SWA Compensation Info - Pt 1

[chase]

Profit Sharing Compensation

SWA compensation to its pilots is not as simple as comparing pay scales from one airline to another. My desire is to simply describe what other forms of compensation one will encounter when employed at SWA. I'll start with the easiest, profitsharing. I've listed below the annual profit sharing for the last 20 years.

Year %
2001 12.10%
2000 16.60%
1999 14.50%
1998 13.70%
1997 11.60%
1996 8.40%
1995 8.80%
1994 9.90%
1993 10.50%
1992 8.30%
1991 2.50%
1990 4.50%
1989 5.10%
1988 4.60%
1987 0.30%
1986 4.40%
1985 6.30%
1984 9.30%
1983 11.10%
1982 8.10%
1981 19.10%
1980 21.60%
1979 17.40%
1978 18.70%
1977 13.10%

25 Yr. Average 10.42
Trailing 10 Yr. Average 10.55
Present contract Yrs. 1994 - 2004 11.95%

Last year's profit-sharing was 5%. The following are the funds that employees can put their profit sharing funds into. Moving money between funds is also permitted. This can be done over the phone.

Profit Sharing FUND TICKER
Merrill Lynch Premier Instl MLPXX
PIMCO Total Return Institutional PTTRX
Morgan Stanley Institutional Balanced MPBAX
Dodge & Cox Stock DODGX
Vangard 500 Index (SWA) VFINX
Harbor Capital Appreciation HACAX
American Funds EuroPacific Growth A AEPGX
Southwest Airlines Stock LUV
*Profit Sharing accounts are funded on Sept 15th

SWA announces in late Feb/early March the previous year profit. This includes the percentage. Distribution occurs on Sept 15th each year. Shares are purchased for the various funds or SWA stock at the closing price on 15 Sept. When the stock market opened back up after 911, SWA stock was at 12.78, much lower than what it was prior to 911. With the stock last reporting at 17.24, persons owning SWA stock (which is a the option of the individual) has turned out rather well.

Persons receiving profit sharing are those who were on the property for the entire previous year (1 Jan-31Dec) AND are on the property on the distribution date (15 Sept). So if one retires on 14 Sept, even though you were on the property the previous year, one doesn't receive the profit sharing distribution.

The money in the account is the employee's & will be distributed to him after being with the company for a minimum of 5 years and the employee (1) retires (2) leaves under good terms with the company but doesn't retire, i.e. goes to another employee. Employees who leave the company prior to being vested have their shares equally distributed annual to all employees at the same time the profit sharing is distributed. No tax is paid on these distributions until the funds are liquidated upon retirement. I believe they can be rolled over into a tax free retirement vehicle but will be taxed when removed from such vehicles. I'm not completely sure about this aspect of it so any finance lawyers from SWA pls chime in.

This is important, this money is outside the control of the company so if financial difficulties beset SWA, this money is under the control of the employee and not SWA.

I'm not a financial guru & by far am not the definitive answer man when it comes to all of these issues. I'm simply trying to pass along what general info I know about our level of compensation. For any other SWA employees who wish to correct or embellish, please add your thoughts so folks understand what they are getting into.

I will be posting info on the 401K plan, stock option plan (bring some aspirin) and the 415 excess plan also. I'll let this simmer for awhile & then post the 2nd part over the next few days.

 

[PTinbound]

Chase, you sure know how to keep a poolie in suspense!
Eagerly awaiting "the rest of the story"....

 

[HOUMAN]

Chase,
I know the side letter you all mostly agreed on last August gives pay raises partly connected to the profitability of the company. You all should recieve another pay raise in September of this year. Was SWA profitable enough in 2002 for your pay raise to go above the base agreement?? As usual, thanks for the information.

 

[HOUMAN]

Chase,
Hopefully this will clear up what I was trying to say. This statement came from the letter Parker sent out prior to the side letter being signed.

"...Pay Rates in 2002 & 2003

Profitability-based pay raises would be granted on all TFP rates as of 9/1/02 and 9/1/03, on top of current contractual 3% raises. The raises would be based on the Company's Adjusted Operating Margin (as presently defined in the contract), for either the immediately preceding calendar year, or the immediately preceding July 1 - June 30, whichever is higher. If the Company's Adjusted Operating Margin exceeds 9%, a Profitability-based pay raise will be granted on the basis of .6% (or any fraction thereof) for every 1% (or any fraction thereof) by which the Adjusted Operating Margin exceeds 9%, up to a maximum Profitability-based raise of 3.6%, which would be achieved at an Adjusted Operating Margin of 15%..
...On 9/1/03, the current contractual 3% raise would be increased to 4%, and Pilots would also receive a Profitability-based increase, which could range from 0-3.6%."

I guess my question is, what was the "Adjusted Operating Margin" for 2002?

 

[chase]

HOUMAN & others

There are two periods of time that will determine whether a pay raise greater than the guarantee 3% will occur, the entire calendar year of 2002 period of time or Jul '02-Jun'03. The profitabilty for last year's calendar year will trigger only a slight increase above the minimum if what I've read from other sources are correct (I haven't verified the #s yet but will). The 2nd period is obviously not complete yet, however based upon the numbers from the 10K listings the trigger will probably not occur unless.....

SWA received $233M from the gov in mid May from the recent passage of the aviation bailout law (I forgot the number). There is debate on whether this will go into the column of Adjusted Operating Margin. Some sources I have read said it would, others have said no. If it did, then the triggers will have been reached & some incremental adjustment will be made based only upon the timeframe of Jul '02-Jun '03. I'll wait for folks smarter than me to provide me the exact numbers.

I'll be gone for 2 1/2 weeks to Montana on vacation so will be out of pocket for awhile but hopefully when I get back that will be posted & I'll update everyone here.

If there are some other SWA folks out there with a better answer please chime in. thanks in advance