes had been positive, with improved
productivity and job satisfaction. Yet, there were ongoing challenges in recruiting
and retaining pilots due to increasing shortages of qualified personnel in the
domestic and global aviation labour market and greater competition from both
state-owned and new private airline companies in China. How could Xiamen
Airlines become an employer of choice? Was the high compensation sustainable
if the industry became less profitable? What else could the company offer to
retain talented pilots?
Introduction:
XiamenAir (formerly Xiamen Airlines) is the first privately owned airline in the
People's Republic of China. XiamenAir is the only major Chinese carrier which
operates an all-Boeing fleet.
XiamenAir was honored with the title of "The Best Airline in Mainland China"
for 6 consecutive quarters in the "Airlines Service Survey" made by
CARNOC.com.
By early 2014, Xiamen Airlines has 6 branches in Fuzhou, Nanchang, Hangzhou,
Tianjin, Changsha, and Beijing. The airline operates 218 domestic routes along
with 26 international routes. It flies over 3600 flights per week. XiamenAir
ranks #4 among all Chinese carriers by domestic capacity and contributes 7.2%
of the domestic capacity in China.
Xiamen Airlines concluded the year of 2013 with a passenger number of 18.57
Million, and a profit of 1520 million CNY (about 245 million US dollars). It
is the 27th consecutive year of profit for Xiamen Airlines since 1988. With

3. the long consecutive profit record and high profit rate, the airline is regarded
as one of the most profitable airlines in the world.
Pay for performance benefits:
 Mutual rewards
 Increased motivation
 Increased company morale
 Increased company loyalty
 Increased productivity
Employees always see a clear connection between their incentive payments and
job performance. Employees stay in a firm because of the pay/pay structure
being offered. They readily develop the required job skills if there is a proper
pay structure in place.
The effectiveness of a pay model depends upon three things- efficiency, equity
and compliance.
1. Efficiency: it involves two general areas of concern.
(i) Strategy:
• Does the pay-for-performance plan support corporate objectives?
• The reward should not be on the basis of status quo.
• Finally, management has to address the most difficult question like- How
much of an increase makes a difference? How does it take to motivate
an employee?
(ii) Structure:
• Structure of the organization should be sufficiently decentralized to allow
different operating units to create flexible variations on a general pay for
performance plan.
• Different operating units may have different competences and different
competitive advantages, so the organization should not have a rigid pay-
for-performance system that detracts from these advantages.

4. 2. Equity / Fairness
• The second design objective is to ensure that the system is fair to
employees.
• A key element in fairness is communication regarding what is expected
from employees.
3. Compliance:
• The pay for performance system should comply with existing laws as a
good reward system enhances the reputation of the firm.
Outcomes of the reform
 Pilot flying hours increased to 900 hours compared to 700/800 hours
in other airlines.
 Saved hiring cost as a result of the above point.
 The experienced pilots were more than willing to train the younger pilots.
 The younger pilots were also inspired to get the title of honoured flight
captain.
 As a result, there was a steep growth of 492% in company profits from
2009-10 and also attrition rate was reduced to a minimum.
salary break up in US Dollars (source: smile aviation)
option 1 option 2 option 3 option 4 option 5 option 6
Monthly
basic salary 21889 20889 17389 16389 12056 9556
housing allowance 1100 1100 1100 1100 1100 1100
overtime 300/hour 280/hour 250/hour 250/hour 250/hour 250/hour
Yearly
ticket allowance 6000 6000 6000 6000 6000 6000
safety bonus 24000 24000 18000 18000 10000 10000
No. of paid
leaves 42
96 days
off
132 days
off
156 days
off
180 days
off
180 days
off

5. medical insurance 2000 2000 2000 2000 2000 2000
education
allowance 8000/child 8000/child 8000/child 8000/child 8000/child 8000/child
bonus
upto
10000
upto
10000
upto
10000
upto
10000
upto
10000
upto
10000
Total income 333868 321868 273868 261868 201872 171872