To: All Midwest and Skyway Employees
Date: July 2, 2008
From: T.E. Hoeksema
Subject: Additional Details -- Wage Reductions
In keeping with the promise I made to keep you informed, I am writing today
to give you additional details on one of the action items in our
restructuring plan regarding our employees -- wage reductions.
Record-high fuel prices have put us in this predicament. As a result, we
are taking action to restructure our airline: adjusting our fleet and
network, and aligning our organization and costs to be able to compete and
be profitable in this new energy economy. I believe that all domestic
airlines will eventually need to restructure. We are implementing our
restructuring in a comprehensive way, working to make significant and
sustainable change quickly, whereas other airlines may make changes
incrementally.
Unfortunately, there is no way to avoid deep and painful reductions to our
current compensation. Our cost structure today, in advance of this
restructuring, resembles that of airlines much larger than we are, with
national and even global networks, flying larger aircraft. Following our
restructuring, we will not have the larger aircraft and revenue generation
capacity to support our current cost structure. Even the exemplary service
you provide and the customer loyalty it engenders cannot overcome this
disadvantage in the new energy environment of $140-a-barrel oil. Our
choices are to fix this disparity so our costs better match our revenues,
file for Chapter 11 and try to fix it there, or ignore it and fail as a
business.
We believe our best choice -- for ourselves, our customers and the
communities we serve -- is to step up to the difficult work in front of us
and to restructure now on our terms. Many employees I've talked to over the
last week agree with this decision when it's presented in these stark, but
realistic, terms.
If that's our path, as we believe it should be, our guiding principles are
clear:
Everyone participates in compensation reductions, productivity
improvements or employee count reductions; no exceptions.
The reductions are fair and equitable.
"Fair and equitable" means applying the same standard to each work group
and resetting everyone's compensation to the market. That means
benchmarking against airlines that fly aircraft of similar capacity, which
is the basic component of our ability to generate revenue. Our commitment
to set all employees' wages and benefits to a consistent standard extends
across all of our work groups, with the actual percentage wage reductions
varying by work group.
Represented Work Groups
Our top-of-scale rate for pilots is currently 32% higher than the average
hourly pay for pilots who fly aircraft of similar capacity for other
airlines. The cost of pension, health and other benefits for our pilots is
45% higher than the average at comparably sized airlines. Productivity per
pilot is also less than at comparably sized airlines.
Similarly, our flight attendants are earning above-market wages and
benefits, although in this case the premium is smaller. Our top-of-scale
rate for flight attendants is currently 23% higher than the average hourly
pay for flight attendants in the cabins of aircraft of similar capacity.
Given these realities and the actions we need to take to adjust our fleet
and network, we are proposing pay reductions, benefit adjustments and
productivity improvements to the Airline Pilots Association and the
Association of Flight Attendants to align pay and benefits for our pilots
and flight attendants with comparably sized airlines.
Non-Represented Work Groups
According to salary surveys, many Midwest non-represented employees earn
wages on average that are at or below those of employees at comparably
sized airlines. Based on this, the average reduction in compensation for
non-represented employees will be:
Maintenance technicians -- 10%.
Professional staff (Grade 9-13) -- 5%.
These reductions will be effective upon ratification of the ALPA and AFA
agreements.
Midwest administrative staff (Grade 1-8) and Skyway employees will not
experience a compensation reduction, nor will Midwest station employees.
This decision is based on what the market currently provides in terms of
compensation for these work groups, in conjunction with them taking
significant reductions in employees through improvements in productivity
and changes in capacity.
Senior management will earn wages and benefits below their peer group
average. This reflects our belief as a management team that we should lead
by example and that we bear ultimate responsibility for keeping our airline
competitive.
As CEO, I will take a 40% reduction in my total pay.
Senior vice presidents will take a 25% reduction in total pay.
Officers (vice presidents) will take a 17% reduction in total pay.
Directors and senior managers will take an 11% reduction in total pay.
My pay reduction and those of the senior vice presidents will be effective
July 15; the reductions for other members of senior management will be
effective upon ratification of the ALPA and AFA agreements. I want to
clarify two points regarding management pay. First, members of senior
management have a greater percentage of their total pay "at risk." Total
pay includes salary plus incentive compensation awarded for the achievement
of individual goals and on overall company performance. Second, the notion
of incentive compensation based on our airline's profit target this year is
largely a moot point, since we're in a restructuring mode, not a
profit-achieving mode.
Some may say that our proposals aren't fairly allocated "across the board"
because the percentages aren't uniform from one work group to the next. I
understand the appeal of that argument, but it's a false appeal; the pay
and benefit reductions are fair, equitable and based on the market rates
for similar positions at comparably sized airlines.
Please don't misunderstand me; these are significant reductions by any
measure and will cause great hardship to our employees and their families.
Regarding reductions in staffing, there is no way to minimize the depth of
reductions we need to make to implement a comprehensive restructuring. We
are still working through a position-by-position evaluation of every
function within our airline, so it's not yet possible to tell each employee
whether the reductions will directly impact her or his job. But we promise
to complete those efforts as quickly as possible and to communicate them in
the most compassionate way possible.
Be assured that I do not underestimate the stress and concern this
situation is causing you and your family, and I wish it could be avoided.
At the same time, I cannot overstate the admiration and respect I hold for
each member of the Midwest family as we continue day in and day out to
deliver "The best care in the air." It is that strong spirit and pride that
has made us successful and will sustain us through this difficult chapter
in our history.
Thank you.
I think it's now pretty obvious that management is just looking for someone to blame except themselves when the file chapter 11 or 7.
Date: July 2, 2008
From: T.E. Hoeksema
Subject: Additional Details -- Wage Reductions
In keeping with the promise I made to keep you informed, I am writing today
to give you additional details on one of the action items in our
restructuring plan regarding our employees -- wage reductions.
Record-high fuel prices have put us in this predicament. As a result, we
are taking action to restructure our airline: adjusting our fleet and
network, and aligning our organization and costs to be able to compete and
be profitable in this new energy economy. I believe that all domestic
airlines will eventually need to restructure. We are implementing our
restructuring in a comprehensive way, working to make significant and
sustainable change quickly, whereas other airlines may make changes
incrementally.
Unfortunately, there is no way to avoid deep and painful reductions to our
current compensation. Our cost structure today, in advance of this
restructuring, resembles that of airlines much larger than we are, with
national and even global networks, flying larger aircraft. Following our
restructuring, we will not have the larger aircraft and revenue generation
capacity to support our current cost structure. Even the exemplary service
you provide and the customer loyalty it engenders cannot overcome this
disadvantage in the new energy environment of $140-a-barrel oil. Our
choices are to fix this disparity so our costs better match our revenues,
file for Chapter 11 and try to fix it there, or ignore it and fail as a
business.
We believe our best choice -- for ourselves, our customers and the
communities we serve -- is to step up to the difficult work in front of us
and to restructure now on our terms. Many employees I've talked to over the
last week agree with this decision when it's presented in these stark, but
realistic, terms.
If that's our path, as we believe it should be, our guiding principles are
clear:
Everyone participates in compensation reductions, productivity
improvements or employee count reductions; no exceptions.
The reductions are fair and equitable.
"Fair and equitable" means applying the same standard to each work group
and resetting everyone's compensation to the market. That means
benchmarking against airlines that fly aircraft of similar capacity, which
is the basic component of our ability to generate revenue. Our commitment
to set all employees' wages and benefits to a consistent standard extends
across all of our work groups, with the actual percentage wage reductions
varying by work group.
Represented Work Groups
Our top-of-scale rate for pilots is currently 32% higher than the average
hourly pay for pilots who fly aircraft of similar capacity for other
airlines. The cost of pension, health and other benefits for our pilots is
45% higher than the average at comparably sized airlines. Productivity per
pilot is also less than at comparably sized airlines.
Similarly, our flight attendants are earning above-market wages and
benefits, although in this case the premium is smaller. Our top-of-scale
rate for flight attendants is currently 23% higher than the average hourly
pay for flight attendants in the cabins of aircraft of similar capacity.
Given these realities and the actions we need to take to adjust our fleet
and network, we are proposing pay reductions, benefit adjustments and
productivity improvements to the Airline Pilots Association and the
Association of Flight Attendants to align pay and benefits for our pilots
and flight attendants with comparably sized airlines.
Non-Represented Work Groups
According to salary surveys, many Midwest non-represented employees earn
wages on average that are at or below those of employees at comparably
sized airlines. Based on this, the average reduction in compensation for
non-represented employees will be:
Maintenance technicians -- 10%.
Professional staff (Grade 9-13) -- 5%.
These reductions will be effective upon ratification of the ALPA and AFA
agreements.
Midwest administrative staff (Grade 1-8) and Skyway employees will not
experience a compensation reduction, nor will Midwest station employees.
This decision is based on what the market currently provides in terms of
compensation for these work groups, in conjunction with them taking
significant reductions in employees through improvements in productivity
and changes in capacity.
Senior management will earn wages and benefits below their peer group
average. This reflects our belief as a management team that we should lead
by example and that we bear ultimate responsibility for keeping our airline
competitive.
As CEO, I will take a 40% reduction in my total pay.
Senior vice presidents will take a 25% reduction in total pay.
Officers (vice presidents) will take a 17% reduction in total pay.
Directors and senior managers will take an 11% reduction in total pay.
My pay reduction and those of the senior vice presidents will be effective
July 15; the reductions for other members of senior management will be
effective upon ratification of the ALPA and AFA agreements. I want to
clarify two points regarding management pay. First, members of senior
management have a greater percentage of their total pay "at risk." Total
pay includes salary plus incentive compensation awarded for the achievement
of individual goals and on overall company performance. Second, the notion
of incentive compensation based on our airline's profit target this year is
largely a moot point, since we're in a restructuring mode, not a
profit-achieving mode.
Some may say that our proposals aren't fairly allocated "across the board"
because the percentages aren't uniform from one work group to the next. I
understand the appeal of that argument, but it's a false appeal; the pay
and benefit reductions are fair, equitable and based on the market rates
for similar positions at comparably sized airlines.
Please don't misunderstand me; these are significant reductions by any
measure and will cause great hardship to our employees and their families.
Regarding reductions in staffing, there is no way to minimize the depth of
reductions we need to make to implement a comprehensive restructuring. We
are still working through a position-by-position evaluation of every
function within our airline, so it's not yet possible to tell each employee
whether the reductions will directly impact her or his job. But we promise
to complete those efforts as quickly as possible and to communicate them in
the most compassionate way possible.
Be assured that I do not underestimate the stress and concern this
situation is causing you and your family, and I wish it could be avoided.
At the same time, I cannot overstate the admiration and respect I hold for
each member of the Midwest family as we continue day in and day out to
deliver "The best care in the air." It is that strong spirit and pride that
has made us successful and will sustain us through this difficult chapter
in our history.
Thank you.
I think it's now pretty obvious that management is just looking for someone to blame except themselves when the file chapter 11 or 7.
