Human Capital & Careers

Continental Cuts Comp for Execs, Board

In November, the airline announced that it needs to reduce overall pay and benefits by $500 million per year.
Stephen TaubFebruary 16, 2005

Continental Airlines Inc. announced that it will cut its base retainer fee and meeting fees for its board members by 30 percent, effective February 28. The airline will not decrease the compensation for members of the audit committee, however, recognizing their increased responsibilities stemming from Sarbanes-Oxley.

“Our board took this action in recognition of the sacrifice our co-workers are being asked to make to help assure the survival of our airline,” said chairman and chief executive officer Larry Kellner, in a statement. “We appreciate their efforts to work together toward our goal of cutting $500 million out of our pay and benefit costs.”

In a separate announcement, Continental added that it adjusted management’s annual incentive program and that officers will forego their restricted stock units this year to avoid the appearance that management could benefit from that half-billion-dollar saving.

The company said that it raised the level of return required before incentives are paid under its return on base invested capital (ROBIC) plan to eliminate the effect of employee pay and benefit reductions in 2005. When targets are set for 2006 and beyond, the company added, they will also be set to eliminate the effect of the reductions.

In addition, Continental stressed that officers will voluntarily surrender restricted stock units “to avoid even the appearance that officers would personally benefit from the pay and benefit reductions.” Those RSUs would have paid out this year if the company’s share price increased to $17.48 by June 30. Continental’s stock closed Tuesday at $10.63.

“Some employees told us that they were concerned that the incentive program or RSU program will pay out this year as a result of the pay and benefit cuts,” said Kellner in a separate statement. “The entire officer group wanted to make certain that no employee feels his or her cut was being used to fund the bonus program or the RSUs.”

The company also announced that no change was made to the airline’s new long-term incentive program (NLTIP) for management, which measures Continental’s earnings before interest, taxes, depreciation, amortization, and aircraft rent (EBITDAR) margin performance, compared with its competitors. Since performance is judged on a relative basis, wage and benefit reductions at other carriers and at Continental are automatically taken into account, the airline explained.

However, since incentives under the NLTIP program are themselves based on participants’ salaries, potential payouts are automatically reduced because of the significant salary reductions taken by Continental’s officer group, the airline added. The earliest payout opportunity under the NLTIP program would be in 2007.