Emotions Over Northwest CEO's Pay Run High

When Delta Air Lines emerged from bankruptcy last week, it was able to present a picture to the world of employees cheering the company's future and the CEO who led them through reorganization.

Northwest Airlines is planning to follow suit and leave bankruptcy next month, but with far less enthusiasm among many of its workers.

Instead, they remain focused on the $26.6 million in stock awards for CEO Doug Steenland that the airline revealed Friday.

Union leaders at Northwest and some airline observers argue that the stock awards to Steenland and other top executives could make labor unrest as much a fixture of the new Northwest as it was at the airline before bankruptcy.

"Rank-and-file labor feels it's next to impossible for [Steenland] to motivate this group after basically having taken advantage of us and using the Chapter 11 [bankruptcy] process to enrich himself," A. Ray Miller, vice chairman of the Northwest pilots union, said in an interview.

Steenland's stock allocation and awards of $10 million to $13.5 million each for four other top executives "kills their credibility" as leaders of an airline, Miller said.

Northwest slashed its annual labor costs by $1.4 billion in bankruptcy, and its union workers are locked into lower wages through 2011.

Miller recalled that Northwest lost $1 billion or more in the 1998 pilots strike, and he warned that the company will risk new strikes when employees return to the bargaining table and insist on recouping their losses.

In a prepared statement, Northwest defended Steenland's stock awards.

"Doug Steenland has led one of the most successful restructurings in airline history - reducing the company's cost base, restructuring the fleet, strengthening the balance sheet - while continuing to invest in the business for future growth." Northwest added that, because of the restructuring, "creditors, including employees, will receive substantial returns on their claims."

The carrier also noted that Steenland worked with its labor unions to urge Congress to pass a bill that allowed the airline to save its pension plans for workers.

Northwest has dismissed comparisons between the stock awarded to Steenland and the treatment of Delta CEO Gerald Grinstein, who declined to accept stock awards, pointing out that Grinstein plans to retire soon.

Vaughn Cordle, chief financial analyst for AirlineForecasts in the Washington area, said that the conflict between labor and management concerning executive compensation could bleed over into Northwest's customer service at a time when the airline is trying to relaunch its image.

If the airline's union workers believe they were "unfairly treated in terms of compensation," Cordle said, they are in a position to "withhold their enthusiasm" in dealing with customers. But he added that, in some sense, Northwest employees are taking issue with the way the economy works.

"These payouts may seem excessive and morally wrong to labor. But in a market economy, it is the owners of the assets that determine the pay for those who manage the assets."

Whatever its long-term impact on the airline, the dispute about executive pay will have more immediate effects.

Northwest will face opposition from its three big unions when it seeks approval for its reorganization plan.

Dave Stevens, chairman of the pilots union, will be in New York next week, as the unions challenge the executive stock awards included in the plan. "Senior management is being rewarded for taking more [from the employees] than they needed to make Northwest survive," Stevens said.

The executives' stock allocations also could influence the voting by flight attendants this month on a new concessionary labor agreement.

John Budd, a University of Minnesota human-resources professor, said the news of the stock awards "makes it tougher to pass" that contract.

Andy Wisbacher, vice president of the Northwest branch of the Association of Flight Attendants, said that attendants this week have been expressing outrage about the stock awards during meetings called by the union to explain their tentative agreement. Two-thirds of the union's executive council members have not taken a position concerning the agreement, while the remainder are recommending a "no" vote. "Our members are wondering where they are going to get next month's rent," Wisbacher said.

Fears about reduced customer service have proved to be wrong before. During 2006, when Northwest employees already were working under pay cuts, the airline's on-time performance and other service rankings were strong.

But Budd said that customer service could begin to falter this time, because many workers are already frustrated with working longer hours for less pay and the anger they feel about the executive stock awards could prompt them to do the bare minimum.

"A lot of the employees are looking for leadership," Miller said.


Northwest Airlines is expected to exit bankruptcy next month, and its flight attendants are now voting on a tentative labor agreement.

Two deals were rejected last year, so this is the third and final chance for the attendants to secure a ratified contract during Chapter 11. The deal includes a $182 million bankruptcy claim, which is valued at as much as $18,000 per person.

April 26: Northwest and the Association of Flight Attendants reach a deal for concessions that saves the airline $195 million a year. It includes double-digit pay cuts for attendants.

May 4: Northwest discloses stock awards to top executives, including $26.6 million for CEO Doug Steenland.

May 7 to 29: Attendants vote on their concessionary deal.

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