Skip to comments.Message from United's Management: Let Them Eat Cake
Posted on 12/27/2005 9:03:05 AM PST by Old_Mil
Message From United Management: Let Them Eat Cake Now That Your Pension's Gone...
United Airlines senior management just announced another part of its grand Chapter-11 exit plan. It seems that when the company emerges, 400 select members of United Airlines' executive and senior management team will be awarded 15% ownership of the carrier, worth a tidy $285 million - or more.
From The Marie Antoinette School of Management... Nice compensation. Royalty does have its privileges and perks, you know.
And, why not? Now that United's employee rank-and-file saved their airline via double-digit pay and benefit cuts, not to mention having their pensions trashed, United's management, naturally, sees fit to reward itself, with a stock deal that will almost certainly make at least some of them - if not all of them - a whole lot richer.
Forget the fact this this is the same wonderful team of brilliant thinkers who have made United a million-dollar playground for who-knows how many lawyers and other outside "advisors" who dreamed up vapor-brained and vapor-results ideas like Ted. Or, how 'bout the deal early on, according to news reports, where this same management team had to pay some outside company $1 million a month to tell them how to re-structure the United Expressmarx1.JPG (24989 bytes) system. Funny, if this management team is worth the better part of a third of a billion bucks in exit-rewards, how come they couldn't figure stuff like this out for themselves? It's probably yet another indication of just how hands-on this UA senior management team must be.
Meanwhile, Out In The Provinces... But while United's senior leaders are probably planning how to use this eventual wonderful windfall - maybe a nice condo on Longboat Key, or a college fund for the kids, or maybe just a new Porsche Cayenne Turbo-S, the scene among the rank-and-file might be a little bit different.
How's this for starters - as a direct result of the cuts they gave to save their company, some current and retired employees are finding it necessary to materially cut back in their own lifestyles. Some are actually selling their homes because that pension they worked so hard for is now essentially a bargain-basement monthly check from the PBGC. With pay cuts of 25% or more, Christmas this year was no doubt tough on a lot of United families.
But not, apparently, on the key leaders at United - some of whom were the very people in charge when the airline sank into bankruptcy in the first place. There is nothing wrong with valid management compensation. But under these circumstances, a "reward" that averages something like $710,000 per executive has a real nasty odor to it.
Sure, there's two comebacks to this. One that it's to "keep good talent in place," which is an argument that they'd probably best not bring up. The second is that, hey, it's not cash, just stock - probably stock they can't sell for a couple of years. Right - so these guys can depend on the rank-and-file to work hard at their new, lower salaries to make sure the value of the shares goes up even more.
It all has a nasty resemblance to the stuff a nineteenth century crackpot named Marx used to babble about.
If all the employees left, there wouldn't be much of a company left. Of course, the sheeple won't do that, but the great thing about this country is that no one FORCES you to put up with this.
If they run United into the ground they get nothing.
It's all just another variation of "steal from the employer".
CEOs are employees, too, afterall.
The unions got their turn, now management is taking "it's share".
"It all has a nasty resemblance to the stuff a nineteenth century crackpot named Marx used to babble about."
This screed was written by one of that crackpot's most devoted followers.
I knew United was eventually going down after the "Summer of hell", in which airline employees intentionally sabotaged their own company. As part of "negotations", stewardesses conspired to not show up in just such a way as to maximize harm to their company -- resulting in many cancelled flights at the last minute, with the company least prepared to deal with it and many enraged customers. Plus United's pilots made drastically more than their competitors before this bankruptcy result. I have no doubt the bankruptcy isn't being handled well, but the situation was brought about in the first place largely by employees themselves.
Don't forget that management are employees, too.
**If all the employees left, there wouldn't be much of a company left.**
We tell my brother-in-law this all the time. He works for UPS and all he does is complain about management. One day - during a tirade - I looked at him and said, "If it's such a horrible place to work then quit and go to FedEx"! He looked at me like I was crazy.
"But they don't pay as good and I would lose my 8,000 vacation weeks a year (my sarcasm as he's always on vacation), etc. etc."
My reply, "Then quit bitchin' about it". Heavy Sigh!!!
Do we have any indication if this was a policy before declaring bankruptcy and if so what was the compensation then?
Ha! Ha! All it really does is ensure that the morons who drove the company into the ground in the first place will have a lock on the board of directors so they can never be gotten rid of. I'm sure they will design some beautiful golden parachutes once their slash-and-dash strategy has hollowed out the company at the working level.
Plus, for all the pay and bennies, does your bro-in-law's job require anything more than a pulse? Ask him if he could manage, much less create, UPS.
Essentially, this is just a variation on the theme of what American Airlines tried to do after obtaining concessions from its unions that ended up costing the CEO his job...this time it's executed with stock options and under the auspices of a bankruptcy judge.
I'm glad to see all our freemarketeers - with the exception of our one animal farm poster who seems to get it - chime in with such utter disregard for shareholder's wellbeing.
"...does your bro-in-law's job require anything more than a pulse?"
And it goes downhill from there.
Wonder why unions came into existance? Or why there is an NLRB?
I know two UPS employees. One retired early, to a decent retirement due to health problems brought on by the job. The other is a very stressed out individual, but realizes he has a good job. From what I understand, working for UPS is stressful and physically demanding.
But, we shall give no respect to someone who works FOR someone. Nor shall we acknowledge that there is value in anything other than management! Workers are to be used, and thrown out, just like a desk or chair. If they don't like it, they should do better!
Unions aren't the only ones with screwed up priorities.
You've never created a company, have you?
"You've never created a company, have you?"
Arrogance is quite unbecoming, especially when coupled with lack of thought.
The short answer is no, I have never created anything other than my own one person consultation company.
The more insightful question would be do I understand the concepts? If one has to do something to truely appreciate it, then most teachers should be fired, we should stop having concerts and sporting events. For anyone who hasn't played professionally, can't appreciate it.
Fortunately, I took an economic path that worked for me, and I am doubly thankful it's not working for you.
What you describe is exactly what motivated the likes of Ken Lay, Bernie Ebbers and Jack Grubman.
Better that executive bonuses be paid in cash, not stock, and that cash be pegged to verifiable performance benchmarks.
I'm having trouble ginning up much sympathy for workers at United Airlines. I just can't seem to forget this quote:
Rick Dubinsky, until recently head of United Airlines' pilots' union and board member of UAL Corp:
"We don't want to kill the golden goose. We just want to choke it by the neck until it gives us every last egg."
Well, guys, you choked it a little too hard.
Too bad - you did all this to yourselves.
**Ask him if he could manage**
Sure he can - according to him. He claims that he has been asked to join the management team lots of times. However, there is always a reason why he won't do it. Never any reasons that sound right to me but what do I know? I don't work for UPS.
He is also always nitpicking management and taking them to the union reps. Then he wonders why managment has it in for him. LOL
The best one was the time we called his house and got his answering machine. The outgoing message was all about a "super secret union meeting at Denny's".
"Well, guys, you choked it a little too hard. "
Yeah, I saw that quote too. Amazingly stupid, and a union mindset that has to be broken.
I'm not a defender of unions, but I do see the human part of the equation. There are innocent members of the rank and file who are getting caught in a bad situation.
And because the union is stupid, and greedy, does that justify management plundering? I would say no. I would say, pay the management in accordance with their value to the company. Did this management team oversee augering this company into the ground? Did they commit the blunders and enlist help for tasks that should be completed by a competent management team?
If the answer is yes, then I don't see how rewarding them with stock is the right answer.
Best you stick to working alone; your "understanding" of the employer/employee relationship is zero. No doubt you're too busy caring deeply about men who play games with balls to have time to learn the necessary skills.
From where I'm sitting, unles you get paid to create companies for other people, then your track record of "creating companies" refers to creating them for yourself.
Which doesn't exactly inspire confidence in me that you know what you're talking about. It probably means that every company you have created has failed. Note: I say this without any personal knowledge of what you have created or what you created them for.
The real issues surrounding United's (apparent-) demise (and every other large corporation in dire straits) has everything to do with the exponentially-increasing cost of providing benefits to large numbers of employees.
Salary, in a nutshell, is a very small part of the equation; it can cost an employer up to three times salary to provide basic benefits (health insurance, pension and retirement benefits, Social Security taxes, sick time, vacation time, etc). It gets even worse when a corporation does business with government (especially at the state level, where pre-determined pension responsibilities fall squarely upon the shoulders of the employer -- this is the cost of doing business with the government or a government agency).
Add to the mix the fact that many (if not most) of today's most costliest employees belong to the "Baby Boom" generation that will soon retire in unprecedented numbers. These are the most expensive employees, taken as a group.
Finally, the largest problem is the new school of management theory which is, sad to say, almost universally divorced from the concept of true economics. Business, these days, is conducted under the aegis of formulaic rote -- not economic reality. I don't know what they are teaching MBA's these days, but it is certainly NOT economics or management.
Is United one of the airlines bailed out after 9/11/2001? If so I resent them grabbing excess bonuses for themselves.
There are no workers without employers.
Of course it was.
They (the airlines) simply made the argument (before Congress) that mandating new security measures would necessarily mean they would have to pass the expense onto the consumer, hence, Congressional Largesse to the tune of $5 billion.
Never underestimate the stupidity of your local Congresscritter when he can have his cake and eat it too: doing "something" to improve airline security and spending tax dollars to get it done,all the while creating new Federal agencies (core constituent groups).
United's common stock is worthless. Unsecured creditors are supposed to receive minimal payouts - new stock representing only 4 percent to 7 percent of what they were owed. Current holders of UAL common and preferred shares would get no distribution whatsoever.
How the author values this 15% ownership at $285 million is never disclosed. He doesn't even bother to discuss what management has to do to earn the stock and profit from it. He wants us to believe that the company and the bankruptcy judge awarded $285 million to management just to stay in place. No way this is true. This entire article is bogus as is any argument that any deal, designed to attract and maintain the best management talent, is somehow bad for (the new) shareholders.
"No doubt you're too busy caring ..."
Something you don't have to worry about obviously. At least not in this lifetime. Good luck.
"There are no workers without employers."
Duh. Drivel. And there are no companies without employees. You felt compelled to offer an empty axiom to bolster a postion of not extending respect to human beings?
Even the Bible mentions how respect should be given to someone who works for a living. But, I suppose in matters of business, the Bible is irrelevant?
You are wrong - United applied for a 9-11 ATSB loan but it was disapproved. It never got a loan.
Also, to MtAthos, #8, the "Summer of Hell" was not the fault of the attendants or other United $11/hour workers, but exclusively the actions of the pilots, who sabotaged flights until they got a cowardly management to cave in and give them about $300,000 a year wages. Management always gave in to the pilots because they belong to the same country clubs.
It was the debt from the pilot giveaway that put United on its road to bankruptcy. And the CEOs who gave away the store are now collecting millions per year in golden parachute buyouts, getting first class free travel and country club memberships for life for themselves AND their families.
The unions have their faults in this mess, but incompetent and greedy management is the real source of the problems for the airlines, the Enrons, the GMs, and all the rest of the failing American industrial machine.
History may show that on unbridled capitalism, Marx was right, if for the wrong reasons. Companies are no longer run by entrepreneurial founders, like Ford or IBM's Watson, or PanAm's Trippe, but by greedy bankers, lawyers, and MBAs who are only looking to their stock options and buy outs and job offers from the next sucker company and fellow travelling Board of Directors.
"most teachers should be fired, we should stop having concerts and sporting events."
I can't think of a better start to start this country to recovery!!!!
As far as running a company, I did it for over 40 years and my motto has always been:
Ye who signs the checks calls all the shots.
I never left the office without a payroll check book with me!
This really depends on the industry being examined. Some businesses are more labor intensive than others and will spend more on labor and benefits. The airline industry is labor intensive. I've had P&L responsibility for several individual businesses and business units in my career, but I have yet to see anyone spending anything remotely close to three times salary to cover benefits, however generous they may be. In my experience, benefits usually average about 35-40% of salary/wage expense. The companies I derived that average from all offered generous benefit packages.
The airline industry as a whole spends about 35% of revenue on salaries and benefits which represents about 75% of all non-fixed costs. This is why layoffs are always the first strategy for cutting costs in a downturn. Fuel is the second largest expense coming in at about 14-16% of revenue.
It's been a long time since I've been to business school so I can't be sure of what they are teaching these days. You can be assured however, that they are teaching students how to read financial statements and to understand operating expenses.
It's good to see 40 years running a business has given you a good dose of common sense. /< sarcasm>
And rewarding company officials who mismanage and bankrupt a company? That's ok, since they're management, and not regular low-life employees? (But employees all the same).
Benefit costs for our management staff (not the big, big kids) run about 34% annually. We're a comparatively large company with about 4,000 management personnel
It's always understood that personnel costs are the single larges controllable expense. That's why you do layoffs in bad times- Except when union agreements prevent you from reducing your personnel costs (see GM for an example of this problem). Generally it's easier to do without low-end people than accountants and other professionals, so the little guys get cut first.
But what else are you going to do? You can't stop paying the power bill or the rent or purchasing merchandise (or AV-gasoline as the case may be). You have to save money somewhere.
They teach touchy feely garbsge and group thinking from what i've observed of those coming out of the brain laundries.
I used to do a lot of work at the ABC studios and when Capitol Cities took over they fired all the managers and brought in younger groups to replace them and it almost put them in bankruptcy.
When the former managers who were given large severence packages were called and asked to save them they told them to shove it. They eventually picked out one person in each department that they thought could make a decision and fired the rest and that is the only thing that kept them from going under.
Horses designed by committees slways turn out to be camels!
If you don't like being a commodity start your own company or get used to being treated as a commidity.
No one starts or operates a business to employ people only to make a profit.
No one but government (and idiot Carter) would ever build a building for anyone to do business in or a house to live in except for profit.
Without profit people can live and do business under a bush or lay down and die as far as i'm concerned.
"Without profit people can live and do business under a bush or lay down and die as far as i'm concerned."
At least you're honest about your shallow existance.
I was an IT manager for a major Wall Street firm for near on 20 years, not an economist or accountant, but this should help explain what I mean:
One of the "hidden costs" of doing business for us (and every firm on the street) is that when we do business with, say, the State of New York (and we all do, lot's of bond issues, union funds, pension plans, etc), we're automatically tied to a pension contribution scheme by state law. The contribution is based upon age.
The younger a worker is, naturally, the smaller the required contribution. However, when the worker reaches 40 years of age (or older), the amount explodes exponentially.
For example, if I'm 39 this year, and I work for a firm that does business with NY State, then my pension liability to the firm is equal to a small percentage of my total salary (and is limited in terms of the dollar actual dollar amount. I believe this number is 3%). However, when I turn 40 the following year, my pension liability to the firm becomes an automatic, flat-rate 10k per year, and stays at that level for the length of the term of the contract with the State.
In other words, the cost of my pension to the firm, as a result of doing business with the state, costs them 10k a year until I either quit, die or retire.
Other states have similar contract requirements.
So, if I have a 40 year old, working at 50K a year, he's actually costing me 60K a year and that's BEFORE you add in the cost of insurance, retirement plan (401k) contributions (and administration), the 12% Social Security tax contribution, and providing things like days off and paid holidays or medical leave (also mandated by government).
This, of course, does not take into account things like stock option plans, bonuses, productivity lost to sick time, travel and education benefits.
The one serious (internal) study I ever saw on this subject came to the conclusion that an employee actually costs more in terms of total benefits package than salary, assuming the employee took advantage of every benefit available to them.
"Generally it's easier to do without low-end people than accountants and other professionals, so the little guys get cut first."
That's just common sense, and I think even low-end people would admit that. Everyone knows a companie's first priority is to make money. If they don't do that, there won't be a company.
What is objectionable is rewarding bad management. Managers and executives in a public company are still employees. Why are they being rewarded for bad management? It looks like the old boy's club at the shareholder's expense.
Another thing that's objectionable is the attitude of some freepers. You seem a bit more reasoned, so I'll present it to you. They see workers as less than human. I realize workers are commodities, and the business doesn't exist just to provide jobs. But people should be treated like people. Respect.
If I go out to dinner, the wait staff is working for me. I can treat them as equals who happen to be doing a service for me, or I can treat them like low-lives who had better toe the line if they want a tip. If I treat them well, they will most likely be attentive, and in general it will be a pleasant experience. If I treat them poorly, they get stressed, I get angry, and it all goes downhill, (not to mention what they will likely do to my food).
Naturally, as with all things to do with people there are exceptions. But I think it's a valid comparison. I was always taught that I should respect people unless/until they prove they DON'T deserve it. Not disrespect them until they earn respect.
PS- almost forgot;
As for what they are teaching in business school, it's no longer sound economics. The best example would be the "X+Y=Z" theory (which is the basis for PeopleSoft and other 'management' tools.
The basis for this is that X number of workers, working Y number of hours per week, should produce Z units of work. This works fine in, say, industrial settings, but how do you apply this to other fields?
For example, I'm an IT manager. My people write programs. They attend meetings with other departments to co-ordinate the creation of new projects or merely to maintain what already exists. They spend a lot of time on the phone with vendors. They are routinely awoken at all hours of the night to take care of program issues (since we maintain 80 data centers around the planet, but still administer all of them from the United States). They work weekends and holidays because that's the only time we can get to make changes or repairs without interrupting daily business.
X=Y=Z doesn't exactly work for this does it? Yet, my company will spend $6 million this year in licensing fees to use this software. The MBA's say it's an effective tool (it's always about having more tools, isn't it?),and that's that. They sold management on it. AT the end of the day, they can point to a chart or a graph, which ALWAYS reflects the truth (/sarcasm). Numbers, after all, don't lie.
This is but one (small) example of this stupidity.
"Numbers, after all, don't lie."
As I was taught in statistics 50 some years ago, it's a course in how to lie with figures or how to make figures lie.
Airline management gave in to the unions more than they should have to avoid a strike that could very easily have ruined their business and their careers. To say that the people who run airlines are cowardly however, requires a total lack of understanding about what it takes to run such a business.
Management always gave in to the pilots because they belong to the same country clubs.
Yeah, that's why they did it. Because there has always been so much love between the pilots and management. LOL! It didn't take long for your class warfare argument to surface.
..and all the rest of the failing American industrial machine
Yet, our economy remains the envy of the world. We make and export more now than at any other time in our history. GDP growth is robust, employment is high and our household net worth has doubled in just the past decade.
History may show that on unbridled capitalism, Marx was right, if for the wrong reasons.
Marx was wrong about everything as are the people who still believe he said anything worth remembering.
Companies are no longer run by entrepreneurial founders, like Ford or IBM's Watson, or PanAm's Trippe, but by greedy bankers, lawyers, and MBAs who are only looking to their stock options and buy outs..
I guess you must have missed silicon valley and the rest of the tech industry revolutionizing the world economy.
Like I said, much of this has to do with the nature of the business. Financial Services is one area that could easily experience a higher cost structure to pay for their benefit programs. Federal and local government regulations will also impact this percentage. However, if you look at American business as a whole, you will find that benefit costs average about 35-40% of salary and wage expenses -- nothing near the 300% you suggested in an earlier post.
Rising healthcare costs will place upward pressure on that percentage as workers continue to receive a greater proportion of their total compensation increases in benefits rather than wages.
Maybe he hasn't but I have and I am here to tell you that the workers are the backbone of any company. The reason Unions started in the first place was because everyone in this country was getting screwed constantly, there was no place to go. Leave your job? There was nothing better available.
While Unions have their bad points there are good points( or there used to be) about them. The uniions are mostly dead now with the results that people like you can shit all over their employees and say that you are justified because you own the Co. I owned two and never treated my employees like crap and still had viable businesses(Electronis stores)that turned a profit. My people never thought about unions because I treated them fairly.
Yes, this would probably be appropriate for manufacturing management but do you have any idea just how many concentrations you can choose from in MBA programs these days? There are concentrations in Accounting, Consulting, E-commerce, Economics, Finance, Management, International Business, Marketing, Entrepreneurship, Manufacturing Operations and many many more.
The MBA's say it's an effective tool (it's always about having more tools, isn't it?),and that's that. They sold management on it. AT the end of the day, they can point to a chart or a graph, which ALWAYS reflects the truth (/sarcasm).
Workers better develop their skill sets and be as productive as possible to create value for the company. If they don't continuously create value they are going to be replaced by automation or by another person who will. We've recently implemented new systems within our manufacturing plants that have caused our employees to do nothing but complain. They never believe the charts and graphs proving that we've become more efficient and, therefore, more competitive.
It's funny to me that they'll complain about the changes but always seem pleased when the value of their stock goes up dramatically because of our increased competitiveness. Why some people cannot connect the dots is a continuous source of frustration for management.
Numbers, after all, don't lie.
No, they don't. Some people attempt to lie with numbers which is why the math skills acquired in school are so important. Business school doesn't guarantee the smarts to successfully run a business but I work with a lot of MBA's who are competent managers and continuously create value for the company and their shareholders.
"My people never thought about unions because I treated them fairly."
Thank you. This guy is a real piece of work. If he were an isolated example, I'd just ignore it, but sadly, there are many others who share the attitude. You don't have to have owned a business to understand the concepts. His declaration that my knowledge was zero was in itself a revealing statement. Given our sparse exchange, there is no way he could accurately quantify what I know. BUT... he's a business owner, so he knows all, and anyone who isn't, is just an idiot.
You and I watch "A Christmas Carol" and see it as a story of redemption, and hope. This guy, and those of his ilk watch it, and see the story of the persecution of a good businessman!
Merry Christmas to you and yours. Good to know there are people who are Christian here.
"America works best Union Free"
Treat people well, unions will either dissolve or become reasonable. Treat them poorly, they'll unionize. It's a simple equation.