Continental Management, Board
Agree to Cuts in Compensation
By MELANIE TROTTMAN
Staff Reporter of THE WALL STREET JOURNAL
February 16, 2005; Page A2
Continental Airlines, which is asking unions to accept $331 million in pay and benefit cuts by Feb. 28, said its management and board agreed to slash their own compensation.
The airline said it was making the move in response to employee complaints that management could receive bonuses as a result of employee pay and benefit cuts.
The Houston carrier said officers won't receive any restricted stock this year and management will be subject to tougher targets for getting annual bonuses. Continental also said its directors will forgo stock options this year and cut their compensation by 30%. The total savings from the moves, which affect 450 people, weren't disclosed. While they likely will be far smaller than what the carrier is asking of workers, the moves underscore Continental's need to maintain goodwill in order to get concessions from unions.
"The entire officer group wanted to make certain that no employee feels his or her cut was being used to fund the bonus program or the restricted stock units for 2005," said Continental Chairman and Chief Executive Larry Kellner. Mr. Kellner, who has agreed to cut his base salary by 25% along with cuts being taken by other executives, says the airline needed to further reduce its labor costs. "Time is running out for Continental," he said.
Like all other U.S. carriers, Continental has been grappling with high fuel costs and a low-fare environment brought on by brutal competition and a glut of airline seats. The industry still is unprofitable -- Continental had a net loss of $363 million in 2004 -- and big hub-and-spoke carriers such as Continental have been struggling to slash their operating costs to compete with lower-cost airlines such as JetBlue Airways and Southwest Airlines.
Nonemployees on the 11-member board typically get $35,000 a year, and those on the audit committee receive an added $25,000. Citing the increased oversight responsibilities caused by the Sarbanes-Oxley act, the board didn't decrease the audit committee's retainer or meeting fees. Four of the board members are on the audit committee.
According to its proxy filing last year, Continental gives nonemployee directors options to purchase 5,000 common shares at market value following each annual stockholders meeting. In 2003, the carrier gave four of its six highest-compensated executives bonuses totaling about $2.3 million, according to the filing.
Continental, the fifth-largest U.S. airline in terms of passenger traffic, said in November that it would turn to labor for cost cuts, seeking $500 million annually through pay and benefit reductions. By mid-January, Continental had reached agreements for $169 million of the cuts from various groups, including gate workers and clerical employees. But the biggest cuts still are being sought from pilots, flight attendants and mechanics.
In late January, the pilots union put forth a proposal to management offering $122 million in cuts and complaining about a "double standard" for management compensation. A spokesman for the union said yesterday that management has taken a "positive step."
Management's latest actions call for officers to completely forgo restricted stock units for 2005. Those units could have paid out this year if Continental's stock price were to increase to $17.48 by June 30. The stock ended yesterday at $10.63.
Write to Melanie Trottman at melanie.trottman@wsj.com
Continental Management, Board
Agree to Cuts in Compensation
By MELANIE TROTTMAN
Staff Reporter of THE WALL STREET JOURNAL
February 16, 2005; Page A2
Continental Airlines, which is asking unions to accept $331 million in pay and benefit cuts by Feb. 28, said its management and board agreed to slash their own compensation.
The airline said it was making the move in response to employee complaints that management could receive bonuses as a result of employee pay and benefit cuts.
The Houston carrier said officers won't receive any restricted stock this year and management will be subject to tougher targets for getting annual bonuses. Continental also said its directors will forgo stock options this year and cut their compensation by 30%. The total savings from the moves, which affect 450 people, weren't disclosed. While they likely will be far smaller than what the carrier is asking of workers, the moves underscore Continental's need to maintain goodwill in order to get concessions from unions.
"The entire officer group wanted to make certain that no employee feels his or her cut was being used to fund the bonus program or the restricted stock units for 2005," said Continental Chairman and Chief Executive Larry Kellner. Mr. Kellner, who has agreed to cut his base salary by 25% along with cuts being taken by other executives, says the airline needed to further reduce its labor costs. "Time is running out for Continental," he said.
Like all other U.S. carriers, Continental has been grappling with high fuel costs and a low-fare environment brought on by brutal competition and a glut of airline seats. The industry still is unprofitable -- Continental had a net loss of $363 million in 2004 -- and big hub-and-spoke carriers such as Continental have been struggling to slash their operating costs to compete with lower-cost airlines such as JetBlue Airways and Southwest Airlines.
Nonemployees on the 11-member board typically get $35,000 a year, and those on the audit committee receive an added $25,000. Citing the increased oversight responsibilities caused by the Sarbanes-Oxley act, the board didn't decrease the audit committee's retainer or meeting fees. Four of the board members are on the audit committee.
According to its proxy filing last year, Continental gives nonemployee directors options to purchase 5,000 common shares at market value following each annual stockholders meeting. In 2003, the carrier gave four of its six highest-compensated executives bonuses totaling about $2.3 million, according to the filing.
Continental, the fifth-largest U.S. airline in terms of passenger traffic, said in November that it would turn to labor for cost cuts, seeking $500 million annually through pay and benefit reductions. By mid-January, Continental had reached agreements for $169 million of the cuts from various groups, including gate workers and clerical employees. But the biggest cuts still are being sought from pilots, flight attendants and mechanics.
In late January, the pilots union put forth a proposal to management offering $122 million in cuts and complaining about a "double standard" for management compensation. A spokesman for the union said yesterday that management has taken a "positive step."
Management's latest actions call for officers to completely forgo restricted stock units for 2005. Those units could have paid out this year if Continental's stock price were to increase to $17.48 by June 30. The stock ended yesterday at $10.63.
Write to Melanie Trottman at melanie.trottman@wsj.com