The real reason for the UACO merger.


Sep 4, 2003
Total Time

At United, payouts promote merger
CEO Glenn Tilton and other top executives in line to earn millions if airline is bought out From

By John Pletz
March 10, 2008 12:01 AM ET

United Airlines' top executives have a lot of reasons to do a merger—about 13 million of them—and another 17 million reasons not to stick around after the deal.

The five highest-paid execs at parent UAL Corp. would receive $13.3 million, mostly in stock, if they negotiate a deal that results in a change of control—meaning executives of a merger partner run the combined airline—figures provided by UAL show.

The Chicago airline's execs would get about $30.5 million if they leave following a merger or acquisition. That's possible, since the two most likely merger partners, Delta Air Lines and Continental Airlines, have indicated they intend to run the surviving airline.

United CEO Glenn Tilton, who steered the airline out of bankruptcy, would make the most: $6.6 million in a change of control in which he stayed on, or $12.8 million if he were replaced within two years. His package isn't out of line with those of executives at other big public companies, said compensation consultant Don Delves, president of Chicago-based Delves Group.

“It's at the high end of reasonable,” he said. “They did reasonably well with a difficult situation, not stellar.”

Payouts for other senior execs—chief operating officer Peter McDonald, chief financial officer Frederic “Jake” Brace, chief revenue officer John Tague and senior vice president Sara Fields—could reach well into the millions, depending on whether they were to leave the company. The perks are in addition to any gains the UAL officials would reap selling their stock in a merger. As a group, United's top five managers hold 666,850 shares, valued at $18.9 million as of Tuesday's close.

Mr. Tilton's pay package is fueled mostly by restricted stock awards granted in January 2006, just before United emerged from bankruptcy. The 218,000 shares of restricted stock, valued at $6.2 million based on Tuesday's closing price, would vest immediately upon a change of control instead of at retirement. His stock options, with exercise prices between $34.18 and $35.91, are worthless at UAL's current stock price. However, Mr. Tilton would have five years after leaving the company to exercise those options.

He would get another $6 million in cash severance, or three times his annual salary and bonus, if he leaves following a merger.

Douglas Steenland, CEO of Northwest Airlines, who is expected to be replaced if his airline completes a merger with Delta, has a similarly structured severance package of three times his annual salary and bonus, or $5.7 million. His restricted stock is valued at about $6 million.

But the United payouts are not likely to sit well with employees who took pay cuts and lost big chunks of their pensions during bankruptcy.

“It's a pretty big incentive for them to enter into a transaction that will create a big bonus for them,” said Greg Davidowitch, president of the Association of Flight Attendants at United. “It's just another component of their overall compensation package we find completely excessive and outrageous. It makes people angry.”

—Crain's Chicago Business
Last edited: