Alternate rationales for severance pay compensation under airline deregulation

Our paper has considered possible justifications for compensation in the specific context of the Airline Deregulation Act of 1978. While the concept of severance pay for dislocations caused by deregulation is consistent with all of the pro-compensation rationales discussed in Section 4, specific severance pay schemes are generally consistent only with particular rationales. This suggests that some insight into the true rationale(s) for compensation may be gained by examining the specific severance pay features of the Airline Deregulation Act. The particular severance pay arrangements in the airline case were found to be consistent with the equity rationale for compensation set forth by Michaelman, and to a lesser extent, with the Hochman fairness rationale. However, it was argued that one common equity rationale, the transitional aid rationale, would not justify establishing a separate severance pay scheme targeted only at airline employees. Moreover, the particular arrangements in the Airline Deregulation Act seem inconsistent with the view of severance pay as a ‘political buyout’ of well-paid airline employees and with the argument that compensation promotes better calculations of the impacts of policy changes. This latter result suggests that equity rather than efficiency considerations motivated the implementation of severance pay guidelines. More generally, our analysis suggests that development of rational and coherent compensation programs is facilitated by explicitly confronting basic rationales for and against such programs. Such rationales provide broad insights concerning whether such programs are necessary. In addition, various rationales have specific implications for how compensation schemes should be implemented. Copyright Martinus Nijhoff Publishers 1983