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No sooner had Air France-KLM appointed a new CEO, its third in barely two years, than the backlash started.
Hired from Air Canada, Ben Smith’s chief crime – in the eyes of the trade unions at least – is that he isn’t French (although he does speak the language.) Plus investors seem to quite like the choice – quelle horreur!
Predictably, though, his pay has also come under attack. He’ll receive about 3.3 million euros ($3.8 million) yearly or about three times what his predecessor Jean-Marc Janaillac was paid, according to Liberation. The unions and some politicians are outraged, but they shouldn’t be.
For one, Smith isn’t getting much more than he received in his last job. As Air Canada’s chief operating officer, he was paid about C$4 million (2.7 million euros.) His accomplishments there included establishing a new low-cost operation and negotiating a pay deal with the unions. A resume like that is valuable. The market for executive talent is global and there are plenty of airlines with deeper pockets than Air France. In view of how the new role is a promotion, a 20 percent uplift seems unexceptional.
Second, Smith is taking on one of the hardest jobs in European business. Air France faces intense competition on both long-haul flights from the Gulf carriers and shorter routes from Ryanair Holdings Plc, EasyJet Plc and the rest. Rising oil prices threaten to erode profit further.
The company looks all but ungovernable too. There are strains with its Dutch partner KLM and its unions are uncooperative – to put it mildly. Workers literally ripped the shirts from the backs of some managers in 2015. You could argue that Smith is receiving danger money.
The French government supports Smith’s appointment but wants to sell its 14.3 percent holding at some point. It’s not clear to whom after hotel group Accor SA dropped a plan to buy a stake. Oh, and the balance sheet is stretched, the company doesn’t pay a dividend and the share price is in the gutter.
Third, it’s a bit rich of the unions to worry suddenly about money. Strikes cost the airline about 335 million euros in the first half of this year – enough to pay Smith for the next hundred years. And he’s not the only one who’s well paid at the company; so are Air France’s workers. The company’s high labor costs are one factor holding back its competitiveness as I explained here.
There’s no doubt that the gulf between CEO and median worker pay has grown too wide in Europe (let alone in North America.) But if Smith can restore a semblance of harmony to Air France, while boosting the bottom line, he’ll have earned every cent.