United Airlines CEO Oscar Munoz has not had the best year so far in 2017, but in 2016 he led his airline industry peers in one metric — total compensation.
Munoz earned $18.7 million in compensation last year, including stock awards, according to United’s filings with the U.S. Securities and Exchange Commission. Just under $1.2 million of it was salary, with most of the rest coming from incentives, and a bonus tied to his 2015 hiring.
For 2016, the board determined United hit its marks in on-time arrival performance and pre-tax income. Munoz also reached long-term goals related to the airline’s return on invested capital and its pre-tax margin.
Munoz’s targets will change in 2017, with the board recently announcing executive compensation will be more closely tied to United’s customer service metrics. The decision, made public after United’s recent debacle in Chicago in which security officers forcibly removed a passenger, is designed to promote, “necessary cultural and process change,” the board said.
Across the U.S. airline industry, 2016 was a profitable year, and most boards generously compensated their CEOs, in cash and equity. Here’s how publicly traded U.S. carriers compared.
Note: Data comes from airline filings and a recent report from Joseph W. DeNardi, an analyst with Stifel.
Delta Air Lines
Delta CEO Ed Bastian was the second-highest paid CEO, earning almost $12.6 million in total compensation. But he only became CEO in May, so he might have made more had he led the company for the full year. He was previously Delta’s president.
Bastian’s base salary was roughly $742,000. He was well-compensated in part because Delta hit its goals for net promoter score (on both domestic and international operations), return on invested capital, and operating margin.
Few CEOs make much of their compensation in salary, but most receive something. Not Doug Parker. He doesn’t take a salary at all.
Instead, Parker earns his compensation in stock. Parker earned a little more than $11 million in compensation, with slightly more than half as a reward for American’s relative pre-tax margin. The rest was from restricted stock that vested.
“In our view, the simplicity of Mr. Parker’s compensation structure is ideal,” DeNardi wrote.
For the past three years, Parker has asked the board to set his compensation below Delta and United’s CEO pay, according to American’s SEC filing. The board noted that Parker said he wanted to be paid less than his peers because American’s front-line employees, who generally work under union contracts, have earned less than workers at Delta and United.
However, last month, American gave its flight attendants and pilots raises, so it is possible Parker’s future pay will increase.
Spirit CEO Bob Fornaro earned $7.2 million in 2016 total compensation, including a base salary of almost $550,000. He received cash bonuses of nearly $850,000 for meeting targets on costs, unit revenues, on-time performance and complaint rate.
Like most CEOs, much of Fornaro’s compensation came in equity. He received awards worth $5.7 million.
Southwest CEO Gary Kelly has one of the more complicated total compensation packages, but he was well-rewarded last year, earning almost $6.2 million. His package included a base salary of $675,000, and a discretionary bonus of $228,000.
Kelly received relatively small bonuses for meeting the board’s standards on 10 different metrics, including on-time performance, operating revenue, net promoter score, and controllable costs. Kelly also received more than $4 million in long-term incentive compensation.
Stifels’ DeNardi said investors might prefer Kelly have a more straight-forward pay plan.
“The drivers of Mr. Kelly’s short-term incentive compensation are numerous — too numerous, in our view, as we suspect it’s difficult for a CEO to consciously manage to all of these various metrics concurrently,” he wrote.
CEO Brad Tilden, now leader of America’s fifth-largest airline after he led Alaska’s acquisition of Virgin America, earned roughly $4.2 million in total compensation last year, including $488,000 in base salary. With a cash incentive of almost $1 million, he was rewarded for Alaska’s operational performance, its employee engagement, its customer satisfaction scores, its costs, and its overall profitability.
He also earned $2.2 million in equity because of Alaska’s return on invested capital and its total shareholder return.
Hawaiian’s Mark Dunkerley, who received $3.7 in total compensation last year, is another CEO with a complicated package. He earned $722,000 in base salary, as well several cash bonuses totaling nearly $1 million.
In determining his bonuses, the board not only looked at typical metrics — like earnings — but also examined Hawaiian’s rankings from Conde Nast Traveler, and in the annual Airline Quality Rankings survey. The board also evaluated Dunkerley based on employee surveys and the carrier’s on-time performance.
“Similar to Southwest, it seems to us like it would be difficult for a CEO to actively be managing to this many different metrics and suspect a more simplified approach would be more effective,” DeNardi said.
Among U.S. airline CEOs, Allegiant’s Maury Gallagher is probably the biggest iconoclast. He’s the airline’s founder, and he does not take a base salary.
Instead, he earned his total compensation of $3.6 million mostly through a cash bonus of $2.85 million and an equity grant of $700,000.
Gallagher may make less money than most of his peers, but don’t feel bad for him. Gallagher is Allegiant’s largest shareholder, owning 20.4 percent of the company. As of May 19, his 3,398,074 shares were worth nearly $500 million.
CEO Robin Hayes received $550,000 in base salary, plus $324,000 in cash incentives for meeting goals in four areas — on-time departures, customer satisfaction scores, non-fuel costs, and pre-tax margin. He also earned nearly $2.5 million equity-based compensation.
Hayes’ total compensation was about $3.4 million.
Comparing 2016 Airline CEO Compensation With Prior Years
|CEO||Airline||2014 Pay||2015 Pay||2016 Pay|
|Oscar Munoz *||United Airlines||N/A||$5,795,459||$18,720,548|
|Ed Bastian **||Delta Air Lines||$9,009,330||$9,046,574||$12,557,231|
|Doug Parker||American Airlines||$12,301,976||$11,418,547||$11,140,763|
|Bob Fornaro ***||Spirit Airlines||N/A||N/A||$7,172,512|
|Gary Kelly||Southwest Airlines||$5,002,785||$5,947,505||$6,181,660|
|Brad Tilden||Alaska Airlines||$3,468,722||$3,602,889||$4,246,312|
|Mark Dunkerley||Hawaiian Airlines||$3,103,945||$3,275,327||$3,731,714|
|Maury Gallagher||Allegiant Air||$1,078,218||$3,550,486||$3,571,205|
|Robin Hayes ****||JetBlue Airways||$1,876,898||$3,276,159||$3,160,901|
* Munoz became United’s CEO in September 2015.
** Bastian became Delta’s CEO in May 2016. Earlier pay was from his stint as president.
*** Fornaro joined Spirit as CEO in January 2016.
*** Hayes became JetBlue’s CEO in February 2016 after serving as the airline’s president.