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  • Pinnacle Reaches Height Of Hypocrisy With Executive Pay Raises
    Posted by Andrew Compart 11:00 AM on Mar 28, 2012

    This is an outrage, in my humble opinion, but I'm not quite sure who to blame: the people giving the raises or the people receiving them.

    As reported on Aviation Week Intelligence Network and elsewhere, the board for Pinnacle Airlines--a U.S. regional carrier that may soon file for Chapter 11 bankruptcy protection--has approved huge pay raises for the airline's CEO and COO. The board increased CEO Sean Menke's annual base salary by 59%, from $425,000 to $675,000, and COO John Spanjers' base salary by 45% from $275,000 to $400,000. 

    In its SEC filing disclosing the raises, Pinnacle provides two reasons for awarding the raises. One is that both men are taking on some of the job responsibilities of the outgoing CFO, who is leaving at the end of this month to take the same post at Spirit Airlines, and the other is that they are taking on some additional responsibilities related to the airline’s attempts to restructure its costs and business.

    Of course, a lot of people have been doing more work as people around them are laid off, and U.S. worker productivity has been increasing for decades, especially over the past 10 years. Are they getting rewarded for that? Not much. As the U.S. Bureau of Labor Statistics documented a year ago, productivity increased 2.5% a year from 2000 to 2009, while real hourly compensation grew 1.1% a year over the same time period. The Economic Policy Institute released a report about the same time showing that U.S. productivity grew by 62.5% from 1989 to 2010, while real hourly wages for private sector and state and local government workers grew 12%.

    In other of words, plenty of people are doing a lot more work without receiving big raises--if any raises at all. I'm not saying this is how it should be--in fact, I would argue the opposite--but this is how U.S. businesses seem to be run these days. 

    Why should Menke and Spanjers be exceptions? True, Menke is a recent hire who came to Pinnacle when it already was having problems, so you cannot fairly pin the blame on him for its difficulties. But it also is true he knew when he took the job that Pinnacle had difficulties, so having to help with a restructuring is not a shock. Isn't leading a restructuring effort an inherent part of the CEO and COO jobs? As for the CFO duties, the outgoing CFO was receiving an annual base salary of $290,000. The combined raise for Menke and Spanjers exceeds that amount by $85,000. Even worse, Menke and Spanjers are receiving the raises even as Menke is insisting that his company's workers need to accept a permanent 5% pay cut to make the airline profitable and keep it out of bankruptcy.

    One thing the board does not use as justification for the raises is the possiblity that the two executives would jump ship if they did not receive more money, but there is plenty of precedent for that being a motive--and a reason why the board would not state it. In the October 2008 issue of its Bankruptcy Protector newsletter the Washington-based Wiley Rein law firm explained the dynamics, noting that companies often have paid substantial bonuses to executives prior to filing for bankruptcy protection and/or after the filing to keep them from jumping ship to a more stable company. A lot of people did not like the bonuses and the 2005 Bankrupty Act made that more difficult, it said, but companies still find ways to give them and get bankruptcy court approval for them.

    I have no idea if retention of the executives is what is motivating the Menke and Spanjers raises by Memphis, Tenn.-based Pinnacle. But that was the speculation of the Memphis Commercial Appeal in writing an editorial in support of the pay hikes.

    Even if that is the reason, I'm not buying that as justification either. Yes, I can understand why the board would worry about losing the company's leaders, or why those leaders might want to leave for a more stable or lucrative job. I also understand that (unfortunately) this has become common practice. But isn't there a point at which the leadership should reject a raise based on fairness or principle--or simply a desire to lead by example? On a pilot forum complaining about the Menke and Spanjers raises, one of the posters provided a link to this 2008 report about the Japan Airlines CEO giving himself a pay cut because of the sacrifices that were being asked of workers. I'm not saying Pinnacle's board, or Menke and Spanjers, needed to go that far. But some restraint and sensitivity would have been nice.

    Tags: tw99, Pinnacle, CEO, COO, pay, raise, Menke

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