Compensation Program to Solidify a Catering Giant

Sky Chefs began in 1943 as a subsidiary of American Airlines and was sold in 1987 to a group consisting of its management and Onex Corp. In 1993, Lufthansa Airlines subsidiary LSG acquired a stake in the food services company and established a global marketing agreement. Sky Chefs subsequently continued to grow by acquisition and LSG purchased the entire company in 2001 to create the world’s largest airline catering organization. LSG Sky Chefs, which services more than 200 airports around the world, has 41,000 employees and $3.4 billion in annual revenue. The challenge for LSG Sky Chefs has been to develop a global rewards system that melds the compensation, benefits, and cultural practices of two distinct global companies with roots in the very different environments of the U.S. and Europe. For example, pay practices at Sky Chefs were set globally with local variations. At LSG, pay was localized. Benefits at Sky Chefs conformed to the flexible model common in the U.S. but LSG reflected the social programs prevalent in Europe. The culture at Sky Chefs was dominated by team-based decisionmaking while LSG was more formal and hierarchical. While various people issues were studied concurrently, the timetable for implementing a global rewards system was staged, with pay as the number one priority, considering its critical role in retaining key talent and shaping decisions and behaviors. The second priority was learning and development, including career development, succession planning, and training, given its importance in addressing employee retention long term and handling cultural issues. Next came the work environment, including work/life balance and organizational climate. Finally, benefits were dealt with. LSG Sky Chefs approached merger integration with a clear understanding of the current state at each organization and an awareness of existing practices at other leading companies. Most important, however, integration activities were driven by the organization’s strategic priorities and the culture it wanted to create. The terrorist attacks of Sept. 11, 2001, hurt LSG Sky Chefs along with the rest of the airline industry. A 30% revenue decline led to a 35% reduction in the workforce, facilities closings, and consolidation and heightened the urgency of the process of restructuring and finding innovative ways to create more value. Fortunately for LSG Sky Chefs, the total rewards integration work – begun with quite a different purpose in mind – gave the organization a substantial head start over most other companies in the process of adjusting to the unplanned business changes resulting from the 9/11 catastrophe.