Cost-Cutting Airlines Grapple With Issue of Executive Pay
A HARSH DOWNDRAFT grips the U.S. airline industry, with five carriers stuck in bankruptcy court and others amassing extensive red ink. Whipsawed by sky-high fuel prices, lower fares and a glut of seats, nine of the 10 biggest carriers by traffic are expected to report fourth-quarter losses. Five did so last week.</br></br>Distressed airlines typically pin their survival hopes on huge savings from worker concessions. But slashing rank-and-file paychecks creates a management conundrum. Union members want senior executives to share their financial pain. Indeed, the prior heads of Delta Air Lines and AMR Corp. got forced out partly due to union ire over executive sacrifices perceived as inadequate. Yet further curbs on the compensation of the airlines' top brass could push even more of them out of the executive suite.</br></br>"It's a real tough dilemma," says Kim Cameron, a University of Michigan management professor. While profitability and stock prices usually rise when leaders share their subordinates' pay pain, pressure to pinch executive pay harder could weaken carriers' chances for recovery by increasing the tempo of management turnover.</br></br>"If you pay below market, you get what you pay for," says a former vice president of a troubled major carrier who joined a start-up airline earlier this month. "You will be left with the 'B' team."</br></br>As it now stands, virtually no upper-management wallet at sick airlines remains untouched, but the extent of slimmed compensation varies by carrier. Delta's chief executive officer, Gerald Grinstein, skipped his $500,000 annual salary for six months last year. And since he became head of the Atlanta airline in January 2004 (after having been a Delta board member), Mr. Grinstein has taken no other remuneration.