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One-Rate Pay Model ( Understanding UPS’ pay scale -vs- the industry norm )

One-Rate Pay Model ( Understanding UPS’ pay scale -vs- the industry norm ). Revised 7-27-06 ( originally posted 04-26-03 ) Made slides 10 & 11 easier to understand. Disclaimer. I do not claim to be an expert on these subjects. This material is for educational & reference purposes only.

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One-Rate Pay Model ( Understanding UPS’ pay scale -vs- the industry norm )

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  1. One-Rate Pay Model(Understanding UPS’ pay scale -vs- the industry norm) Revised 7-27-06 (originally posted 04-26-03) Made slides 10 & 11 easier to understand.

  2. Disclaimer • I do not claim to be an expert on these subjects. • This material is for educational & reference purposes only. • The opinions included in this material do not reflect anyone's opinion other than my own and is not intended as an attack on any individual or group. • Errors of any kind are not intentional and should be reported ASAP to my e-mail address below. • All normal and abnormal disclaimers apply (C’mon.. I’m only human). • Use at your own risk. Sincerely, Franco Fratangeli 100% IPA - 100% UPS IPAmemberFranco747@att.net

  3. Index Slide/Page # • Hourly rates and the industry norms • Includes: • Actual examples of FO percentages that are applied to CPT hourly rates • How FO & CPT hourly rates are created ..................................................................... 4 through 16 • CurrentUPS financial health/info (as of 04/25/03) ………….…………………………….…17, 18, & 19 • Key Work Rule concessions airlines are asking of their pilot groups………………... 20, 21, & 22 • Summary of hourly rates & percentages…………………………………………………. 23 through 31

  4. Survey asked…. • Question C23 on page 13 of the IPA 2002 survey asked: • What is the minimum acceptable increase in the percentage of the Captain hourly rate that First Officers should receive? • Zero – leave percentages as they are • 1 percentage point across the board • 2 percentage points across the board • 3 percentage points across the board • 4 percentage points across the board • 5 percentage points across the board • 6 percentage points across the board • 7 percentage points across the board • 8 or more percentage points across the board • In My Humble Opinion (IMHO) with our pay model structured the way it is, it was unusual that the survey did not address the real problem with the low FO hourly rates. An additional question should have been asked. • I.e. Do you want to change the structure of our one-rate pay model? • Reduce the difference between the 2nd year and 12th year CPT hourly rates to industry norms for the 767 • Keep the same (leave it as it is) • Increase the difference between 2nd and 12th year CPT hourly rates --------------------------------------------------------------------------------------------------------------------------------- • What actually happens if we increase the FO percentages that are applied to the CPT hourly rates but do nothing else? • Maybe before we answer that we should find out what the others are using for FO percentages.

  5. FO % applied to CPT hourly rates(We are close to industry norms but we are a little behind 4th through 12th year)

  6. FO % applied to CPT hourly rates

  7. If the percentages throughout the FO% scale are close, then why are the actual FO hourly rates much lower at UPS (Comparing contracts current in 1997)? Let’s look at CPT hourly rates to get a better understanding of the situation.

  8. 767 Parity • The 12th yr CPT hourly rate was somewhat in-step with the industry when we signed (767 12th yr CPT). • So was the 12th year FO hourly rate (767 12th yr FO). • CPT and FO 767 hourly rates for other years were not. • Most evident in years 2 through 7. • How’s that possible you ask?

  9. 767 Parity continued • The reason that the FO hourly rates are not in-line with the industry (767 rates) is because of our CPT rates. • At UPS, the CPT rates have a split between the 12th yr hourly rate and the 2nd yr hourly rate of roughly $58. • That’s roughly a 30.69% split • 12th yr – % = 2nd yr (Using today's rates: $190 – 30.69% = $131.69) • At other airlines, the monetary split is around $15 to $26. • The percentage split is roughly 7.49% to 8.46%.

  10. $190 – 30.69% =$131.69 $190 – 30.69% =$131.69 Applying UPS’ 2nd yr FO’s 58% to the CPT’s rate: $131.69 x 58% =$ 76.38 ( Current % used at UPS ) ( Current % used at UPS ) What would happen to our 2nd year FO and CPT rates if we changed nothing but the 30.69% split? (see next slide) 1 2 3

  11. At other airlines, the monetary split is around $15 to $26.(The percentage split is roughly 7.49% to 8.46% [12th yr - % = 2nd yr]) • Using DAL’s split of 8.31% $190 – 8.31% =$174.21 Applying UPS’ 2nd yr FO %: $174.21 x 58% =$101.04 (versus today’s $131.69 2nd yr CPT rate) (versus $ 76.39 for a 2nd yr FO today) We’ve changed nothing but the 30.69 split. Notice the difference in 2nd yr rates

  12. $190 – 30.69% = $131.69 Applying UPS’ theoretical 2nd yr FO %: $131.69 x 66% =$ 86.92 (versus current $76.38 -vs- $101.04) (58 + 8 = 66) 8% to the FO% still does not help you attain the $101.04 rate FO % of CPT rates (8% increase)Would that alone help resolve our problem? • Per the 2002 IPA survey, I’ve added 8% to UPS’ 2nd yr FO% that is applied to the CPT hourly rate. • I’ve not changed anything else.

  13. What would it take to make $101.04 per hour (2nd yr FO)? • The FO% applied to a 2nd yr CPT rate would need to be roughly 76.725%. • That’s a bit more than the 58% we use now. • Also, since the 12th yr hourly rate and FO% applied to it are close to industry norms (we make/apply 1% to 4% less from 3rd yr on), our FO% scale would be lopsided. • Example: • 2nd yr FO% = 76.725% • 12th yr FO% = 67% (Parity with FDX would be 71.5%) $190 – 30.69% =$131.69 Applying UPS’ 2nd yr FO %: $131.69 x 76.725% =$101.04

  14. And all that before we even talk about a pay raise….

  15. Adjusting only the FO % • So adjusting only the FO percentage applied to the CPT rates does not solve the problem. • In fact, it would take a lopsided FO% scale to capture the same FO hourly rate as if you never changed anything else. The FO% applied to the CPT rates would also need to be much greater than they are now (up to an 18.7% increase). • BUT, IF we reduced the split between the 12th yr and 2nd yr CPT rates to something closer to the 8% industry norm on the 767 (12th yr CPT – 8% = 2nd yr CPT rate), the FO% we use today should capture the industry norm for FO hourly rates –back then. • Again, we haven’t even addressed a pay raise for the 12th yr CPT (all other rates are pinned to it).

  16. Which direction do you want to go? • Address only the percentages applied to the CPT hourly rates. • 767 parity from the bottom up (True 767 pay model) (12th yr CPT rate minus roughly 8%… not the 30.69% we have today.) • Differential Pay parity • Two tier pay scale (727 & something a little better than 767 rates [FDX uses MD11]) • Do you want to continue the bastardized version of the 767 pay model we have today? (IMHO, this option may leave a lot of folks behind.) • Other ---It’s YOUR call---

  17. How is UPS doing in the most gruesome financial CYCLE in the history of the airline industry? GRUESOMe What is fair and equitable under the current financial health of our company? Again, it’s your call...

  18. Should we consider using concessionaire rates? B I L L I O N S IMHO, why use the failing K-Mart wages if you work at Wal-Mart & are financially stable & growing? Net Profit or loss

  19. Here’s what a couple sources have said about UPS’ financial breakdown... • Wall Street Journal(04/23/03) states: • “UPS reported a stronger-than-expected 24% jump in first-quarter [NET] profit…” • 2002 Net Profit = $491 million (1st quarter) • 2003 Net Profit = $611 million (1st quarter) • The Value Line(03/14/03 issue) stated: • In 2001: • Domestic packages accounted for 78% of revenue • 4th quarter domestic packages “…represents about 75% of revenues and 85% of operating profits…” • International packages accounted for 14% of revenue • Non-package accounted for 08% of revenue • It also shows steady growth (weakest quarter shown): • 2000 1st Q revenue = $722 million • 2001 1st Q revenue = $751 million • 2002 1st Q revenue = $757.9 million • 2003 1st Q revenue = $801.5 million (MSN Money) • *** ESTIMATED *** NET Profit for: • 2003 = $2.66 billion (The Value Line) • 2004 = $2.95 billion

  20. What are hurting airlines asking for? • AAL, CAL, DAL, NWA, and UAL are in serious financial trouble. Management is looking for more than just hourly rate and Min Guarantee concessions. • They are looking in areas that make a financial difference via manning figures and or flexibility (work more for less money –even before you consider the hourly rate reduction). • Specifically, they are asking their pilots to accept changes in work rules that look uncannily similar to our –normal work rules. • What are a few key changes in Work Rules that these companies want or have changed? • The following slide has excerpts of key Work Rule changes, that particular union’s view of those reductions to their airline and how they believe it affected one other airline.

  21. A comparison of some of the work rule changes by United and American’s TA(Other airlines have asked for similar changes) • United currently has a 1:2 E-timeDuty Rig. We [AAL] changed ours to 1:2 in our agreement [was 1:1.75]. Every other major trunk carrier now has 1:2 except Continental (which has none). This change resulted in 120 furloughs [at AAL]. • United changed their F-timeTrip Rig to 1:4. Ours [AAL] stayed at 1:3.5. This [1:4] allows a United pilot to be away from base for 60 hours before they reach the minimum of 15:00 hours for a three-day duty period trip. At American, we can only be away 52:00 hours before we reach the 15:00-hour minimum for a three-day duty period trip. To match United would result in an additional 122 furloughs and $19.2 million in savings annually. • United has an 89-hour [Bid Line Cap] for the mainline and 95 hours for the low-cost carrier. American has a 78-hour monthly Bid Line [Cap] and 83 SPROJ and 85 PROJ for volunteer pick up. Going from a 78-hour maximum to an 89-hour maximum would save approximately $50 million annually, but would result in the need for 800 fewer pilots. Going to 95 hours would result in even more furloughs. • 89 or 95 hours for a Bid Line Cap, would have you [AAL] on the road at least another two to three days a month. UPS’monthly equivalent = 104-hrs (96 x 13 = 1,248 / 12 = 104 [Art 13, pages 187 and 249]); UPS’ Absolute Cap = 112.67-hrs

  22. AAL’s pre-concessionaire rates? • AAL is one of the three lowest HOURLY paid passenger airline pilot groups. • I had to ask myself: • If they are the least paid passenger airline, then why are they losing the most money? • Many across the table will quickly point at the pilot’s wages as the reason for this industries turmoil. As you know, this is not the reason for their problems. • Of course, any cost to the company adds up, but pilot salaries are not the primary or secondary reasons for this industry’s woes. • AAL pilots could fly for free and they still would be in the red.

  23. Backing up some of the earlier slides.(click ahead)

  24. Note the $58 spread between 12th & 2nd yr CPT rates… Others are around $15 to $26 767 CPT HOURLY ratesBased on 2004 pre-concessionaire rates Based on 2004 pre-concessionaire rates Hvy

  25. 12th year CPT rates by Fleet Based on 2004 pre-concessionaire rates DC-10F 747-SP

  26. Depending on the fleet, other airlines have roughly a 2% to 10% difference/split between their 12th year and 2nd yr CPT rates. I.e. 12th yr - % = 2nd yr rate The 767-300 difference is roughly:7.49% at AAL 8.31% at DAL 5.85% at FDX (Hvy) 8.38% at FDX (15th yr to 2nd yr Hvy) (A 15 yr spread may be a bad thing) 7.49% at NWA 8.46% at USAirways 7.96% at UALOurs is 30.68% ... a HUGE difference. FO & FE rates are directly related to 12th yr rates… Thus, a large split is not good.

  27. 3rd year FO rates by Fleet Based on 2004 pre-concessionaire rates DC-10F 747-SP

  28. 12th year FO rates by Fleet Based on 2004 pre-concessionaire rates 12th yr DC-10F 747-SP

  29. This is only one piece of the puzzle. • The attention and priority it receives is up to you. • As they say, one man’s trash is another man’s treasure. • Also note that almost all the passenger airlines are having financial woes regardless of what their hourly rates, Min Guarantees, or caps are. IMHO, contracts like UAL’s & DAL’s are good examples of what can be achieved when the financial health of the company is strong and the group is focused and motivated. FDX proved that passenger airline Work Rules (including Night Flying limitations) are NOT unusual for cargo airlines (OK.. OK, so FDX’s rules are watered down a little bit… but it was their FIRST contract).

  30. With the financial strength of UPS and the uncertainty of the passenger airlines, IPA members have been afforded a unique opportunity to negotiate an industry-leading contract. This group, like those who’ve forged the path before us, will have to decide the road we choose. We have before us three roads to choose from. One that would lead to what parity would have been if the countries’ recession, 9-11, Iraq war, SARS, high fuel prices and other factors (not pay related) had not degraded the passenger flying industry’s profit. Another that would raise the bar one step further and –lastly a mediocre one that reaches for parity based on concessions. Let wisdom be our strength and unity our spirit. Final thoughts Again, this comparison is not intended to divide our group but strengthen it.

  31. The End

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