Midwest Airlines CEO Takes 40% Pay Cut

CEO Timothy Hoeksema will accept a pay cut of 40% as Midwest Airlines attempts to cut costs. From The Business Journal of Milwaukee:

“Our cost structure today, in advance of this restructuring, resembles that of airlines much larger than we are, with national and even global networks, flying larger aircraft,” Hoeksema wrote to employees.

“Following our restructuring, we will not have the larger aircraft and revenue generation capacity to support our current cost structure. Even the exemplary service you provide and the customer loyalty it engenders cannot overcome this disadvantage in the new energy environment of $140-a-barrel oil.”

Midwest must decide whether to “fix this disparity so our costs better match our revenues, file for Chapter 11 and try to fix it there, or ignore it and fail as a business,” he added.
…”This reflects our belief as a management team that we should lead by example and that we bear ultimate responsibility for keeping our airline competitive,” Hoeksema said.

Hoeksema’s salary was about $405,000 in 2007, and he received a bonus of about $446,000 in 2006.

Midwest CEO to take 40 percent salary cut; other employees see pay reduced
[bizjournals] (Thanks, Everyone!)

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  1. AstroPig7 says:

    Lead by example, I always say.

  2. CaliCheeseSucks says:

    I think, without knowing how much the company makes, that just the fact his salary was already about $400k, as opposed to (for example) $4m, it’s showing that he cares about more than himself. The self-imposed paycut is also cool to see. Good luck to him and his company.

  3. Joafu says:

    *applause* Amen to that. The hospital I work at is facing some major red ink; the CEO demands that each department lower cost by using lower-grade equipment and cutting staff, but won’t take a cut out of his $1.3 million salary. It’s nice to see a CEO that can still think clearly.

  4. Noris159 says:

    I live in Milwaukee and work conventions for a company. While the company is focused on saving money on travel, sometimes I get lucky and land a flight on Midwest.

    If you haven’t flown Midwest yet, you’re missing out. For a few extra dollars, you’ll have one of the best experiences out there. They have those signature chocolate chip cookies baked right on the plane. In November I was flying out to Philadelphia and they didn’t bake enough. So, the flight attendant baked up an extra batch for my entire row! Where can you find that kind of service anymore?!

    Though my cynicism of people tells me that no one will reward Midwest for this act because they’re too busy pinching pennies to support good company practices (and that’s why, Consumerists, most companies tell you to screw off when they do wrong), I hope some people take note and fly Midwest.

  5. boss_lady says:

    WOW. I damn near passed out when I read that headline. It’s also kind of… I don’t want to say “inspiring,” but maybe refreshing to see someone in charge take a pay cut voluntarily. I’ve never seen that happen in any job I’ve worked.

  6. So apparently we are not in a recession, but a “new energy environment.”

  7. emilymarion333 says:

    If 1/2 of the CEO’s in the US did this then we would be in much better shape.

    I applaud him for doing this. I have to fly 3-4 times a month but never in that area. If I ever fly out that way I will be sure to use them!

  8. rellog says:

    @Noris159: I completely agree. Midwest is an exemplary company that has treated its employees’ well. I hope they succeed in their restructuring. When costs are less than say… $50, I would choose Midwest over ANY other airline.

  9. kwjayhawk says:

    Agreed. 50 extra is worth it. I always purchase these tickets for my grandparents going from the east coast to the midwest because they won’t be treated like cattle. MKE is an easier airport to navigate than MSP, ORD, PHL that are not to be named carrier hubs.

  10. Of course, not everything is as it seems. Turns out the CEO just cashed in his stock options and got $6.25 million, which equals about 15 years of salary at 400k. I wonder how many of those mechanics, flight attendants and pilots were able to do the same?

    From the article:
    To be sure, TPG Capital’s buyout of Midwest Air resulted in payoffs worth millions of dollars for top executives and directors… Hoeksema was expected to receive the largest payout by far totaling more than $6.25 million.

  11. Jbball says:

    Good for him.

  12. boss_lady says:

    @FightOnTrojans: Oy vey. Thanks for doing the digging for us.

  13. ThinkerTDM says:

    @Joafu: Isn’t it amazing that, when you are looking for things to reduce cost, important equipment that is used to save lives is downgraded, while the most useless thing, the CEO, is not even considered.

  14. Being from Wisconsin originally, this is both a sad story and a happy story. I like to see that Hoeksema is doing the right thing, but I’m not happy with what sounds like bankruptcy having to happen to Midwest.

  15. Wormfather is Wormfather says:

    I just hope that he went to the board of directors before making this move. There was a WSJ article a while back that showed how this can backfire if you dont do that first.

  16. BillyShears says:

    Wow. It’d be a cold day in Hell before you saw any of the bigger legacy carriers even consider this option. Bravo, Midwest. :)

  17. philipbarrett says:

    Most every airline trots out the “we want to be like Southwest” mantra, finally one that’s prepared to ape SWA’s executive compensation.

    American Airlines CEO – $4.6M, AMR losses $328M, 1st Q 08
    Delta Airlines CEO – $3.3M, DAL losses $6.4B, 1st Q 08
    United Airlines CEO – $10.3M, UAL losses $539M, 1st Q 08
    NWest CEO – $7.7M, NWA losses $4.139B, 1st Q 08
    Southwest CEO – $1.3M, LUV profit $32M, 1st Q 08

    See a trend?

  18. Noris159 says:

    @FightOnTrojans: @boss_lady: Uhhhh…. so what if he just cashed some of his stock? Would it make any difference if he didn’t have stock to sell, or if he held onto his stock? You seemed to forget his possible Plan A: “Keep getting paid AND cash the stock.”

    @ThinkerTDM: Stringer Bell from HBO’s “The Wire” has a great (serious) explanation of why CEOs make all the money. You should check it out.

  19. henrygates says:

    I think it’s smart. His company is having trouble. He cashes out his stock to protect his assets from the airline going under, then guts his salary – being a fraction of what the options and perks were worth – to put on a good front. If the airline succeeds, the employees will love him, if it fails, he loses nothing and still has a good reputation for his next position.

  20. henrygates says:

    I’m not saying what he did was bad, I just think it was smart.

  21. saralegal21 says:

    Awesome…this just makes me think higher of my favorite airline (in fact, the only airline I don’t hate with a passion). Between the cozy Barca lounger chairs w/lots of leg room and the freshly made onboard chocolate chip cookies, what’s not to love? I don’t know why more people don’t fly.

  22. SgtBeavis says:

    At first I was surprised that a CEO of any corporation would take a 40% paycut…

    Then I saw it was Midwest Airlines’ CEO.

    My surprise quickly faded.

    Anyone that knows much about Midwest Airlines and their fresh baked chocolate chip cookies knows that this isn’t a huge shock. The corporate culture at that particular company is pretty good.

    I wish that particular company all the best.

  23. It reminds me of the time when Midwest had to lay off, I think 1,000 or so, employees. Instead of just laying people off, upper management asked the employees who would retire or retire early so they would not have to lay anyone off.

  24. sir_pantsalot says:

    I would accept a 50% pay cut if I was getting more than a 100% bonus. What a saint that guy is.

  25. gliscameria says:

    Wow. It’s wierd to see a CEO that actually cares about the company.

  26. GeoffinAround says:

    @FightOnTrojans: I’m glad someone else is familiar with executive payment. Nice background!

    In a typical publicly-traded company, the CEO gets a fair “I’m #1″ salary between $500,000 and $5M – a few factors above the VP level. However, the primary difference is in equity & bonus compensation. Stock options & bonus money for a mid-level manager will fetch about $2,000-$10,000 per year. CEO’s on the other hand will get $5M in a below average year, $25M for meeting most performance incentives, and $200M-$300M in a boom year (due to M&A usually).

    So while this is a nice gesture by Hoeksema, that is really all it is: a gesture. He still got $6M+.

  27. Chairman-Meow says:

    Hmmm, if only United would even remotely start thinking in that direction……[www.chicagotribune.com]

  28. ironchef says:

    bravo. Maybe he should be CEO for more companies.

  29. happysquid says:

    Milwaukee Pride!

    all things aside, Midwest is an amazing company and I’m rooting for them. Hang in there, guys!

  30. tastybytes says:

    CEO’s salary should be based on performance, raised if dong well, docked if doing poorly. if the loses are substantial, then the board should be able to bill upper management for a significant portion of their back pay/stock

  31. Leohat says:

    He took a salary cut. Big fat hairy deal. What’s his total compensation? How much is he getting in stocks? How much is he getting in free loans? How much in retirement plans, pension, 401k, etc. How much in the value of perks, free corporate jet, junket trips?

    Lots of CxO’s get a very low salary, in some cases $1 (Steve Jobs, for example) but get metric tons of cash from other compensation.

  32. ironchef says:

    @Leohat: That is a good point.
    A lot of CEOs do the small salary thing to avoid paying Social Security tax.

  33. barty says:

    @emilymarion333: Errr…depends on what you mean by better shape. If you’re referring to the example it sets when a company is in financial trouble, I’d agree. But if you’re talking about what it does to the overall bottom line of most of these companies, the CEO’s salary is just a drop in the bucket.

    As for the bonuses, as long as they’re tied to the performance of the company, I have absolutely ZERO problem with them. I don’t play into the wealth envy thing unlike quite a few people here. Step back a moment and look at what it really takes to attain one of these jobs, then ask yourself if you’d like to have made the same commitment. Maybe it’ll make some of you people grow up.

  34. cjones27 says:

    @Leohat: But the issue here isn’t whether or not he’s still wealthy. Obviously, he is. The thing is that he knew that the extra money he was earning was unnecessary and took a pay cut. He could have stayed put and earned more money (like every other CEO), but he didn’t. And that deserves at least some recognition.

  35. xnormajeanx says:

    philipbarrett: Where on earth are your numbers from?

    From Forbes:
    Glenn F Tilton, CEO United Airlines, 5.55M
    Douglas M Steenland, CEO Northwest Airlines, 1.81M
    Gary C Kelly, CEO Southwest Airlines, 1.21M
    Gerard J Arpey, CEO American Airlines, 1.10M
    Richard H Anderson, CEO Delta Air Lines, 0.60M

    [www.forbes.com]

    Are you some kind of Southwest promoter? The only reason Southwest is doing so well is that they made a good bet on oil prices and locked in a low price. That runs out pretty soon and they’ll be scrambling just like everyon else.

  36. Desk_hack says:

    I’m jumping on the bandwagon with the other Midwest lovers. Back when they had direct flights from LAX to Omaha (sadly, no more), they were a pleasure to fly. Can you remember the last time you used that word with an airline? I actually looked forward to flying with them, so much so that the last time I had to go back to NE, I considered flying through Kansas City – out of my way – just to travel with them again.

    I don’t care what Hoeksema made by selling his stock; he’s taking a stand that other CEOs should be taking right now.

  37. YO:

    The majority of Midwest employees will be subject to varying pay cuts, according to the memo. In addition to Hoeksema’s pay being slashed, senior vice presidents will take a 25 percent reduction in total pay, corporate officers, 17 percent, and directors and senior managers 11 percent.

    Midwest is proposing pay reductions, benefit adjustments and productivity improvements to the Air Line Pilots Association and the Association of Flight Attendants to align pay and benefits with comparably sized airlines, Hoeksema said.

    Midwest also plans to cut the average pay for its nonunion maintenance technicians by 10 percent and higher-grade professional staff 5 percent.

    Pretty much everybody gets a pay cut. Don’t go slapping the CEO on the back saying he is doing a good job.

  38. ironchef says:

    @xnormajeanx: They hedged their fuel contracts to 2010.

  39. AlphaWolf says:

    Some people are missing the point. The fact is he did not have to take ANY paycut at all. Regardless of his bonus he took a paycut himself before forcing on the rank and file.

  40. wishing upon says:

    I would also recommend Midwest, as many others have.

    The last time I flew on a Midwest flight, is was only half full! But their entire planes feel like first-class, and the tickets are pretty reasonable, too.

  41. @AlphaWolf: True, he didn’t have to. However, I wonder if he would have done the same had he not just received an amount equal to 16 years of his base salary? I doubt it. I appreciate the fact that he’s taking this approach, and I wish my administration would do the same (our “CEO” earns over 300k and just announced 500+ layoffs and 4 furlough days – thanks Admiral!), but this won’t even cause any change in his lifestyle anywhere remotely similar to what the wage and benefit reductions will do to all the other employees of Midwest. I hope that this all works out for them and he is able to restore what is being taken away from them sometime later on down the line.

  42. forrester says:

    wow I just happened to take my first Midwest flight today. We departed from Phoenix, through Milwaukee and onto Nashville. The cookies were a nice touch. The 1st plane (MD-80) was very roomy but the 2nd plane from Milwaukee to Nashville was a smaller regional plane and was rather uncomfortable. There was no lineup at the check-in counter, no hidden fees and everyone was very friendly and helpful. I would fly with them again if I was headed this direction even if it did cost a few extra bucks.

  43. ArntorFTL says:

    While I’ve never dealt with Midwest Airlines before, I applaud their CEO for leading by example and taking a 40% pay cut. In the wake of CEOs of struggling and reorganizing companies usually giving themselves hefty raises and bonuses while shafting employees, this is very refreshing.

  44. AnonyLawyer says:

    @Noris159: CEOs of publicly traded companies can’t just cash in their stock when the going gets rough and they have to take a paycut. The real value in their compensation is the *option* to cash in the stock they’re awarded as part of their comp package and that option can only be exercised during trading windows as laid out by the SEC…plus, if his company is posting losses, I’m guessing the stock isn’t worth too much right now (probably more than a lot of us make)…but…there has been a real shift in exec compensation (that I’ve seen – minus the tycos, countrywides, united health cares of the world) to award less cash, as Geoffin-Around suggested and tie compensation to company performance. The real dough does come in the form of bonus payment…but in order to to meet your goals, you have to lead the ship and bring it into port with the crab quota (i love Deadliest Catch!). If your company doesn’t meet it’s SG&A goals, for example, or earnings per share goals….no bonus. So, while his paycut is admirable, I think it could be said that he’s fully vested in his company and knows he’s not going to get paid if he doesn’t perform.

  45. AnonyLawyer says:

    Oh, I see he DID cash in his stock. Sorry about that! Makes the paycut symbolic and that’s about it. If he had foregone a salary for the year, that would have meant a little more. Maybe he realized his company was not on track for him to get a bonus this year. Interesting.