The CEOs of the big three automakers have promised to cut their salaries to $1 if they get a government bailout. If the plan works, will the airlines try it the next time they plead with the taxpayers for a rescue?
I wouldn’t count on it. Executive compensations are on the high side of things, considering the airlines’ generally lackluster performance.
Here’s what the airline CEOs make, according to Forbes:
Doug Parker (US Airways) $11.34 million
Lawrence Kellner (Continental) $10.33 million
Glen Tilton (United Airlines) $5.55 million
Doug Steenland (Northwest Airlines) $1.81 million
Gary Kelly (Southwest Airlines) $1.21 million
Gerard Arpey (American Airlines) $1.11 million
Richard Anderson (Delta Air Lines) $0.60 million
Let me answer that question. The only thing the airlines would cut in the event of a government bailout is the same thing they cut during the last bailout in 2002 — amenities, employees’ salaries and benefits and routes.
It’s impossible to imagine the airline CEOs coming to Congress someday, hat in hand, and offering to take a $1-a-year salary.
But you never know.
Update (Dec. 4, 2008): US Airways responds:
I recognize the importance and interest CEO compensation has to our stakeholders and the general public. At US Airways, we do our best to be as transparent and forthcoming about this topic as we possibly can.
The $11.34 million/top-compensation ranking data for our CEO, Doug Parker, is very misleading. Forbes notes (in very fine print…I actually had to read it a couple times myself) that they are reporting 2006 compensation (not exactly the most up to date information when you consider that we’re on the doorstep of 2009).
This concerned me since 2007 CEO compensation data is available for all of the carriers (including US) and the post doesn’t highlight that the ranking is based on 2006 data (the wording actually implies current compensation).
While I’m not going to speak for Doug’s peers, I would like to take this opportunity to outline and explain Doug’s 2007 compensation – which is the most current information that we’ve reported. As has been the case since our merger, Doug’s 2007 compensation consisted of a base salary and three “at risk” components: an annual bonus, a long-term incentive, and equity awards.
Base Salary: Doug’s 2007 salary was $550,000, which is the same it’s been since he became CEO of America West in 2001. And when compared to other airline CEOs, Doug’s 2007 salary ties for fourth, behind Tilton, Kellner and Arpey.
In addition, you may recall that in June Doug purchased the equivalent of his 2008 salary ($550,000) in LCC stock to demonstrate his faith in our airline’s ability to persevere amidst a backdrop of skyrocketing oil prices and economic uncertainty. In other words he chose to invest the equivalent of his 2008 salary into US Airways stock in lieu of forgoing his salary this year.
Annual Bonus: Doug’s 2007 annual bonus for the company’s performance in 2007 was $0. Even though we had profits of over $400 million in 2007, we did not meet the Board-established financial goals for the year, so he did not receive a bonus.
Long-Term Incentive: Doug’s long-term incentive payment (LTIP) for 2007 was $924,000. The LTIP is paid only if the company’s stock performs better than our peers over a three-year period. For the three years ended 2007, AWA/LCC stock was the fourth best performing of 13 airline stocks, resulting in this LTIP payment.
Stock Awards: By far the largest component of Doug’s compensation reported in our proxy last April was $3.9 million for stock awards (stock appreciation rights and restricted stock). Here’s where it gets a little hard to explain but bear with me… this is the accounting value of these awards, not wages or actual dollars that were given to Doug. The numbers reflect the value of these awards (much of this value was created when the stock was trading at $45 per share).
Clearly, with the stock trading around $5 today, the right to purchase shares at $45 is not worth very much. In fact, the stock appreciation rights he received in 2007 that were valued at $1.95 million in the proxy are worth nothing because they are underwater today. Doug also received restricted stock units, and those have value as long as the stock is trading. Again, when they were awarded (the stock was at $45 a share and thus the $1.95 million value listed in the proxy). Today, at $5 per share, that grant is worth $122,700.
When you add all of that up it comes to about $5.4 million (which is what we previously reported in our proxy), with the vast majority of that amount in stock awards that are now worth a small fraction of the reported total. Of course this is nothing to sneeze at and it is a huge number but it is a far cry from the 2006 $11 million Forbes figure.
Of course, by any measure, CEO compensation is highly emotional, and as such, the facts really matter. The fact is that Doug is not the highest paid CEO in our industry — he is actually more middle of the pack, and indeed well below several of our peers.
