Mar. 31 -- Northwest Airlines has crafted a stock plan for its senior executives that would award them 4.9 percent of the equity in the reorganized company.
About 400 Northwest executives are expected to participate in the plan, which has an initial estimated value of about $382 million, though its actual value will depend on the future direction of the airline's stock.
The Northwest plan provides a less lucrative award than those that were given to executives at United Airlines and US Airways when those carriers exited bankruptcy, but it's more generous than Delta's treatment of its top managers.
United assigned 8 percent of its equity to top management when it emerged from court protection in 2006, while US Airways -- which made two recent trips through bankruptcy -- allocated 6.2 percent. Delta Air Lines, which like Northwest is still in bankruptcy but plans to exit this year, is awarding 2.4 percent of its equity to about 1,200 managers.
The $382 million figure is based on Northwest's projected total value of $7.8 billion when it emerges from bankruptcy, likely before the end of June.
Northwest officials said that 60 percent of the equity granted to top executives will be awarded as restricted stock, with an assigned value of about $232 million.
The remaining 40 percent will come as stock options, and executives will see a payout from those options only if they remain with the company and the stock price rises over time. (Northwest did not assign a value to the stock options, and said it would be misleading to calculate a value based on 2 percent of the company's total value.)
The restricted stock and the stock options would vest over four years.
However, the amount of the compensation -- the $232 million in restricted stock alone averages out to more than $575,000 per executive -- left union officials angry.
"We expected it to be excessive," said A. Ray Miller, vice chairman of the Northwest branch of the Air Line Pilots Association (ALPA).
Ricky Thornton, a spokesman for the Association of Flight Attendants (AFA), called the equity award "another travesty that Northwest has bestowed upon its employees."
On Thursday, an appeals court blocked the attendants from mounting random strikes against the airline in response to imposed pay cuts and work rule changes.
Dave Stevens, chairman of the Northwest pilots union, pointed out that the pilots agreed to a contract that provides labor savings of $3.3 billion over 5 1/2 years.
The executive group "that brought us into bankruptcy is the same executive management team that is now benefitting from the restructuring of the company," Stevens said.
Stephen Gordon, an official with the International Association of Machinists and Aerospace Workers (IAM), questioned the morality of granting large awards to management.
"We are the ones who provide this company with the reputation and the ability to succeed, yet others are rewarded," Gordon said.
The beneficiaries of Northwest's plan, which must be approved by the bankruptcy court, serve as directors, managing directors and officers of the company.
Phil Baggaley, a credit analyst for Standard & Poor's, said Friday that Northwest was probably "mindful" in designing its stock plan of the negative reaction that United management received after its hefty equity plan was revealed.
Northwest's unsecured creditors committee approved the management equity plan Thursday, airline spokesman Bill Mellon said. Now, he said, the Northwest board of directors will focus on making allocations to individual executives.
In a prepared statement, Northwest said that its union employees and "nonexecutive salaried employees" are expected to receive about $1.5 billion in distributions through unsecured bankruptcy claims, profit sharing and a performance incentive plan through 2010.
While the pilots union negotiated an $888 million bankruptcy claim as part of its 2006 contract, Stevens said that the pilots expect to recover only 20 percent of their $3.3 billion in financial sacrifices from the pilots' claim and profit and company performance payments.
Roy Bostock, who serves on the Northwest board of directors and is chairman of the airline's compensation committee, said the equity being awarded to top managers is "below the average award level to executives at S&P 500 and Fortune 200 companies, and is also below average for post-Chapter 11 companies, including both United and US Airways, two major U.S. airlines that recently emerged from bankruptcy."
Bostock also said that "it is critical that Northwest have the ability to offer a market competitive equity compensation plan."This plan strongly aligns the compensation of executives with the interests of Northwest's shareholders by tying their compensation opportunity to the value of the reorganized company's stock," he said.
Pilot leaders said that they intend to carefully monitor the salaries and other compensation awarded to Northwest CEO Doug Steenland and other top officers, given that management expects employees to work under concessionary contracts through 2011.
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