When it comes to saving an airline, you can't expect the folks at the top to sacrifice as much as the people below them. Right or wrong, that's the case at Eagan-based Northwest Airlines, as it has been at other troubled carriers.
Flight attendants and pilots at Northwest are contemplating contract proposals that, in many cases, cut wages by more than 20 percent.
Meanwhile, workers see that some executives, managers and salaried workers don't appear to be suffering as much.
Why? Northwest President and CEO Doug Steenland provided a glimpse into the airline's thinking last year, when he appeared before a legislative committee at the state Capitol.
A state senator asked why Northwest would pay six-figure signing bonuses to some executives while seeking deep pay cuts from other workers.
Supply and demand, Steenland explained.
"There are — and I say this with all respect, but it is a simple reality — thousands of pilots who are waiting in line to fly Airbus A320 airplanes for JetBlue at rates that are 30, 40 percent less than what we pay Northwest pilots to fly those airplanes," he said. "There aren't thousands of people waiting to work at senior executive positions at Northwest for the compensation that is paid. It is a reality of the market."
It's a fair assessment, said Rick Cobb, executive vice president of Challenger, Gray & Christmas Inc., a Chicago-based consulting firm.
But Cobb said it's important to tie the compensation of higher-paid executives to their long-term performance. Northwest has yet to detail how it plans to do that going forward; it'll probably use stock and other awards.
Overall, Northwest managers and other non-union employees will provide about $70 million in annual givebacks. On a percentage basis, many will give up less than rank-and-file workers.
Tempering Northwest's cost-cutting at the top is a fear that it could lose key executives and midlevel managers if it's too aggressive.
In a bankruptcy court filing, the airline warned that increased management attrition "provides a clear signal that Northwest's management compensation levels are falling below relevant market levels."
Historically, the airline has argued that its executives are among the industry's lowest paid. And salaried and management employees at Northwest earn less than they could at like-sized firms in other industries, the airline maintains.
Meanwhile, Northwest says union workers' wages are "too high for the competitive market."
"It's a double standard," complains Bobby De Pace, president of the union representing the airline's baggage handlers, reservation clerks and other ground workers. "They say these management guys are so valuable. … They are not. This is typical corporate greed."
Northwest has had a tough time persuading union workers to accept wage and other cuts. The airline has been dogging unions for concessions for three years as it ran up billions of dollars in losses, landing in bankruptcy last September.
Last August, Northwest imposed a contract on its mechanics when they went on strike. Two groups in De Pace's union have rejected a proposed contract. And hard-fought deals with the pilots and flight attendants await ratification votes.
In case they can't reach deals with Northwest, the pilots, flight attendants and ground workers have authorized union leaders to call strikes.
For the most part, the market for executives and managers from a failing airline can't be all that hot, said John Remington, a professor of industrial relations at the University of Minnesota.
Former Northwest CEO Richard Anderson joined United Healthcare in October 2004, though, signing on as an executive vice president.
Anderson received $500,000 in salary and bonus payments from Northwest in 2003. But each of the top five executives at United Healthcare topped that by $385,000 to $7 million.
Executive compensation, though, is often divorced from reality, said Harley Shaiken, a professor at the University of California, Berkeley, who has written extensively on labor issues.
Flight attendants and pilots at Northwest are contemplating contract proposals that, in many cases, cut wages by more than 20 percent. Meanwhile, workers see that some executives, managers and...
Northwest Airlines posted a $878 million loss in 2004.
The union also complained about a new "success-sharing" program that raises pilots' compensation, saying the Northwest "unilaterally determined" how the pilots should be rewarded.
Pay is an explosive topic at Northwest, where union workers are putting in longer hours for less money, enough to add up to $1.4 billion a year in savings.