Changeover at Delta Airlines
We noted awhile back that Delta, under a charismatic CEO with the unlikely name of Gerald Grinstein, was the only airline around to treat its workers with respect, the only airline around to give its employees a large part of the credit for turning it around and bringing it out of bankruptcy, and the only airline around to reward its employees as well as its management. Well, Grinstein is retiring, and in his place Delta’s board has hired as its new CEO a guy named Richard Anderson who comes with a reputation for ruthless cost-cutting.
Incoming Delta Air Lines CEO Richard Anderson is a friendly and approachable leader whose easygoing manner often masks a shrewd and cunning lawyer’s mind, say Northwest Airlines workers and former associates of the one-time Texas prosecutor.
Anderson, 52, oversaw the heavily unionized Minnesota-based carrier from 2001 to 2004, a tumultuous period that pitted rank-and-file workers against management during a series of cost-cutting initiatives.
Despite his reputation, Northwest’s union chief suggests Delta’s workers could do worse.
Union leaders at Northwest give Anderson high marks for his “open-door” policy toward organized labor, but point out that he departed in 2004 before the worst of the bloodletting at the carrier, which was carried out by his successor, Doug Steenland.
“We had our issues with Richard, but overall we did OK with him,” said Ted Ludwig, president of Local 33 of the Aircraft Mechanics Fraternal Association.
“If we felt we had a concern we could not get resolved at the lower levels, he would always listen. He might not agree with us, but he would listen and seemed to empathize with you and he really seemed like he tried to put himself in your shoes.”
The last thing Delta needs right now is an anti-union, cost-cutting boss. Unlike American Airlines, Delta’s employees have been well-treated and well-rewarded for their efforts, and are perfectly aware that is was those efforts that were responsible for getting the airline out of a hole. They aren’t likely to take kindly to a CEO who wants to take it all away from them in the name of cutting costs after they’ve sacrificed so much. Just last week, the PBGC announced that Delta pilots’ pensions will be a little heftier than they thought.
The Pension Benefit Guaranty Corp., a quasi-government agency that insures workers’ traditional pensions up to certain limits, said it expects to cover a greater share of the pilots’ pension benefits because it also received more valuable stock and other assets than expected as part of Delta’s bankruptcy reorganization. The agency pays pensions above its guaranteed limits when it recovers enough assets to do so.The PBGC received a $225 million IOU and a $2.2 billion unsecured claim as part of a settlement for taking over Delta’s pension plan last year, which was underfunded by $3 billion at the time. Those claims were converted into Delta stock when the airline emerged from bankruptcy in April. The PBGC now has about 50 million Delta shares worth about $800 million, and expects to receive more as remaining disputes in the bankruptcy case are settled.
Many retirees will see a “significant increase in benefits” as a result of the additional money coming into the plan, Joan Weiss, chief valuation actuary for the PBGC, told about 120 Delta pilots and retirees Monday.
If Anderson screws around with that, he’s in trouble. So’s the airline. And he may have to. Why? Because he has negotiated a potentially humungous salary package with the Delta board.
Anderson’s base salary is just below his $612,307 base salary with Minnesota-based United HealthGroup in 2006, where he served as an executive vice president before accepting the Delta job. His total 2006 compensation at United HealthGroup was about $4.3 million, according to a database of U.S. executive compensation.
The Delta package would pay Anderson at least $900,000 a year — 150 percent of his base pay — in 2008 if he meets or exceeds key goals in Delta’s business plan. Meeting those goals would also trigger profit-sharing for other employees, said Delta spokeswoman Betsy Talton.
Anderson will get a “long-term incentive award” valued at an estimated $11 million in 2007. This would be awarded as 55 percent restricted stock, 25 percent in stock options and 20 percent in the form of performance shares. For 2008, Anderson will be eligible for long-term incentives valued at $4 million, according to the SEC filing.
At least his raise is tied to his performance – more than many CEO’s are saddled with – but even so, $15Mil in bonuses is considerably more than Grinstein got, and he’s the one who turned everything around. That money has to come from somewhere. Wouldn’t be that it turns out the employees pay for it, would it? It sure won’t be the investors.