PlaneBusiness News

Just How Ugly is the United Airlines' Proxy Statement?

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As for the airline industry, I wish I could talk about something that shone brightly, but alas, there is instead a major outrage to get us started this week. Not that it comes as a surprise.
 But there is still something gravely sobering about seeing the numbers in print.

I'm talking of course about United Airlines' proxy information that was filed this week.  In that document, once again we were slapped across the face with the details of the obscene management
 compensation agreements
 that went hand in hand with the airline's emergence from bankruptcy last year.  You may recall that we were so appalled at these agreements last year that we awarded Glenn Tilton,
 CEO of United, his own special award.
No, a PlaneBusiness Ron Allen airline management award was not nearly enough.

 No, Glenn and his management team deserved their own special PlaneBusiness "greed award."

This week, the first black and white numbers associated with that bankruptcy emergence surfaced in the airline's SEC filing.

For 2006, United Airlines CEO Glenn Tilton received a compensation package worth an estimated $40 million in salary, stock awards, and perks.  Tilton received $687,083 salary in 2006. The bulk of his compensation --
 roughly $38 million -- came in the form of stock options and awards, which vest over a four-year period and could be worth more or less depending on the share price at the time they are exercised.
The bulk of this was granted as part of the airline's bankruptcy exit.

Tilton also received $839,028 in nonequity incentive plan compensation and $210,959 in free travel, reimbursement for financial services and other perks.  So without figuring in the huge bankruptcy-related stock awards,
Tilton still took home total compensation worth about $9.3 million for the year: a salary of $687,083, a bonus of $839,028, other perquisites worth $210,959 and stock and options worth $7.6 million.

Two other major things to note.  One, if United Airlines is sold, or merges with another company, Glenn Tilton could take home as much as $36.5 million.

Tilton currently has about 436,000 restricted shares and 657,600 options that he would no doubt be forced to redeem if there were an ownership change.  And who knows? In the event of a run-up in
the stock as a result of a potential deal,
his haul could be even greater.

Two -- Tilton was given a raise last year.  Yes. A raise.

In September, United entered into a new, five-year employment agreement with Tilton that boosted his base pay by 40%, to $850,000 per year.  In his defense,
United spokeswoman Jean Medina said about 96% of
Tilton's compensation is "at risk," tied up in securities that could be worthless if he doesn't successfully land United on "firm financial footing."  "If United doesn't perform well, then the executives
won't receive anywhere close" to the amounts in the proxy," she said.  Not necessarily true. Sorry, Jean.

An airline's stock price or movement frequently has little to do with its financial health or well-being.

In addition, given that United management knew that shares would rise following bankruptcy, and will no doubt rise again, prior to a merger being formally negotiated -- this "at risk" statement rings pretty hollow.

We all know what the deal is here -- and it's not based on Glenn and Jake bringing the airline back to financial success. It's simply a page torn from the old Stephen Wolf handbook.

But Tilton is not the only United executive that received off-the-chart compensation last year. The details are included in the airline's proxy statement.  To download a copy of the proxy statement, click here.
It is in PDF form.
 Not surprisingly, given the airline's SEC filing, the unions at United took this as a reason to protest. And rightly so.   The three most active employee union groups -- pilots, flight attendants and mechanics --
 said this week that they have formed a coalition with two smaller unions in an effort to obtain better pay, bonuses and work conditions.

They are also calling for the airline to open contract talks that aren't currently slated to begin until 2009.

It appears that the only major union not to join the coalition is the International Association of Machinists and Aerospace Workers, which represents 17,000 ramp workers,
gate agents and customer service representatives.

As we noted, CEO Glenn Tilton renegotiated his contract with the airline last September -- a move that upped his base pay by some 40%. Using this as a guide, union officials said this week that it was only fair that the
company do the same with its union contracts.

While United spokeswoman Jean Medina told the Chicago Tribune this week, "We regularly work with our unions to address issues important to them. We worked cooperatively with our unions
 to reach these consensual agreements,
 and we look forward to doing so again at their amendable dates," one labor lawyer is not so sure United can be so certain they may not have to look at the contracts before then.  "Regardless of what the
 contract said, the Railway Labor Act allows for [contract] amendments at any time," said Neil Bernstein, emeritus professor of law at Washington University in St. Louis, who specializes in labor issues.

"The union has a strong argument that it has a right to propose changes at any time, the parties have to negotiate it and go through that process," Bernstein told the Tribune.  I support the United employees.
The money being paid to upper management is off the charts. This is not Boeing. It's not even Wal-Mart. And it's sure not an oil company. It's a friggin' airline.