Mitch Schnurman, the Ft. Worth Star-Telegram’s business columnist, notes that low-cost airline leader Southwest Airlines is now one of the industry leaders in pilot and flight attendant compensation:

Southwest employees are also paid some of the highest salaries in the business, with pilots and flight attendants at the top of the scale.
An experienced pilot at Southwest, for example, earns 45 percent more than his counterpart at United and almost 18 percent more than at American Airlines.
It wasn’t always that way. Three years ago, Southwest pilots were paid at least 20 percent less than pilots at legacy carriers. They usually made up the difference, and then some, from Southwest’s profit sharing and stock options.
Then the competition began restructuring after losing tens of billions of dollars. Companies shrank, went bankrupt and cut jobs, pay and benefits. Southwest, meanwhile, continued to grow, and workers received small, steady increases, without involuntary layoffs.
If you charted the airlines’ worker pay on a line graph, the lines would have crossed about 2004, with Southwest rising to the top and most of the competition heading south.

Schnurman notes Southwest chairman Herb Kelleher’s line that “manage in good times as if they’re bad, for the bad times will surely come” and then explains how the company has avoided the financial problems relating to employee compensation that have bedeviled the legacy airlines:

In lean times, the company’s lower pay helped cushion results. But when profits soared, employees benefited as much as anyone, thanks to rich profit sharing and stock options.
In 2000, for instance, Southwest employees received 16 percent of their pay as a profit-sharing bonus. In 2004, in the midst of the industry slump, profit sharing totaled 5 percent of pay.
That’s a lot less, but it’s still a meaningful bump. And the payouts didn’t become a permanent labor cost, as was the case with most legacy carriers. United, Delta and others signed labor contracts near the peak of the market, locking in expenses that would be difficult and painful to undo later. [. . .]
Southwest has a 401(k) plan and other savings programs, but it doesn’t offer a traditional pension. That helps in managing the business, because the company pays as it goes, rather than incurring big long-term liabilities.
At legacy carriers, such pensions were a huge part of pilots’ pay packages. United and US Airways dropped their pensions after filing for bankruptcy. At Delta and Northwest, the pensions are in doubt because the airlines are in bankruptcy now. . . Southwest pilots made a conscious decision to go with a defined-contribution plan so employees could get their money every year and decide how to invest it.
They saw what happened to workers at Eastern, Braniff and other carriers in the early 1980s.
“We didn’t want to tie our retirement to the airline,” [Southwest pilot union VP Carl] Kuwitzky said.
Another good call for the employees and a good call for Southwest.

Read the entire column and marvel at a company that establishes a sound plan and then sticks to it. Sounds simple in theory, but experience proves that it is quite difficult to achieve in practice.