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.
Says Shaiken, "The same individuals who are saying, 'We will lose key talent' are the individuals who are going to receive the high compensation."
Among its officers, managers, directors and managing directors, attrition rates have more than tripled since 2001, Northwest said. Last year, 11 officers — executives holding vice presidential or higher rank — departed Northwest, leaving it with 40. Further, large-scale attrition of skilled management employees could be "devastating to Northwest's efforts to reorganize," the airline says.
Overall, the airline has cut about 30 percent — or more than 1,200 — of its salaried and management jobs since 2001. It contributed greatly to about $184 million in total management and non-union payroll savings that Northwest said it has achieved since 2001.
Since December 2004, cash compensation has been reduced 31 percent to 40 percent for Steenland and other officers, according to Northwest.
But you don't see such cuts in compensation reports filed so far. Senior executive compensation for 2005 probably won't be revealed until next month.
Steenland's base pay for 2005 was slated to be $573,750, according to a regulatory filing by Northwest. Steenland's total compensation in 2004 amounted to $4.4 million, including $3.7 million in stock and other awards.
With Northwest's bankruptcy, however, its current stock will likely end up worthless. Top executives, though, will no doubt get shares in a new Northwest.
At United Airlines, which just emerged from bankruptcy, CEO Glenn Tilton received 545,000 shares of stock that vest over four years. Current worth: about $21 million.
Northwest insists pay cuts for management and other salaried employees are "equitable" in light of its goals for cutting union labor costs. But when airlines cut rank-and-file pay more than they reduce managers' salaries, they create morale problems, said Charles Craver, a George Washington University professor specializing in labor and employment law.
"It isn't simply the amount of money being saved, but the appearance of fairness being demonstrated," he said.
Martin J. Moylan can be reached at firstname.lastname@example.org. different jobs, different cuts
While the small number of officers NWA have taken 31 percent to 40 percent pay cuts since December 2004, workers say most other salaried employees aren't getting hit as hard as they are:
Pay cuts for managing directors, directors
Other salaried employees
Proposed for pilots
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