United's Stock Plan a Hatchet Job

By Al Lewis
Denver Post Business Columnist

From the ashes of a bankrupt airline rise multimillionaires.

New stock - to be issued once United emerges from Chapter 11 - will be worth an estimated $1.9 billion.

United plans to set aside 8 percent of this stock, valued at more than $150 million, for 400 salaried and management employees. Under a proposed management equity incentive plan, the top eight officers in the company could get stock options valued at $45 million.

Chief executive Glenn Tilton could get restricted shares and options worth an estimated $15 million.

"In medieval times, people guilty of this kind of greed would have been boiled in oil," Greg Davidowitch, president of the Airline Flight Attendants United Master Executive Council, said in a statement after the details emerged.

You'll have to excuse Davidowitch's rhetoric. He doesn't seem to understand that United's creditors have the right to pay managers anything they want, so long as they get court approval.

The creditors, after all, own the company - even though they may sell whatever stock they get as soon as possible.

The primary reason United may soon be able to emerge from bankruptcy is because, collectively, its 57,000 employees agreed to billions worth of annual wage and benefit cuts. Thousands of employees and retirees also lost part of their financial futures when United defaulted on its pension plan.

At one point, United managers talked about everyone making a "shared sacrifice," but now, the managers are being richly rewarded for wielding hatchets.

The International Association of Machinist and Aerospace Workers, which represents one-third of United's employees, is objecting to the proposed incentive plan in bankruptcy court.

"United Airlines' employees are still struggling to deal with the effects of corporate mismanagement," wrote S.R. (Randy) Canale, a machinist union official, in a letter to union members. "At the same time, the executives who have kept the airline firmly entrenched in bankruptcy for three years are looking to gorge themselves on your concessions."

United officials have responded with the same rationale that every company throws out when asked about compensation plans. Amid court records, I found an internal memo they put together, compiling talking points for the media and analysts on the incentive plan.

The memo, dated Oct. 14, 2005, shows United officials accurately anticipated the reaction to their plan. Under a section titled "Potential Issues to Manage," the document warns:

"Opponents likely to position (incentive plan) as a violation of the 'shared sacrifice' tenet of restructuring process."
Unions might use the plan "on Capitol Hill as reason to enact legislation either restoring pension termination or blocking equity distribution; Democrats likely to be receptive."

The memo also suggests United officials " ... de-emphasize the relatively exclusive nature of this program ... "

"Couch issue in terms of larger compensation issues, and competitive issues, if possible," it reads.

(My translation: Every other company does it, so why can't we?)

Last week, United announced that it had come to terms with a committee of unsecured creditors on all issues, including its management equity incentive plan. The committee represents a host of parties, including unions that have separately objected to the incentive plan.

Unions will proceed with their objections at a hearing scheduled for Wednesday in Chicago, but with most other creditors in line, it looks like the management incentive plan is a done deal.

I tried to get United chief financial officer Jake Brace to speak with me. Brace declined. (Why can't we be friends?) But Brace agreed to speak with Denver Post business reporter Kelly Yamanouchi, who asked him about the incentive plan.

"We were comfortable that a management equity program at that level would provide the appropriate incentives to senior managers as a program like that is supposed to," said Brace.

Yeah, OK, Jake. So, you and your teammates deserve it. You've worked hard. I can buy that. Meanwhile, your customers are flying with some angry employees.