Congress gave a new meaning to the old phrase about its "power of the purse" by moving to restrict airline executive compensation as a condition of receiving aid. The lawmakers added on to a $79 billion war-funding bill extra provisions that would exclude airlines from some $3 billion in relief unless they agreed to limit top-tier executive pay to 2002 levels.
The unusual move results from an unusual timing: The supplemental war funding was urgent at the same time that US companies were issuing proxy statements detailing executive pay and perks for shareowners to review over the spring season of annual general meetings. The Delta Air Lines statement, the first to be made public, caught the public eye when it was revealed that chief executive Leo Mullin was paid $2.2 million in salary and bonuses plus stock options worth about $10 million for a year in which the airline lost $1.27 billion.
The anger was immediate, and came not just from labour but also from conservative members of Congress. Republican Senator John McCain, chairman of the commerce committee overseeing airlines, called it "insulting when they lay off thousands of people and then pay top executives millions of dollars in bonuses".
US Airways chief executive David Siegel, while warning that federally mandated pay-caps could set a dangerous precedent, said: "There has to be a fair marketplace for management compensation. The only thing more expensive than good management is bad management." He told an American Bar Association lunch: "I think there is some appropriate scrutiny on some individuals. I won't mention any names," then paused before laughingly adding "like Leo Mullin".
Mullin himself soon after told Delta employees in a letter that he would take a 15% cut this year in addition to the 10% cut he took in March. He would earn $596,000 but forego incentive and retention pay this year. Mullin gave up about $200,000 in pay in the final months of 2001, a step he took to demonstrate his commitment to cost- cutting. Delta has furloughed or fired about 15,000 employees since the 11 September crisis.
In its $3.5 billion airline aid package Congress also pays $2.4 billion for security costs including the un-reimbursed costs of installing the hardened cockpit doors that Congress mandated in 2001, a mandate the airlines have met. It also limits collection of some $520 million in security fees and extends war-risk insurance for a year from its August expiration, a step worth about $600 million.
Source: Airline Business
