Business Intelligence Committee Update
February 20, 2009
Double Standard - Part one
DEFINITION OF A DOUBLE STANDARD
US Airways’ rationale regarding Executive Bonuses and Compensation Packages per Form 8K
Form 8-K for US AIRWAYS GROUP INC, April 3, 2008:
For determining the cash awards under the program, the Committee adopted a peer group consisting of the following companies: AirTran Holdings, Inc., Alaska Air Group, Inc., AMR Corporation (the parent company of American Airlines), Continental Airlines, Inc., Delta Air Lines, Inc., Frontier Airlines Holdings, Inc., Hawaiian Holdings, Inc. (the parent company of Hawaiian Airlines), JetBlue Airways Corporation, Northwest Airlines Corporation, Southwest Airlines Co. and UAL Corporation (the parent company of United Air Lines). In addition, the Committee approved the following award pay-out schedule for the 2008-2010 performance cycle:
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US Airways’ rationale regarding pilot compensation per NAC update February 16, 2009:
Management informed the Negotiating Advisory Committee that US Airways now defines itself as a unique carrier in a class of its own. US Airways is not a large carrier, and it is not a small carrier. We are neither a high-cost carrier nor a low-cost carrier. Incredibly, we were informed that we are a different type of hub carrier because our hubs are poorly positioned. PHL is too close to EWR; CLT is too close to ATL; PHX has very little business traffic, and it goes on and on. US Airways now officially designates itself as a predominately leisure traveling, “SMALL NETWORK CARRIER†-- a class of our own! And you guessed it, Management made the case that, as a result of its new designation, there is no “industry standard†to which we can be compared, and they cannot compensate their pilots as the industry does.
The events of flight 1549 brought new focus to our profession and the value of an experienced flight crew. This is in stark contrast to the the insidious decline of that value according to our current and past management teams. Regardless of how little they view our expertise, we continue to do our jobs flying passengers from A to B on time and most important, safely. If something does go wrong, our training and practice, coupled with experience, delivers the safest outcome of emergency situations. We commend the Crew of Flight 1549 for achieving all of our professional goals and principles. Management’s recent comments to our Negotiating Committee is in stark contrast to this 8K filing defining upper management’s peer group, and bonus structure.
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Form 8-K for US AIRWAYS GROUP INC
3-Apr-2008
Change in Directors or Principal Officers
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. Adoption of Incentive Compensation Plan Targets for 2008 Executives and other key management employees of US Airways Group, Inc. and its subsidiaries (collectively the "Company"), are eligible to participate in an annual incentive program administered under the Incentive Compensation Plan of US Airways Group, Inc. (the "Incentive Compensation Plan"). By March 31st of each year, the Compensation and Human Resources Committee (the "Committee") of the Board of Directors of the Company must establish the performance targets that will be used to determine incentive awards for the year. The Committee also establishes target incentive award amounts as a percentage of base salary for each participant. If the performance targets are met at the maximum level, the Committee may approve payouts at 200% of the target award amounts. The Committee may also adjust each individual's payment amount in its discretion based on individual performance. However, any such adjustment may not result in an individual's payment exceeding 200% of the target award. After Committee approval, the incentive awards are paid as lump-sum cash distributions as soon as practicable after the end of the plan year. Our "named executive officers," currently consisting of W. Douglas Parker, J. Scott Kirby, Derek J. Kerr, Elise R. Eberwein and C.A. Howlett, are eligible to participate in the Incentive Compensation Plan. Our Chief Operating Officer Robert Isom, who became an officer of the Company in September 2007, also participates in this program, as do other executives of the Company.
On March 28, 2008, the Committee established (1) corporate financial performance targets based on designated minimum levels of pre-tax income for fiscal year 2008, (2) operational performance targets based on (a) a peer-group comparison of on-time flight performance and (B) baggage handling improvements from 2007 and (3) bonus pool amounts, based on the extent to which the corporate financial performance targets and the operational performance targets are met, for determining the total amount to be allocated among participants under the Incentive Compensation Plan for 2008. The Committee established 2008 target incentive awards as 100% of base salary for our Chief Executive Officer, 80% of base salary for our President, 80% of base salary for our Executive Vice Presidents and 60% of base salary for our Senior Vice Presidents.
If one or more of the performance targets are met, the Committee will determine an incentive award amount for each individual based on the individual's target incentive award amount, the level of achievement of the performance targets, the total bonus pool amount available and individual performance. The awards are weighted 50% to the corporate financial performance targets and 50% to the operational performance targets. The operational performance targets are weighted 67% to peer-group on-time flight performance and 33% to baggage handling improvements from 2007. If the corporate financial performance targets are not met, the potential award automatically will be reduced by 50%. If the peer-group on-time flight performance is not met, the potential award amount automatically will be reduced by 33.5%. If the baggage handling improvements from 2007 are not met, the potential award amount automatically will be reduced by 16.5%. If the corporate financial performance targets and both of the operational performance targets are not met, then no awards will be paid. In no event will the aggregate amount of awards paid out to the participants exceed the established bonus pool. The Committee has also reserved the right to decrease the awards or to make no payment of an award in its discretion, regardless of the attainment of the corporate financial targets.
Establishment of 2008 Long Term Incentive Program
On March 28, 2008, the Committee established the 2008 Long Term Incentive Program, which sets forth the terms and conditions for performance cash awards to be paid to our officers, including our named executive officers, under the US Airways Group, Inc. 2005 Equity Incentive Plan. Awards under the program are calculated based on our total stockholder return ("TSR") over a three-year performance cycle beginning January 1, 2008 and ending December 31, 2010, relative to the TSRs of a pre-defined competitive peer group for the same period. Cash awards would be paid out as a percentage of base salary based on our relative TSR rank, provided that a threshold level is reached.
The chart Below is based on Total Stock Return (TSR) over a 3-year period. With a ranking of 1-2 out of 12 airlines, our CEO and President would be rewarded a 200% bonus based on base salary.
Company Payout as a % TSR of Base Salary Relative Rank
SVP EVP President CEO
1-2 of 12 140% 175% 200% 200% (Maximum)
3 of 12 122.5% 156.25% 178.75% 181.25%
4 of 12 105% 137.5% 157.50% 162.50%
5 of 12 87.5% 118.75% 136.25% 143.75%
6 of 12 70% 100% 115% 125% (Target)
7 of 12 50% 71.5% 82% 89.50%
8 of 12 30% 43% 49% 54% (Threshold)
9-12 of 12 0% 0% 0% 0%
Some reasonable questions arise from the company’s 8K filing above:
Why don’t pilots get bonuses for every on-time block in?
Why doesn’t our pay rank with other pilots' pay in the industry?
Why does Management claim we don’t have a peer group?
Why does the Board of Directors use a peer group for Management’s bonuses?
Who directly contributes to on-time performance?
What incentives do pilots currently have in our contract?
Do pilots have the potential to receive 200% of our base salary?
We think you get the idea!
Over the last decade, the constant mantra chanted by Management has been “high employee costs.†“That,†they said, “was the problem!†Below is a chart of current industry pilot wages. If you look closely, there are only five operators (Allegiant, Amerijet, Miami Air, Virgin America, Xtra) below US Airways pilots' Maximum Captain’s pay for a group 2 aircraft. Is that our peer group?
® Chart provided by Airlinepilotcentral.com
The charts below contain compiled data from years 2000-2007. Some items of interest are:
Our load factors have increased 14.8%.
37.9% of our flying jobs have disappeared.
Wages and Benefits have declined 45.1%.
Management Salary Expense has increased 33.9%.
Pilot wage expense decreased 44.1%.
Management cost per average passenger fare has increased 142.6%.
Pilot wage/salary cost of an average ticket fare has decreased 28.2%.
(Years 2000-2007 for all data)
In this last chart, please note our pilot’s cost is only $7.65 of an average fare. Could we do better just passing the hat? A snack box or a cocktail is $7.00!
® Above Charts provided by airlinefinancials.com
This next chart is the stock performance of the major carriers for the past year. Although it was a bad year for all the airlines, we seem to be perpetually at the bottom of the list. How will the LCC Board of Directors reward Management’s performance?
Airline
12/31/07
12/31/08
Change
% Change
ALK
25.01
29.25
4.24
17.0%
CAL
22.25
18.06
-4.19
-18.8%
DAL
14.89
11.46
-3.43
-23.0%
AMR
14.03
10.67
-3.36
-23.9%
LUV
12.20
8.62
-3.58
-29.3%
LCC
14.71
7.73
-6.98
-47.5%
UAUA
35.66
11.02
-24.64
-69.1%
LUV President and COO Colleen Barrett said, “after the employee…the company’s second focus is the passenger, with shareholders coming in a distant third. Usually, shareholders rankle at that kind of hierarchy.†Eric Torbenson of The Dallas Morning News said in a December 2005 article, “Among pilots flying Boeing 737s, Southwest pilots are the best-paid in the industry....â€
Have you ever heard anything similar to Colleen Barrett’s words uttered on this property?
But shareholders do not fret for LUV. Tom Gardner, co-founder of The Motley Fool said; “Had you invested $10,000 in Southwest in 1980, you'd be sitting on $2.7 million today.†Thirty-five consecutive years of profits is a track record with which no one can argue.
Wonder what a $10,000 investment in US Airways would be today? The answer is zero!
It seems our Management has a double standard on compensation. Not only do they keep up with their industry peer group for base pay; they also receive bonuses for performance based on their industry peer group. US Airways pilots, on the other hand, have seen a massive decline with regards to our pay in relation to the rest of the industry and Management, and receive no incentive or bonus for performance. If anything, we have a system of work rules that removes any incentive. It is only our regard for our profession and the safety of our crew and passengers that maintains our performance!
In part two, we’ll look at what our customers have to say about our airline and how it is managed!
