Owners no more?

[tonysoprano]

http://business.theglobeandmail.com/ser ... iness/home

Still not a bad deal. My only concern would be the rate of increase will be below cost of living with inflation expected to skyrocket over the next five years.

[KAG]

As accurate as the rest of his articles

Still Owners.

[tonysoprano]

That's what I find confusing. Is he saying these new "units" are not ownership? Sounds to me like they are. But he might have a different interpretation.

[Disco Stu]

Mr. Durfy urged pilots to keep an open mind and "take a look at just about every other airline out there. The news is not good."

Did he look at the other airlines out there when he doubled his compensation?

[JAHinYYC]

Reading the article the "units plan" versus "stock options" sounds a lot like what we are going through at my non aviation related employer.

Basically stock options are great for the employee and are highly valued because the taxable portion of the gain is approximately 20% (half of the gain taxed at the highest marginal tax rate which in AB is 40% assuming you earn over ~$80K/yr). The tax code makes it so that it mirrors the treatment given to capital gains even though it is deemed as income and not capital gains.

Great for employees, but institutional shareholders hate them because the perception is that when stock price goes up, employee compensation (which should be a predictable expense) goes up too at the expense of shareholders (or so the arguement goes). Which is why large public companies are phasing out stock options in favour of fixed value or unit plans.

Basically the unit plan goes along the lines of employer grants employee x dollar value of units at the current trading price of stock (i.e. $20,000 when trading at $10 per gives 2000 units). The units vest over a predictable schedule and when vested are given to the employee to hold or sell as they wish.

The kick in the pants is that the unit grant is taxable as income and is therefore fully taxable at the highest marginal tax rate (assume 40% in Alberta).

Putting it into numbers the difference is this:

Stock Options
Granted 10,000 options at $1 vesting at the end of three years.
Stock trading at $21/share in three years time.
Gain is 10,000 options times $20 ($21-$1) for gross proceeds of $200,0000 taxable at 50% on a highest marginal of 40%.
Employee pockets $160,000 ($200,000 - ($200,000 x 50% x 40%))

Unit Plan
Granted 10,000 units at $1 vesting at the end of three years
Stock trading at $21/share in three years time
Gain is 10,000 units times $21 for gross proceeds of $210,0000 taxable highest marginal of 40%.
Employee pockets $126,000 ($210,000 - ($210,000 x 40%))

[ivanhoe]

JAHinYYC

Nice post. Informative AND accurate.

You don't see that around here very often.

[JAHinYYC]

I hang my head in shame actually...

I just realized that my math was wrong in the unit example. I have recalculated and amended the post...

You may flame away

JAHinYYC

Nice post. Informative AND accurate.

You don't see that around here very often.

[tonysoprano]

JAH.
Good info. Thanks.

[Flightlevels]

Stu a la Disco,

It was far from doubling his salary. Research the performance based shares etc. Much of the perceived doubling of salary is "paper" and not hard cash. Targets that a lot of execs won't even hit but have to be shown on the comp.
I personally don't have a problem either way in how they are compensated. I'll do my job of flying the a/c and getting paid well and they can do their job of guiding and growing a two billion/year company and developing strategic planning to go along with it. I know I don't have the smarts to do their job. So far I think Durfy is doing a great job. I walked out of the town hall meeting reminiscent of town halls with Clive, which speaks volumes in my mind. Confidence is alive and well with me.

[Disco Stu]

Flightlevels,

Don't most of you WJetters like to include your stock based compensation when telling the world how huge your T4 was for the year? Why would you now try to play down that portion of compensation when in the context of your CEO?

The fact is that the company is essentially asking the pilots to agree to a concessionary contract, citing other airlines as examples of what state the industry is in. The fact is, WJ's margins are still double digit. WJ has yet to see an unprofitable quarter and is one of the most financially secure airlines in North America, if not the world. Your CEO took a huge pay raise whether it all be cash or not.

That kind of hypocracy I'd be kind of upset about. I understand how important culture is to you guys, and WJ seems like it truly is a great place to work. But people need to not be so eager to accept degradations to their working conditions, or be afraid to speak out in a misguided attempt to preserve that culture.

[J Roc]

....The fact is that the company is essentially asking the pilots to agree to a concessionary contract, citing other airlines as examples of what state the industry is in....

I'm not sure were you're getting your info (I hope from a more reliable source than Brent Jang) but we were NOT asked to accept a "concessionary contract". Yes, the agreement they put forth needed a little "tweaking" but they didn't force it on us. They put it out to the pilot group and quickly realized it needed to a little more work, that's why we're back at the negotiating table.

I'm very happy with the process we have in place; it's fair and I'm excited to see what the outcome will be.

[jjj]

Disco Stu,

Usually the big T4 arguments come out when people try to tell a kool aid drinker like me that they whore themselves out for pennies and degrade the industry.

I made sweet F A this year on options but the T4 was still very good.

There is no downplaying of the stock options - they are what they are. Sometimes you score and sometimes you loose.

As far as what the CEO makes - he and the rest of the executive team are paid at market median minus 20%. At the first town hall meeting we were shown the list of comparators which derive the "market," and the CEO also passed around his personal T4. Our new agreement takes the pilots up beyond market average which is a great leap forward from being at market median. We are also aware of what companies are used to define our "market." If our CEO and other executives were brought up to market average like the pilots, then they would see another substantial raise to what they have already received this year.

An agreement was put forth and it didn't fly with the pilots. Town hall meetings are going on so that the CEO can face most of the pilots to get to the bottom of what needs to change for this to work. The proposed pay tables are not that bad at all and in fact the proposed agreement did not tank because of the cash portion (hourly rate) of the agreement.

A new agreement will be tabled soon and it will likely fly. This new agreement will not be a degradation and I think it will be something we can be proud of. Even agreement 1.0 2009 had many things in it that would serve our competitors as bargaining fodder this year with such things as OT rules / triggers and salaries for first year guys.

It's time to simmer down again and the process unfold.

When it's over the details will be out for all to judge.

That is more than I care to say and I'll pull out agreement discussions again for awhile.

Tonysoprano - I'll even blast you off a copy of 2.0 after it goes through - if you want to do you own math or comparisons or whatever - just pm me.


Oh - and if a certain reporter who sometimes posts certain articles in a certain paper about certain airlines reads this? - this certain reporter is then invited to kiss my ass.

[yycflyguy]

Shouldn't you be out buying my wedding present with that kickin T-4 instead of posting here? Sheesh, some people.

[Black Cat]

BUSINESS TICKER: AIRLINES: CONTRACT NEGOTIATIONS

http://www.theglobeandmail.com/servlet/ ... y/Business

WestJet, pilots brace for turbulent talks
BRENT JANG

April 29, 2009

TRANSPORTATION REPORTER

Over its 13-year life, WestJet Airlines Ltd. WJA-T billed itself as having motivated staff, touting employees who own shares in the company and making millionaires of veteran pilots. Now, the carrier is clashing with its pilots.

With a three-year contract with pilots expiring tomorrow, the carrier wants to eliminate their fabled stock options and introduce restricted share units as it seeks to forge a new five-year contract with the non-union WestJet Pilots Association, which has 950 members.

WestJet captains could receive units worth $5,149 annually while first officers are eligible for $3,656 a year. When the current contract took effect in 2006, stock options were valued at nearly $41,200 a year for captains and $29,250 a year for first officers.

Management at the airline believes the units are an attractive long-term incentive. "Unlike stock options, which may be forfeited if they are not 'in the money,' upon vesting of the RSUs, the pilot will receive the shares," according to WestJet's proposal.

Founded in 1996, WestJet doesn't have a pension plan, but to attract pilots in the early years, it dangled thousands of stock options in front of each of them annually. In 2005, as WestJet introduced the tagline, "Why do WestJetters care so much? Because we're also WestJet owners," the Calgary-based carrier touted its customer-friendly strategy.

WestJet chief executive officer Sean Durfy would not comment yesterday, but in a recent memo to pilots he said he's concerned about a "selective minority" in the cockpit who may be a drag on contract talks. "I, for one, would hate to see us fall victim to this turmoil," he wrote.

"I ask those who truly care about who we are - not just as a pilot group but as people who have created an amazing company - to ensure we do not lose what we have worked so hard to achieve."

Mr. Durfy urged pilots to keep an open mind and "take a look at just about every other airline out there. The news is not good."

Pilots are the only non-management group at WestJet awarded stock options, but all staff are eligible for the airline's stock-purchase program, which remains intact as one of the most generous in Canada, matching contributions dollar-for-dollar, up to 20 per cent of a worker's gross salary. More than 80 per cent of WestJet's 7,500 employees own shares.

"We are currently at the table negotiating our pilot agreement," said WestJet Pilots Association president David DeVeaux, who declined further comment.

WestJet management is offering to raise base cash wages for its pilots, with a starting hourly rate of $124.97 for new captains and up to $171.08 an hour for those with more experience. Full-time pilots typically fly 80 hours a month.

Hourly rates are slated to rise 1.25 per cent in 2010, then annual increases of 1.5 per cent, 2.5 per cent and 2.75 per cent.

Under the current contract, hourly rates vary, depending on how much each pilot elects to tie compensation to stock options.

For instance, new captains who participated fully in the stock option program received a base rate of $77.78 an hour in 2006, while those elected to receive one-quarter of their stock option entitlement were paid a higher rate, $109.96 an hour.

WESTJET (WJA)

Close: $12.12, unchanged

[rightseatwonder]

that was the same article from the first post I believe

[FICU]

Be careful guys and gals... with this kind of economic downturn your management could throw out the "layoff" scare if they don't get what they want. There couldn't be a worse time to have your contract expire!

[Jastapilot]

Be careful guys and gals... with this kind of economic downturn your management could throw out the "layoff" scare if they don't get what they want. There couldn't be a worse time to have your contract expire!

Why would we lay off when there's more planes on the way and more profit to make?

[trey kule]

JAtlin. that was a great post...but ah...maybe let the other crew member do the fuel calculations.

[FICU]

Why would we lay off when there's more planes on the way and more profit to make?

Don't kid yourself, that kind of bargaining tactic has been done many times before.

[roger.roger]

EBIT 2008 $254,837,000

[xsbank]

We already ARE behind Westjet pilots!

Gee, do ya think that $100 or $200 per hour is material when operating a jet? One little spike in fuel wipes out pilot salaries and trots out fuel surcharges. Here's a concept - surcharges for pilot salaries. Do ya really think that a pilot's salary, even one as big as United's used to be is the real reason that airlines bite the big one? Neither do I.

That's why I say "no union ever killed a company."

Westjet pilots, pound for pound, make more than the 'other' airlines' pilots do. But surprise, they are profitable.

By the way, how much of the actual shares do the employees, "the owners" actually have?

Remember, Westjet is a "low-cost" airline so if you have to economise, there is already nowhere to go except after pilot salaries.

[Jaques Strappe]

I wish the best for your negotiations at Westjet. Simply put, if you guys do well in your negotiations, the entire profession benefits.

I would like to think that all aviation professionals are behind you and wish you the best.

[Rockie]

That's why I say "no union ever killed a company."

Just once I would like to hear the CEO of a failed company say "It was my responsibility to properly manage this company and I failed to do that". Isn't that what justifies their exorbitant pay?

Incompetence and greed on the part of the CEO's, owners and Boards of Directors is what kills companies, not unions. It's what killed Canada 3000, Jetsgo, Nationair and Zoom to name a few.

['effin hippie]

Forgive me. I am less anti-union than I used to be. Surprise surprise.
But.
The existence of a union may never have directly killed a company through wage/benefit costs; but are you really going to try and suggest that certain union cultures don't drive down quality and productivity?
(I'm not talking about safety.)

An employee group without strong personal incentive to attend to a companies success will show declining quality/productivity.
You could provide a negative incentive by firing the f***-ups, as you get in a non-union shop. Or by some kind of positive incentive through ownership/ profit sharing.

Maybe wages and pensions of N American auto makers didn't have a significant impact on their industries spectacular failure. But over time, as unions increasingly shielded the lazy and incompetent, they utterly destroyed a golden reputation for quality, a reputation they have still not completely recovered. Any corporation is some kind of collective enterprise, and for any member to deny their share of failure is simply dis-honest.

For me, the more I look the more I think large scale employee ownership and investment in the employer is the best way to align the interests of all the different forces within a company.

I wish the very best for WJ employees. It would be nice to see those share units just be plain old shares with voting rights.
I share xs' interest in how much of the company WJ employees own.

ef

[Rockie]

The existence of a union may never have directly killed a company through wage/benefit costs; but are you really going to try and suggest that certain union cultures don't drive down quality and productivity?

I've been involved in unions my entire working life and responsibility for my work ethic has never been anywhere but on me. That isn't something that can be blamed on anyone but the individual.