Competitive and Total Rewards Strategies at Virgin Blue Airlines and Jetstar Airways - Essay Example

Running Head: Virgin and Jetstar Student’s Name: Instructor’s Name: Course Code and Name: Institution: Date Submitted: Competitive and Total Rewards Strategies at Virgin Blue Airlines and Jetstar Airways Introduction This paper constitutes a discussion of two airline companies one that can be said to pursue a lowest-cost strategy and the other pursuing a differentiation strategy. Both companies are of a relatively equal size and with comparable operations. Available information has been consolidated and shifted so as to focus the discussion discuss on how these two Australian companies effect competitive and total rewards strategies as part of their employee’s package. To start with, the paper details a brief description of each company before examining how each company has structured its contemporary compensation policy, benefits and HRIS systems and structures, comparatively. Basing most of its arguments on contemporary literature as the support for analysis, the paper contextualizes the current organisational issues and influences such as individual contracts, unionisation, Workplace Act compliance, globalisation and collective bargaining processes, to evaluate how the same has been adapted in the two organisation’s compensation, benefits and HRIS systems. Thereafter, the paper analyses and evaluates the effectiveness of each company’s current compensation, benefits and HRIS enactments to determine how well they have met the organisational requirements. Before terminating with a conclusion, the paper finally offers some recommendations and suggestions on how each of the company can improve its compensation, benefits and HRIS systems. Company Briefs Jetstar Airways is an Australian company, considered to be a low-cost airline since it was created as a response to counter the growing popularity of the overly low-cost airline, Virgin Blue Airlines (Rochfort, 2009). Jetstar, a subsidiary of Giant airline, Qantas which owns 42.5% stake, has its headquarters in Melbourne, Australia. Jetstar today operates a very extensive network in Australia, in the regional and even in international services all operated from Melbourne airport main base. The base has a mixed fleet of wide-body and narrow-body jet liners (Rochfort, 2009). Qantas established Jetstar in 2003 as its low-cost subsidiary to serve the domestic Australian market, beginning the domestic passenger services on May 25, 2004 and the international services beginning late 2005 (Rochfort, 2009). It is important to note that although Jetstar is owned by Qantas, the company maintains its own management which operates independent of the centralized Qantas management except for strategic policy formulation (Rochfort, 2009). On its part, Virgin Blue airlines is another Australian low-cost airline, currently the second-largest Australian airline. It is also ranked as the largest Australian airline using such a fleet size (75 narrow-body Boeing planes and Embraers) operating under the Virgin brand insignia. Today, Virgin Blue serves over 28 towns and cities within Australia from its main hub at the Brisbane Airport. Founded in 2000 by the British business mogul, Sir Richard Branson as a subsidiary of the virgin group, the Virgin blue company is headquartered at Bowen hills, Brisbane, Australia. Its premier flights were on august 2000, with twin Boeing 737- 400’s leased from their sister airline, the Virgin express to offer 7 return flights between Sidney and Brisbane (Sadler, 2007). Today, Virgin Blue serves all major cities in Australia as well as numerous holiday destination spots (Sadler, 2007). The initial success of Virgin Blue is usually attributed to the collapse of Ansett Australia in 2001, such that within two years, Virgin Blue had grown into the number two spot in Australia’s domestic market. In 2005, the Patrick Corporation, an Australian logistics conglomerate bought 62% stake of Virgin Blue in a hostile takeover, leaving Virgin group with a mere 25%. Coincidentally, on 7th of this month, Brett Godfrey, Virgin Blue’s pioneer CEO of 10 years was replacement by John Borghetti, a former Qantas Senior Executive (Sadler, 2007). Rewards Strategies at Virgin Blue Airlines and Jetstar Airways 1. Compensation Policies Virgin Blue is an exceptionally adept company in maintaining a competitive compensation package for their employees. Their compensation policy allows for job grading depending on responsibilities and seniority, where the more responsibility and seniority an employee achieves, the higher the job group assigned and thus the higher the salary scale. Secondly, the salary scales are continuous reviewed alongside market labour rates to account for inflation and rising standards of living in Australia. In this regard, Virgin Blue can be said to be pursuing a differentiation strategy, providing highly competitive compensation policies that are unequalled in the region. An important part of Virgin Blue compensation policies is that all employees are eligible for a performance based rewards system where their salaries are reviewed and linked to their performance (Virgin Blue, 2010). This is a unique incentive plan that is linked to an individual’s output (Virgin Blue, 2010). Jetstar employs a low cost strategy, where compensation is largely based on seniority (Rochfort, 2009). At Jetstar, compensation is determined by job position and number of years in service, mostly non-bargained for by a union (Rochfort, 2009). Despite being relatively competitive, the compensation policies are not organised in a manner suggesting role differentiation where a certain level of skill and responsibility has a formal salary scale. Some peers may be having similar responsibilities and yet be compensated differently based on their years of service, commendation awards earned etc. This way, Jetstar is seen as to be pursuing a low cost strategy in developing its compensation systems (Rochfort, 2009). 2. Fringe Benefits Virgin Blue employees are eligible to a host of benefits. For instance, every employee is eligible for a profit share scheme, which is an opportunity for any employee to share with his or her team in the company’s prosperity. A percentage of the profits as determined by the Board are always allocated for employees to share as part of their benefits. Another benefit for which Virgin Blue employees are eligible are the travel benefits where each employee is eligible to travel locally and internationally with family and friends for free or at lucrative discounts. There is also a 24-hr eemployee assistance program, to support employees and their families in case of emergencies. Additionally, employees are eligible for a paid parental and adoption leave. This is broken down to a 6-week maternity leave fully paid with additional perks for new parents. Paternity leave is 2 weeks and adoption leave is 3 weeks, all paid (Virgin Blue, 2010). At Virgin Blue, employees are also eligible for a study leave that is financially assisted as long as the study is linked to the employee’s skill development. Shopping at all product and service retail points run by the company allows employees to enjoy attractive discounts. Uniquely, Virgin Blue employees can sacrifice their salary and invest it to earn great interests and raises, as an investment plan (Virgin Blue, 2010). Virgin Blue employee benefits are attached to job positions and not to individual employees such that all employees are awarded based on a standard system. Jetstar also allows employees to travel discretionally at great discounts all over the world with family members although not with friends and only after a six-month qualifying period. Qualifying employees, their children, parents, partners and siblings can access concessional travel discounts for staff with standby and booking provisions for Jetstar flights or those of the Qantas Group or One World partner airlines. Pilots after qualification can fly Business Class for free with application. As a comparable benefit to Virgin Blue’s profit share policy, Jetstar provides their employees with a superannuation pay of 9% on all their annual gross earnings. Besides the usual housing, medical and insurance benefits, Jetstar is very economical on the amount of benefits their employees are eligible for. Nonetheless, Jetstar provides their senior employees such as pilots a free death insurance which is currently valued at US $500,000. Another notable insurance cover is for pilot’s loss of license where the company buys or reimburses all pilots with 1.5% of their base salary for the insurance cover. For paid maternity and paternity leave, Jetstar allows for the same duration as Virgin Blue with the omission of adoption leave. Jetstar operates an in-house training program that exposes employees to self development opportunities on a selective basis and according to one’s line of work (John, 2008). There is limited opportunity for ousted study support unless commissioned by the company itself for selected staff (John, 2008). Jetstar’s cost cutting policy in employee rewards systems can be inferred also from their demand of US $ 89 non-refundable fee from interviewees interested in their flight attendant opportunities (John, 2008). If the interviewee succeeds, he or she is further expected to pay for a medical check up and any further training required before the employee successfully goes through the 6-month qualifying period before employment (John, 2008). Uniquely, Jetstar employees are eligible to three year loans for self development as well as to a home purchase program (McIntyre, 2009). It also important to note that moat benefits in Jetstar are earned based on seniority and not automatically based on one’s job position. Since the benefits are attached to individuals rather than job positions, Jetstar employee benefits are largely non-standardised. A probable explanation for this system is seeking to reduce costs and to reward employees based on their loyalty and longevity of service. This is easy to implement since Jetstar employees are not unionised (McIntyre, 2009). 3. HRIS HRIS is an abbreviation that stands for Human Resources Information Systems, a system currently used by organisations to keep track of their employees and relevant information about each employee. HRIS is more of a database o series of inter-linked databases with employee information. Besides employees’ names and their contact information, HRIS’s include such important information as the department, grade, job title, salary history and salary, history in position, supervisor, special qualifications, training completed, date of birth, ethnicity, disabilities, veterans status, benefits selected, visa status etc, for each employee. Both Virgin Blue and Jetstar employ advanced HRIS installations for the Human Resource departments. In both, the HRIS most importantly holds reporting capabilities that tracks the life-history of employees since they become applicants for positions, through recruitment, induction before they become permanent employees and all the way until they retire. The HRIS installation is used to reduce HR costs as well as to produce documents and reports required by other departments of the company or government agencies. A Difference between Virgin Blue and Jetstar is that Virgin Blue’s HRIS installation is interfaced to the payroll systems besides the other financial systems such as benefits accumulation (John, 2008). Jetstar’s non-standardised compensation policy does not thus support a systemized central patrol. Other Relevant Organisation Reward Systems factors Modern organisations have adopted collective bargaining strategies that allow employers to bargain with their employees until they reach an agreement (called a collective agreement) in such issues as employee compensation, required working hours, employee training, safety and health concerns etc (Smith & Russell, 1996). Such bargaining processes have employees typically represented by their trade union which negotiates for all its registered members (Smith & Russell, 1996). Virgin Blue employees are unionised and free to join trade unions which in turn bargains with the management if need be on the aforementioned issues (Virgin Blue, 2010). Jetstar employees are however not unionised and are bound by employee agreements for which employee signs an employment contract. Jetstar employees thus lack a collective bargaining power. Employees from both of these companies have the benefit of working for a global brand, one with international affiliations and thus progressive in its policies and employment standards. In this age of globalisation, these two companies are fathered by global enterprises, Virgin Group for Virgin Blue and Qantas for Jetstar (Virgin Blue, 2010). The standards enjoyed by these employees are thus incomparably progressive as compared to the standards to be found in Australian domestic airlines without that globalisation edge. Again, both companies have ratified the Australian Workplace relations Act 1996 as well all the key provisions added by the two subsequent amendments, 2005 Workplace Relations Amendment Act (introducing work choices for employees) and 2007 Workplace Relations Amendment Act (introducing stronger workplace safety) (Buidens, 2009). This acts sets minimum wages, minimum working conditions and hours and such parameters that guarantee employees are treated fairly. Notable among the reforms has been the phasing out of the Australian Workplace Agreements (AWA), the like that was adopted by Jetstar since inception (Rochfort, 2009). Currently, Jetstar is undergoing a 2-year restructuring (as provided by the Act’s 2-year transition period for companies with AWA’s) that will see it perhaps gain a greater embrace of collective bargaining power for the employees as well as standardised compensation policies (Phil Dine, 2007). Recommendations and Conclusion This paper has discussed two airline companies, Jetstar which can be said to pursue a lowest-cost strategy in its employee compensation policies and Virgin Blue which pursues a differentiation compensation strategy. Notably, the two Australian companies are relatively comparable in size, operations and location. Nonetheless, they differ in how they compensate their employees with Virgin Blue having a very clear-cut, standardised compensation policy based on the job positions and not individuals. Jetstar on the other hand is almost chaotic in how the employees are compensated since the pay-scale is based on individuals and not their positions i.e. their seniority (Rochfort, 2009). Even in the HRIS installations, the fact that Virgin Blue is standardised and centralized in its compensation policies helps include all the employee information including payrolls while Jetstar cannot not centralise their payroll alongside their information. It is thus recommended that Jetstar adopts a centralised and largely standardised compensation policy whose scaling is based on the job position’s responsibilities and not the individual’s holding those positions. References Buidens, W. et al (2009). Collective Gaining: A Bargaining Alternative. Phi Delta Kappan, Vol. 63 (2) pp. 244-245. John, D. (2008). Jetstar Airways – Cheap Flights. AusBusiness Review. Available at http://www.ausbusiness.net/review/jetstar-com-cheap-flights/ McIntyre, D. (2009). "Jetstar eyes growth in Asia, India". Fairfax Digital. Available at http://news.brisbanetimes.com.au/breaking-news-business/jetstar-eyes-growth-in-asia-india-20091002-ggb5.html. Orr, C. (1996). Trade Unionism in Colonial States. Journal of Modern African Studies. Vol. 4 (2), pp. 65-81. Phil Dine (2007). State of the Unions: How Labor Can Strengthen the Middle Class, Improve Our Economy, and Regain Political Influence. New York: McGraw-Hill Professional. Rochfort, S. (2009). Qantas revs up Jetstar expansion. The Sydney Morning Herald. Available at http://www.smh.com.au/business/qantas-revs-up-jetstar-expansion-20091125-jrsr.html Sadler, P. (2007). A Red Storm Rising, Australian Aviation Magazine. Issue No. 244, pp. 30-34. Smith, P. & Russell, B. (1996). An Alternative Form of Collective Bargaining." PhiDelta Kappan, Vol. 67 (6), pp. 605-607. Virgin Blue (2010). The Year That Was - 2009 Virgin Blue Annual Report. Available at http://virginblue/home/ Read More