Name: Darpan Choudhary

Roll no. PGPGC202100112

Section: B
Xiamen Airlines : Pay for Performance

Following are my three key learnings from the case study discussion in class.
Analysis of Pay model
The highlighting factor of the pay model adopted by Xiamen Airlines was the visibility of a clear
connection between compensation and job performance for the employee. Employee retention is
also heavily dependent on the pay structure. In a robust pay structure, the workers take the
initiative to develop the required job skills, ultimately improving productivity.
The three key factors responsible for the effectiveness of a pay structure are:
1. Equity: The structure should be fair and objective to ensure equity for the employees. It
also includes communication about the expectations from the employee.
2. Alignment: The model employed by the organization should be aligned with the
corporate goals of the company. The structure should have room for variation across
different departments or units.
3. Legal Considerations: The pay model designed by the organization should be in line
with the restrictions of laws for smooth functioning of the company.
Xiamen Airlines were able to develop a model based on the above mentioned parameters. The
outcomes of the changes were improved accordingly. For example, the flying hours increased to
900 hours as compared to 700-800 in competitors. There was a gargantuan growth in profits of
492%.

Impact of pay structure

The pay structure plays a critical role and holds immense importance in the working life of an
employee. According to a study mentioned in course material, there is statistical evidence for
weak correlation between job benefits(tangible) and engagement. However, there was a strong
relationship between intangible rewards with performance. So it is essential for the model to
incorporate intangible benefits(Quality of work and career opportunity) for the employees to
ensure a holistic compensation system.

Disclosure of pay structure

It is essential for the company to provide clear disclosure of the pay structure across the
operating units. It is quite common for employees to compare their compensation and pay with
other employees across departments as well and develop a mental model of pay structure. The
disclosure manages to curb information asymmetry by including proxies for benchmarking the
wages across competitors and units. Factoring in all the factors of a total rewards system, an
organization would like to ensure that neither greed nor guilt is created, as per Stacey Adam’s
equity theory.