Saturday, March 11, 2017

Is it ethical to keep frequent flyer points for yourself?

When Jimmy & Evelyn founded Taco Love, they purchased supplies on company credit cards and used the points for personal travel. As the chain grew, they brought in a second investor, and the three of them shared the points among themselves, allowing them to purchase several business-class tickets to Europe each year.

As the chain continued to grow, two more outside investors were brought in.  The new CFO who came with them insisted that the points be used only for company approved travel.  The relationship between the founders and the new shareholders began to sour and, eventually, the new shareholders bought out the founders and terminated their employment with the company.

If anyone does not immediately see that the new CFO stopped what was essentially theft, please re-read Milton Friedman's famous NY Times editorial, "The Social Responsibility of Business is to Increase Profit."

4 comments:

  1. Well not so fast.

    I believe that the decision made by the CFO should have instead been made by the investors as an executive compensation issue.

    In many cases, the points may have been more valuable to the founders for personal travel than they were to the company for business travel. In that case, the points may have been a less expensive form of compensation, relative to cash compensation.

    In this case however, it seems that Jimmy & Evelyn like most founders needed to move on, and the points were far from the only issue.

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  2. Sam does bring up some good points in his response. The Chief Financial Officer should not have the only say in this decision that affects the company, especially in such a defining way as pushing out the founders of the organization. It should have been a decision made by the board and the investors jointly in how to continue and if any regulations needed to be placed. As Sam stated, the miles could be used as a form of executive compensation that has limitations on the number of miles that each executive could utilize. This would leave it available for travel regarding the business, as well as keeping the top executives happy and on board.

    Previous points aside though, I do believe that this could become an ethical problem. As the company grows, the founders are taking advantage of miles that were brought about by business expenses paid for by the business, not the founders. Perhaps early in the history of Taco Love it is not as much of an ethical issue as the primary stakeholders and investors are the founders themselves. Once Taco Love brought in an additional two investors though, they should have re-evaluated the way that they were utilizing their miles.

    According to Kilhof, legally speaking, whoever is the party responsible for paying for what is accruing miles is the owner of the miles. If the owner of the miles is an organization, then like many other things related to business, it must be decided upon by stakeholders.

    Kilhof, S. (2014, August 11). Employees and employers battle over rights to frequent flyer miles. Retrieved March 15, 2017, from http://www.businessdestinations.com/move/travel-management/employees-and-employers-battle-over-rights-to-frequent-flyer-miles/

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  3. Sam and Erica do bring up good points about how the CFO should have handled it rather than pushing out the founders. You are absolutely right that it is not ethical to keep these frequent flyer points for yourself when the business has earned them and they can be used towards business travel rather than personal travel.

    If the plane ticket is paid for by the employer, in this case Taco Love, then legally the points that are coming about from these trips belong to the employer. Ethically, you may think you deserve the points because of the hassle that the trips may cause but they are not yours to keep. This issue has been an ongoing problem for a very long time it seems.

    There are companies, on the other hand, that tend to look at the flyer points as perks. Being able to use them for employees who are sent on company trips is an incentive because they will be spending time away from their families but are able to keep the points that they earn in their own accounts. According to an article I read, they say that if they didn’t use these as an incentive, they would never get anyone to go on these business trips, which is true.

    Taco Love should set up specific rules for the use of company perks to prevent any issues in the future. It is unfortunate that it took the termination of the founders of the company but it was what was best for the company at the time. I would have suggested to come up with rules that the stakeholders and the board all agreed on.

    http://www.businessdestinations.com/move/travel-management/employees-and-employers-battle-over-rights-to-frequent-flyer-miles/

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  4. The new shareholders including CFO could have come to a more reasonable decision concerning the founders. While it’s true that corporations have a social responsibility and compliance to rules, the entire board should have thought of a legal compensation package for the money saved on supplies to reward Jimmy and Evelyn so that they could use their earnings on whatever they choose, be it airline tickets, etc.
    Another compensation model could have been to incorporate business travel to Europe by extending their business relations worldwide. However, to keep the founders satisfied, the new shareholders should have thought of an incentive compensation that would allow the Jimmy and Evelyn the opportunity to continue their travel to Europe with funds they earned by their increased sales and or savings to the company. The link between performance and compensation creates the incentive for the founders to act in the firm’s best interest. (Foreb, et. al., 2014)
    Froeb, L., McCann, B., Shor, M. & Ward, M. 2014 Managerial Economics A Problem Solving Approach. 4th Ed. Cenage. Boston, MA.

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