Cutting the Pay Gap Between Chiefs and Workers: David Pauly
By David Pauly
March 29 (Bloomberg) -- How's this for contrast?
UAL Corp., which left bankruptcy proceedings Feb. 1, 2006, disclosed this week that it paid Glenn Tilton, chief executive officer of its United Airlines unit, $24 million last year, mostly in stock, options and incentive pay.
Delta Air Lines Inc., which plans to exit Chapter 11 bankruptcy about April 30, said last week that it will continue to pay its CEO Gerald Grinstein his salary of $338,000 -- and that's it.
Atlanta-based Delta, the third-largest U.S. airline after AMR Corp.'s American and UAL's United, is doing even more to turn corporate compensation levels on their head.
It plans to give 39,000 workers who aren't covered by union contracts $480 million in cash and new Delta stock. That comes to $12,308 for each person.
The employees will get 8 percent of their 2006 earnings in cash, a total of $130 million. They also will get 3.5 percent of the new Delta stock, worth $350 million based on the company's estimate that its shares out of bankruptcy will be worth $10 billion.
All-time pay hogs like Sanford Weill and Michael Eisner must be shocked. Delta's working stiffs are getting stock and the CEO isn't. Grinstein is donating what equity benefits he might have received under the new Delta pay plan to start charities for hard-up Delta employees and retirees.
Grinstein, 74, Delta's CEO since 2004, won't be a charity case, of course. He's had a long career in law, railroads and airlines and will leave Delta some months from now after a new CEO is chosen.
Team Play
But it must be encouraging to proponents of better corporate governance to see Delta spreading the rewards commensurately to those whose pay was cut to help the carrier survive.
Delta's non-contract workers also will get pay increases of as much as 4 percent this summer and profit-sharing and pension rights.
Under union contracts, Delta pilots and flight dispatchers will get profit-sharing and other compensation and they have unsecured claims against the airline in the bankruptcy proceeding.
A group of 1,200 Delta managers other than the top executives will get $240 million in new stock, or $200,000 each.
Delta does plan to pay some big sums this year: $8.4 million each to Edward Bastian, chief financial officer, and Jim Whitehurst, chief operating officer. Even so, Bastian and Whitehurst counterparts at UAL made $10 million and $13 million, respectively, and another UAL officer made $10 million. Don't forget Tilton's $24 million.
Trickle Down
UAL executive pay looks outsized considering the company was barely profitable, excluding one-time gains, in the 11 months of 2006 after leaving bankruptcy. By comparison, 54,000 members of United's working class received $115 million in incentive pay and profit-sharing last year, equal to $2,130 each.
As it justly boasted about its compensation plans, Delta also warned that its management pay, long below that of the industry, eventually must rise. Executives have left the airline in search of more money, the company said.
Increases may be fair. History, though, dictates that all airline executives should be paid modestly. From 1938 through 2005, the industry had a cumulative loss of $17 billion, according to the Air Transport Association trade group. ATA estimates the carriers earned $2 billion to $3 billion last year, excluding bankruptcy charges, still leaving the industry a loser overall.
Delta should remain as wise about pay in the years ahead as it has shown today. And competitors should follow its lead.
(David Pauly is a columnist for Bloomberg News. Opinions expressed are his.)
To contact the writer of this column: David Pauly in Fort Myers, Florida [email protected]
By David Pauly
March 29 (Bloomberg) -- How's this for contrast?
UAL Corp., which left bankruptcy proceedings Feb. 1, 2006, disclosed this week that it paid Glenn Tilton, chief executive officer of its United Airlines unit, $24 million last year, mostly in stock, options and incentive pay.
Delta Air Lines Inc., which plans to exit Chapter 11 bankruptcy about April 30, said last week that it will continue to pay its CEO Gerald Grinstein his salary of $338,000 -- and that's it.
Atlanta-based Delta, the third-largest U.S. airline after AMR Corp.'s American and UAL's United, is doing even more to turn corporate compensation levels on their head.
It plans to give 39,000 workers who aren't covered by union contracts $480 million in cash and new Delta stock. That comes to $12,308 for each person.
The employees will get 8 percent of their 2006 earnings in cash, a total of $130 million. They also will get 3.5 percent of the new Delta stock, worth $350 million based on the company's estimate that its shares out of bankruptcy will be worth $10 billion.
All-time pay hogs like Sanford Weill and Michael Eisner must be shocked. Delta's working stiffs are getting stock and the CEO isn't. Grinstein is donating what equity benefits he might have received under the new Delta pay plan to start charities for hard-up Delta employees and retirees.
Grinstein, 74, Delta's CEO since 2004, won't be a charity case, of course. He's had a long career in law, railroads and airlines and will leave Delta some months from now after a new CEO is chosen.
Team Play
But it must be encouraging to proponents of better corporate governance to see Delta spreading the rewards commensurately to those whose pay was cut to help the carrier survive.
Delta's non-contract workers also will get pay increases of as much as 4 percent this summer and profit-sharing and pension rights.
Under union contracts, Delta pilots and flight dispatchers will get profit-sharing and other compensation and they have unsecured claims against the airline in the bankruptcy proceeding.
A group of 1,200 Delta managers other than the top executives will get $240 million in new stock, or $200,000 each.
Delta does plan to pay some big sums this year: $8.4 million each to Edward Bastian, chief financial officer, and Jim Whitehurst, chief operating officer. Even so, Bastian and Whitehurst counterparts at UAL made $10 million and $13 million, respectively, and another UAL officer made $10 million. Don't forget Tilton's $24 million.
Trickle Down
UAL executive pay looks outsized considering the company was barely profitable, excluding one-time gains, in the 11 months of 2006 after leaving bankruptcy. By comparison, 54,000 members of United's working class received $115 million in incentive pay and profit-sharing last year, equal to $2,130 each.
As it justly boasted about its compensation plans, Delta also warned that its management pay, long below that of the industry, eventually must rise. Executives have left the airline in search of more money, the company said.
Increases may be fair. History, though, dictates that all airline executives should be paid modestly. From 1938 through 2005, the industry had a cumulative loss of $17 billion, according to the Air Transport Association trade group. ATA estimates the carriers earned $2 billion to $3 billion last year, excluding bankruptcy charges, still leaving the industry a loser overall.
Delta should remain as wise about pay in the years ahead as it has shown today. And competitors should follow its lead.
(David Pauly is a columnist for Bloomberg News. Opinions expressed are his.)
To contact the writer of this column: David Pauly in Fort Myers, Florida [email protected]
