[IP] more on When You Fly in First Class ON UAL , It's Easy to Forget the D
-----Original Message-----
From: Joe Pistritto [mailto:jcp@xxxxxxxxxxx]
Sent: Monday, January 30, 2006 10:58 AM
To: dave@xxxxxxxxxx
Cc: brett@xxxxxxxxxx
Subject: RE: [IP] more on When You Fly in First Class ON UAL , It's Easy to
Forget the D
What he's "risking" is time value of money. A CEO can make 10+ million/year
(or more in total compensation?) at a typical large public company. (I
don't know what the actual number is, but I'd guess that would be around the
truth). Tilton was a Vice Chairman of ChevronTexaco and had a 32 year
history with the company, before he joined United, so he probably could've
gotten a CEO slot at a Fortune 500 pretty easily with that pedigree. What's
a typical Fortune 500 CEO slot "worth" in terms of total compensation?
That time is money. If he goes to UAL, it crashes into bankruptcy and
then is liquidated, he gets:
- whatever salary he was being paid at the time (his salary was about
$800K plus a bonus of $300K in 2004).
- any severance he might get in the bankruptcy (which might not be a lot,
most liquidations don't provide very much in the way of severance if at
all). By definition any stock options are worthless.
- whatever hit to his reputation he takes for failing to be able to
organize a restart of the company.
I'm not saying that United's reorganization plan is fair, mind you, but
there is a real risk of millions of dollars that it's CEO took by joining
the company in 2002 when it was clear it was going to be in bankruptcy for a
long time and might well *not* be able to reorganize. He effectively took a
much lower salary than he could "get" in the market because of the lack of
viable stock options in the deal, on the hope of a future payoff if a reorg
could be achieved. To not recognize that would also be unfair.
The real question here is a larger one: when you have a substantially
employee owned business (and many large companies have very significant
fractions of their ownership in employee hands, either directly or through a
pension/401K plan), should a "valid" reorganization plan recognize those
owners differently than other stockholders. (Stockholders all lose their
entire stock value in most reorg plans. Since generally all stock is of a
single class, treating any particular set of stockholders *differently* *by
virtue of their stock ownership* is legally problematic today.)
I don't know the answer to that (or how that could be done legally), but it
seems like there should be some way to accommodate employees who have
invested significantly in a business (beyond just working there), in
reorganization plans. There'd have to be legislation to do this though, and
it'd have to be pretty carefully written to avoid killing the stock price of
existing businesses that have employee-owners when passed or seriously
compromising bankruptcy law. (effectively it'd be an "obligation" that
transcends a bankruptcy). While you're at it, fix this problem for Pension
Plans of a reorganized company too...
Maybe a good discussion is what does that look like?
-jcp-
-----Original Message-----
From: David Farber [mailto:dave@xxxxxxxxxx]
Sent: Monday, January 30, 2006 7:39 AM
To: ip@xxxxxxxxxxxxxx
Subject: [IP] more on When You Fly in First Class ON UAL , It's Easy to
Forget the D
-----Original Message-----
From: Brett Glass [mailto:brett@xxxxxxxxxx]
Sent: Sunday, January 29, 2006 10:12 PM
To: dave@xxxxxxxxxx; ip@xxxxxxxxxxxxxx
Cc: edyson@xxxxxxxxxxxxx
Subject: Re: [IP] more on When You Fly in First Class ON UAL , It's Easy to
Forget the D
At 04:08 PM 1/29/2006, Esther Dyson wrote:
>That the airlines are badly run is not in question. That top
>management makes a lot, also not in question. But Tilton is a
>relatively recent arrival.... Why should he have taken the risk in
>the first place?
This must be some definition of "risk" that I have not
previously encountered.
What was he really risking? He stood to make (and did make)
many times more money than any of the "dots" (or most of us)
made in an entire lifetime -- whether or not the company pulled
out of bankruptcy.
Some risk.
--Brett Glass
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