Storm gathers over sky-high compensation for top Air Canada executives
fox1
Montreal — Air Canada's top executives have managed to alienate just
about everyone connected to the airline by signing a deal that will
make them multimillionaires just for showing up for work.
The compensation package providing some $21 million worth of shares
each to chief executive Robert Milton and chief restructuring
officer Calin Rovinescu has emerged as the most contentious issue in
the investment lifeline announced a week ago.
The so-called retention bonuses, to be paid over four years, could
even throw a wrench into plans to bring the airline out of
bankruptcy protection, and raise questions about the ethics of such
practices.
Leading the charge are unions whose members have suffered pay cuts
and seen thousands of co-workers axed in the restructuring led by
the two executives. They have threatened to challenge the bonuses in
bankruptcy court.
There is a recent precedent: Donald Carty, chief of American
Airlines, was forced out earlier this year when a cost-cutting
package accepted by unions unravelled as employees learned about
executive bonuses.
Also galled are the longtime Air Canada investors have seen their
shares shrink to almost nothing, and creditors who will have to
settle for a fraction of what is owed them.
"Air Canada has a long uphill journey on the road to profitability,"
Richard Finlay, chairman of the Centre For Corporate Governance,
said in an interview.
"It is not assisted by stuffing the pockets of top management with
bonuses at a time when investors and employees have taken a hit.
It's just going to inflame the situation."
Mr. Milton, with typical chutzpah, told employees in a memo he was
honoured that Air Canada's new investor, Hong Kong businessman
Victor Li and his company Trinity Time Investments, offered the
bonus to stay in his job.
"It's personally gratifying that the folks at Trinity .-.-. made it
a condition of their investment that Calin and I stay on to execute
the plan," said Mr. Milton.
The bonuses amount to one per cent of the total share float to each
executive. Based on the value of Mr. Li's $650-million investment
for 31 per cent of the airline, one per cent equals $21 million. The
value of the shares could drop - but also might triple to $60
million, say analysts.
The airline is also setting aside five per cent of the shares for
management stock options.
Pamela Sachs, president of the Air Canada flight attendants local of
the Canadian Union of Public Employees, says the airline's unions
agreed to concessions that will save the airline $1.1 billion a year
for six years.
"We're all pretty outraged about this," Ms. Sachs said.
"When management talks to us about 'being in this mess together,'
and 'we're bleeding as much as you're bleeding,' it's very difficult
to take."
Jane Craighead, head of the Quebec executive compensation practice
of Mercer Human Resource Consulting, said it's common to give senior
management a piece of equity in a restructuring, but it's more often
done with stock options.
Even if the values of Mr. Milton's shares falls by half, they still
provide a handsome bonus. Options, on the other hand, gain value
only as the share price rises.
"Options are the more common vehicle to use; then the problem kind
of looks after itself."
Ms. Craighead observed that Mr. Li must see value in keeping Mr.
Milton and Mr. Rovinescu.
"Air Canada's been in an uncertain environment; you don't want your
executives going off into another industry," she said.
Mr. Finlay, however, doesn't understand why executives can't just
work for their ample salaries, then maybe get a bonus later if Air
Canada does well.
Getting the bonus up front is not good corporate practice, he
believes, especially when demanding sacrifices of employees.
"I think a real leader is also prepared to make the sacrifices he's
calling on other people in the organization to make."
He adds: "Compensation should be based on performance, not on some
kind of future deal just to show up at work every day."