Executive Pay at Airlines Now an Issue

tonyw

tonyw

Well-Known Member
Cost Cutting Airlines Grapple with Executive Pay

You will have to register to read it, but here are a few snippets.

virtually no upper-management wallet at sick airlines remains untouched, but the extent of slimmed compensation varies by carrier. Delta's chief executive officer, Gerald Grinstein, skipped his $500,000 annual salary for six months last year. And since he became head of the Atlanta airline in January 2004 (after having been a Delta board member), Mr. Grinstein has taken no other remuneration.

Gerard Arpey, AMR's chairman and CEO, makes less than he did as chief operating officer there. He has turned down two promotion raises since the Fort Worth, Texas, parent of American Airlines sliced his salary 14.4% in April 2003. AMR had threatened a bankruptcy filing that year to wring $1.8 billion in pay and benefit cuts from all employees.

Wanna get pissed off? Read this crap.

"It's a real tough dilemma," says Kim Cameron, a University of Michigan management professor. While profitability and stock prices usually rise when leaders share their subordinates' pay pain, pressure to pinch executive pay harder could weaken carriers' chances for recovery by increasing the tempo of management turnover.

"If you pay below market, you get what you pay for," says a former vice president of a troubled major carrier who joined a start-up airline earlier this month. "You will be left with the 'B' team."

The B team? The B team? Give me a freaking break, you efftards. Yes, we need to pay people who drive their companies into bankruptcy and destroy billions of dollars in shareholder value obscene salaries.

Maybe these people need to look at what Warren Buffet does. Know what his salary is?

$100K a year.
 
Yeah, the 'A' team did so well didn't they........

The 'B' team? Hell, let's give the 'C' & 'D' teams a chance, they couldn't do any worse.

I don't want to work for someone who's just there for the compensation. I want to work for someone who wants to run an airline .
 
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Yes, we need to pay people who drive their companies into bankruptcy and destroy billions of dollars in shareholder value obscene salaries.

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If you think the only difference between success and failure at the legacies is who has been CEO the last few years, I've got some prime real estate in west Texas for you. Even at airlines like CAL who have had steady hands on the reins for several years, the future is not assured.

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Maybe these people need to look at what Warren Buffet does. Know what his salary is?

$100K a year.

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Yeah. And his net worth is (sorry my computer won't go that high). Keep in mind that when the boards cut salary and replace with stock option incentives, people still yell about how unfair it all is.

Maybe the solution is to have everyone draw straws. Short straw gets the CEO slot with no pay raise but a really nice company car.
 
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If you think the only difference between success and failure at the legacies is who has been CEO the last few years, I've got some prime real estate in west Texas for you. Even at airlines like CAL who have had steady hands on the reins for several years, the future is not assured.

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I didn't say that.

But the whole idea that people need to get obscene compensation at a time when they are asking people to take cuts of a third of their paycheck is sickening.

You want people to take paycuts? Well, show the way. That's leadership.

To Arpey's and Grinstein's credit, Grinstein took no comp for six months, and Arpey rejected a couple of raises he was due to get.

Or do it like Buffett, where his comp is pretty much tied to his company being successful. And it's worked. Compare the shareholder value he's created versus the shareholder value that some of the obscenely compensated have created, and he wins hands down.
 
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You want people to take paycuts? Well, show the way. That's leadership.

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True. However it is quite clear that many employees don't notice when their CEOs do take cuts and continue to carp about CEO pay.

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To Arpey's and Grinstein's credit, Grinstein took no comp for six months, and Arpey rejected a couple of raises he was due to get.

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Cases in point.

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Or do it like Buffett, where his comp is pretty much tied to his company being successful. And it's worked. Compare the shareholder value he's created versus the shareholder value that some of the obscenely compensated have created, and he wins hands down.

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True. It would be interesting tryng to get people to take the job. Especially given that stock prices are often valued on speculation and not value. There is very little true investing (ala Buffett) going on today. The people currently holding stock in companies like Delta and CAL are almost purely speculators.
 
What about pilot performance? You get what you pay for there too. Pilots work hard, sometimes 14 hr stints. When you cut there pay, I am sure some are not as motivated to do the job. I believe what has been already mentioned...if you are going to make pay cuts, they need to be all across the board. Thus everyone is on equal playing fields. No picking at any particular group, EVERYONE.
 
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I don't want to work for someone who's just there for the compensation. I want to work for someone who wants to run an airline .

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I like that! I used it for the people I work with, too.

When I hear somebody complain that the pay and time off sucks, I get pretty angry...
smirk.gif


I digress. . .
 
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I don't want to work for someone who's just there for the compensation. I want to work for someone who wants to run an airline .

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I like that! I used it for the people I work with, too.

When I hear somebody complain that the pay and time off sucks, I get pretty angry...
smirk.gif


I digress. . .

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I had a rule of thumb that was very reliable over the years. If a new crewmember spent a lot of energy and time complaining about the company or the CEO they could be counted on to do their own job poorly. Complaining is too often just an excuse for not doing your job.
 
You know, Dave, it's amazing to me that people can actually make themselves miserable compaining, when they should just sit back and enjoy the ride!

Of course, according to all the old bitter folks around here, I haven't been involved in aviation long enough to know just how badly it sucks.
banghead.gif


Of course, I want to get paid. But that's not why I'm doing this.
 
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You know, Dave, it's amazing to me that people can actually make themselves miserable complaining, when they should just sit back and enjoy the ride!

Of course, according to all the old bitter folks around here, I haven't been involved in aviation long enough to know just how badly it sucks.

Of course, I want to get paid. But that's not why I'm doing this.

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Truth. I never had a clue what I was going to make coming into aviation. Since I wasn't going to do anything else why would it matter? But I got awfully lucky on jobs. Absent that I might have become a bitter complainer too. Instead I became a happy kool-aid drinker. But there's something to be said for having low expectations.
smirk.gif
 
Here's my philosophy: start with a fairly medium to low base salary and increase it with performance based incentives. Stock options are a half-@ssed way of doing that. If the CEO leads the company well, his stock options are worth more. However, if he leads it poorly their worth less, but he still gets them.

Look at SWA for pilot performance. They get on-time bonuses, etc to encourage positive performance. Same with XJT's ground crew (not sure about the pilots). When it gets three minutes to push time, EVERYONE starts thinking about that bonus check being on the line. IMO, if your financial future is tied to the same wagon as the companies, then you'll work harder to make sure the company succeeds. The problem is with most companies, the CEO's golden parachute reminds him that his financial future is secure even if the company fails. THAT, my friends, is getting what you pay for. I can't believe people actually think someone will work hard to save a bankrupt company if they know they can jump ship and take more cash with them than if they'd stayed.....
 
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The problem is with most companies, the CEO's golden parachute reminds him that his financial future is secure even if the company fails. THAT, my friends, is getting what you pay for. I can't believe people actually think someone will work hard to save a bankrupt company if they know they can jump ship and take more cash with them than if they'd stayed.....

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Agree.
 
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True. It would be interesting tryng to get people to take the job. Especially given that stock prices are often valued on speculation and not value. There is very little true investing (ala Buffett) going on today. The people currently holding stock in companies like Delta and CAL are almost purely speculators.

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See, there's the thing. If you went that route, you would get someone who wasn't interested solely in the paycheck, but in building the company into something special. Then he would get rewarded like Buffett has. And if you want to talk about obscene amounts of money, he's worth it.

But the thing is, nobody begrudges Buffett that money, because nobody can dispute that he has earned it by making the stock he owns appreciate tremendously.

I don't know if you remember the Ross Perot skits from SNL. There was one where he said something like, if the economy doesn't go up by at least three percent and I'm President, I don't get paid, not one red cent. But if it goes up by three precent, then I get x dollars. And if it goes up by four percent or more, I get x percent of the economic growth. You're still coming out ahead by billions.

It was a satire, but I think there's some truth to it. If you get people in there with a Buffett mentality, where they are focused on the long term viability and profitability of a company since it's how they're going to make their money, I think everyone wins in the end.
 
Now forgive me if I'm totally wrong on this, but when I hear people talking abour labor being the chief cost at most airlines, I recall a statistic that I've seen somewheres about how many people each airline employs on a per aircraft basis. So essentially take the total number of employees and divide by the number of aircraft and thats your number.

Again, I'm totally going fro memory from here, but I recall that number being in the 1,400 to 2,000 range at the legacy carriers, and less than 1,000 at LCCs.

My point is this: If that's accurate, doesn't that make pilot pay a very small fraction of what it actually costs to run the aircraft?

Also, realozing that there's a lot of things I don't know about this business, why the heck does a major company like Delta or United need over 1,500 people per plane to operate? Just what services are all those people providing, and how important are they to core business of the airline, i.e. hauling self-loading freight?

Again, I could just be showing my complete ignorance on the subject, but justa thought or two.....
 
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But the thing is, nobody begrudges Buffett that money, because nobody can dispute that he has earned it by making the stock he owns appreciate tremendously.

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Well back when the stock market was going up like a rocket nobody begrudged these CEOs their big checks and bonuses either. It was only when the speculative bubble burst and employees and investors got burned that they noticed what the CEOs were making and their golden parachutes.

The thing about CEO pay and bonuses tied to stock performance is, that's what lead to a lot of the abuses and cooking the books and other things that went on. Enron was the poster child for this. Successful companies are run like Buffett invests. Just pay attention to how the widgets are made and marketed and leave the stock price to the speculators. Unfortunately stock price has become the standard of success.

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I don't know if you remember the Ross Perot skits from SNL. There was one where he said something like, if the economy doesn't go up by at least three percent and I'm President, I don't get paid, not one red cent. But if it goes up by three precent, then I get x dollars. And if it goes up by four percent or more, I get x percent of the economic growth. You're still coming out ahead by billions.

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That's cute, except it's not the politicians' jobs to make the economy go up. As soon as they think it is you only get trouble.

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If you get people in there with a Buffett mentality, where they are focused on the long term viability and profitability of a company since it's how they're going to make their money, I think everyone wins in the end.

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Agree. You just have to get the stock performance out of there as the standard. UPS is probably the model. They have all kinds of internal performance indicators. They know when things are going right and wrong.
 
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Now forgive me if I'm totally wrong on this, but when I hear people talking abour labor being the chief cost at most airlines, I recall a statistic that I've seen somewheres about how many people each airline employs on a per aircraft basis. So essentially take the total number of employees and divide by the number of aircraft and thats your number.

Again, I'm totally going fro memory from here, but I recall that number being in the 1,400 to 2,000 range at the legacy carriers, and less than 1,000 at LCCs.

My point is this: If that's accurate, doesn't that make pilot pay a very small fraction of what it actually costs to run the aircraft?

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Well the problem is that historically the airlines have not been profitable. On the rare occasions they do make money the margins are razor thin, meaning that every cent counts. In that environment, if you have one employee group who can save the company a billion dollars a year by taking a 30 odd percent cut, that's significant. You can juggle numbers, but a billion is a billion.


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Also, realozing that there's a lot of things I don't know about this business, why the heck does a major company like Delta or United need over 1,500 people per plane to operate? Just what services are all those people providing, and how important are they to core business of the airline, i.e. hauling self-loading freight?

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The LCCs don't hub. Hub operations are very labor intensive. Each connecting passenger gets their bags handled three times, as opposed to twice by an LCC and that extra handling is more complex and time-consuming. There are other areas where a large hub carrier eats up labor. There is no way hub carriers will ever be as lean as LCCs, period. That doesn't mean they can't be efficent and profitable.
 
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Well the problem is that historically the airlines have not been profitable. On the rare occasions they do make money the margins are razor thin, meaning that every cent counts.

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Know what the difference is between a profit and loss for the most efficient airline out there, Southwest?

The last two or three seats of a 737.

Yup, it's that thin. And that is for one of the best run, best managed, best operated airlines in the business.
 
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"If you pay below market, you get what you pay for," says a former vice president of a troubled major carrier who joined a start-up airline earlier this month. "You will be left with the 'B' team."


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But this somehow doesn't apply to labor!?

Thank you Harvard, Yale, etc.!!!
 
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The LCCs don't hub. Hub operations are very labor intensive. Each connecting passenger gets their bags handled three times, as opposed to twice by an LCC and that extra handling is more complex and time-consuming. There are other areas where a large hub carrier eats up labor. There is no way hub carriers will ever be as lean as LCCs, period. That doesn't mean they can't be efficent and profitable.

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Some of the larger SWA cities (BWI, HOU, LAS, PHX, MCO, etc) might as well be hubs. I know there were a LOT of flight we loaded to BWI from MCO that had twice as many bags transferring in BWI to go to BUF, RDU, MHT, etc than staying in BWI. MCO was like a mini-hub with flights to MSY, FLL and HOU. The bigger SWA gets, the closer some of their cities are getting to hubs. When PHL first opened, we had two flights from MCO-PHL, but you could go through BWI or MDW and hop a ton. When you have to have a ramper assigned to do nothing but run transfer bags from one flight to another, you're getting close (BTW, for those that are curious that is probably my fav job on the ramp, yet most rampers hate it due to time constraints and mental capacity.....). In fact, operationally BWI for SWA has more in common with CLT for US Air than most other SWA cities. It also is the most labor intesive station with the highest turnover rate in the system.
 
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