Milton/Rovinescu Stock Compensation

November 15, 2003

Greetings all,

There's been some controversy generated over the potentially lucrative compensation package allocated to Mr. Milton and Mr. Rovinescu. I'd like to address that issue. (All comments assume that Mr. Li's bid for control of Air Canada is successful.)

First off, let's clear my beefs with regards to these two gentlemen. I consider it a serious error that Mr. Milton, the employees and the shareholders did not insist on the employees taking a ownership position in the New Air Canada. This is a fundamental mistake that could have far-reaching negative consequences. At the very least, Air Canada will not perform to its potential because of this shortcoming. And in Mr. Rovinescu's case, he negotiated an agreement during CCAA with another pilot group to do the AC pilots' flying. This is a fundamental betrayal of the employer-employee relationship.

So, to the issue of Mr. Li's manner of compensating his two top executives: I believe it's an astute choice. Mr. Li has chosen a manner of compensation which ONLY AFFECTS HIS OWN EARNINGS. The way in which Messrs. M & R come out ahead does not affect other shareholders, does not affect the difficulties over Air Canada's pension plans, and does not hurt the employees.

Oh, to be sure, it sticks in our craws that ANYONE could make that kind of money in aviation, but here's the nub of it: Mr. Beddoe and his primary partners at WestJet will be doing at least as well as Mr. Rovinescu and Milton stand to do. If Air Canada comes out of its tailspin, how do you argue that Air Canada's top executives deserve less? (I know, argue it you will, but that's the way the game is played.)

The potentially lucrative compensation the top executives receive will come entirely from Mr. Li's own money. It will not affect Air Canada's earnings, it does not disadvantage the employees nor the shareholders in any way, and is essentially Mr. Li's muylti-million dollar bet that he has chosen the right people to do the job.

Mr. Li got it right in choosing how to compensate his top executives. Now, if those individuals, the employees and other shareholders can get it right in how to compensate the rest of their employees, we'll be doing some real business.

Best wishes to all,

neo

CanadaEH · November 15, 2003

How do the AC employees feel about Milton?

How will they feel about him if Air Canada exits bankruptcy protection successfully?

How will they feel three years down the road if Air Canada starts to make a lot of money? Doesn't start making money?

November 15, 2003

Neo: You've hit the nail on the head. Li's decision does not take a single, solitary penny out of the pockets of any AC stakeholder (employee, pensioner, creditor, etc) is directly from Li's own share of AC, nothing more.

Another important point is that BOTH equity finalists (Li AND Cerberus) made the same offer to Milton and Rovinescu so they must be doing something right.

November 15, 2003

Neo,

i agree, and think it's a sensible and reasoned approach you are taking to all of this. there is one thing i'd like to add. apparently milton had hinted at offering employees as profit sharing/bonus plan which is think is great and a step in the right direction. it'll make employees thing twice about wasting money when it'll come back and bite them at bonus time.

but the big questions is.......will milton put his money where his mouth is, or is it just a ploy to get more people onside right now? let's hope he's looking out for his biggest asset and the value they can bring to the company in this time of need.

Jason

November 15, 2003

This is simply the perspective of a peon, but I don't see Mr. Milton having a great deal of loyalty within the ranks. He has to shoulder some of the responsibility for that.

If you intellectually analyze his situation and choices, I think he stands out as a potentially great airline CEO. But of course, a large percentage of employees don't examine the situation that way, and instead respond emotionally to events at work. That's a fact of life and you cannot ignore that side to human beings if you expect to gain their trust and support. Mr. Beddoe at WestJet, for example, clearly understands that side of things.

It's not just enough to be technically competent if you wish to inspire people. And inspire them you must if you want to make a real success out of a labor intensive enterprise like an airline. Your employees must perceive an empathetic element in you, among other things.

And that speaks to your second and third questions: if you have the loyalty of your employees, you can completely screw up and they will defend you. If you don't have their loyalty, you can make all kinds of successful moves and still not win their approval. And without the loyalty and empathy that should flow between a successful leader and his followers, even successes will fall short of what they could have been.

neo

November 15, 2003

The profit sharing and bonus plans were part of the agreements ratified in June so it's more than just "hinting", it's a reality.

Beth · November 15, 2003

http://www.globeandmail.com/servlet/ArticleNews/TPStory/LAC/20031115/RREGU15//?query=Air+canada

Seeker · November 15, 2003

Yes, that is an excellent article. Personally, I think RM and CR are doing/have done a pretty good job considering the unusual and unique circumstances lately. Armchair quarterbacking aside I don't imagine anyone else doing much better in their place. I also feel that the employees are doing/have done a pretty good job. The difference is that if I'm lucky I may eventually earn back the 10% cut in pay while RM and CR are almost guaranteed to be better off after this mess than before.

Mitch Cronin · November 15, 2003

"He has to shoulder some of the responsibility for that."

Some? SOME?? Why you brown nosing dog you... He has the sole responsibilty for every ounce of that lack of loyalty! And he doesn't care. That's what makes it worse, in my mind... he doesn't give a flyin' fuhooteck what any of us little peons think of him.

He's had oodles of glowing opportunities to rally support from the troops, and chucked them all... He may have some kind of business savvy, but he's not a leader. Which is what I think this company needs at the moment.

But then... I'm just a peon too... so what do I know?...

Mitch Cronin · November 15, 2003

"Another important point is that BOTH equity finalists (Li AND Cerberus) made the same offer to Milton and Rovinescu so they must be doing something right."

My, isn't that a happy coincidence.

Actually, I haven't got a clue, but I sure do hear mumblings and grumblings from folk who think it isn't... Were both RM and "Cal the Impaler" (someone else's nick name for him, but I love it) completely absent when the "finalists" were selected? Was their will absent? Was anything to do with such rewards even known prior to that selection?

Any way you cut it, it still reeks of blood money to me.

I try to think positive... I really do... But every day I go to work I find more and more angry and depressed people...

Where's the damned skipper? We want to see the guy with his sleeves rolled up and his hands dirty and his knuckles skinned. But instead of any attempt at easing pains, or even the feeblest of efforts to appear to share in any of it, he's still sittin' in his leather chair, yakkin on the speaker phone to his dogs, tellin' 'em to buy a few more whips.... or tellin' us he's "gratified".

"gratified" Puh. Ya, you oughta be. You dragged us through the muck 'til we had to strip, so you could steal our clothes. I hope "gratified" fits when you sleep at night.

I don't know if Mr. Milton knows what gratified is, but I can tell you I'll be plenty gratified when the bullshine is long gone and I can just get back to fixing airplanes. And I'll be gratified when he say's "Damnit, I screwed up again".

Oh... and Neo... This thread needed some ballance, so please don't tell me I shouldn't be talking like this. It's a lot more tame than a lot of the stuff I've been hearing at work. Besides, I've already said that I hope the ... dear little sausage ... gets filthy stinking rich off that deal. And I meant that. I'm not so stupid that I don't know what's good for me. Even when it's got such a rotten odour.

Mitch Cronin · November 15, 2003

"Another important point is that BOTH equity finalists (Li AND Cerberus) made the same offer to Milton and Rovinescu so they must be doing something right."

My, isn't that a happy coincidence.

Actually, I haven't got a clue, but I sure do hear mumblings and grumblings from folk who think it isn't... Were both RM and "Cal the Impaler" (someone else's nick name for him, but I love it) completely absent when the "finalists" were selected? Was their will absent? Was anything to do with such rewards even known prior to that selection?

Any way you cut it, it still reeks of blood money to me.

I try to think positive... I really do... But every day I go to work I find more and more angry and depressed people...

Where's the damned skipper? We want to see the guy with his sleeves rolled up and his hands dirty and his knuckles skinned. But instead of any attempt at easing pains, or even the feeblest of efforts to appear to share in any of it, he's still sittin' in his leather chair, yakkin on the speaker phone to his dogs, tellin' 'em to buy a few more whips.... or tellin' us he's "gratified".

"gratified" Puh. Ya, you oughta be. You dragged us through the muck 'til we had to strip, so you could steal our clothes. I hope "gratified" fits when you sleep at night.

I don't know if Mr. Milton knows what gratified is, but I can tell you I'll be plenty gratified when the bullshine is long gone and I can just get back to fixing airplanes. And I'll be gratified when he say's "Damnit, I screwed up again".

Oh... and Neo... This thread needed some ballance, so please don't tell me I shouldn't be talking like this. It's a lot more tame than a lot of the stuff I've been hearing at work. Besides, I've already said that I hope the ... dear little sausage ... gets filthy stinking rich off that deal. And I meant that. I'm not so stupid that I don't know what's good for me. Even when it's got such a rotten odour.

Don Hudson · November 15, 2003

Richard;

You are correct in observing that there has been a lot of controversy generated over this aspect of Mr Li's investment in our airline.

I need to understand something about this aspect of the investment. Dagger, leap in if you will.

I understand first, that this retention bonus is being paid directly out of Mr Li's pocket. I am unfamiliar with the mechanics of how this is to be done and perhaps someone can help here.

In other words, Air Canada's new stock issue, when it comes, remains undiluted by this special executive bonus, (which existence of, at least, was clearly stated right up front unlike other executives have done in the past).

My further understanding is, this bonus is paid only if the new public issue of Air Canada stock increases in price.

In different words, my understanding is that (as a corollary to the first understanding) our two top executives receive nothing if Air Canada underperforms and the stock price doesn't take off.

I am unsure of the time limits (if any) on this aspect of the investment, but I recall Dagger saying that in practical terms, its a fairly short term matter because the new, restructured/debt-reduced AC will have to perform very well immediately, and sustain that performance for AC to stay in business (and thus drive up the stock price).

Quite naturally, I, like many, have a visceral response to the stark contrast between the current troubles my/our pensions are in (after paying in for 31 years) and, if such is actually the case, a "guaranteed" $21 million "bonus" which may be paid out regardless of performance.

I would like to restrain that gut reaction until I have a clear understanding of the arrangement.

Like Herb Kelleher says (and he is so right, even about low-cost), when employees do well and are content, the customers do well and so does the shareholder.

From the front lines, my constant observation is of an employee group working hard to do just that: keep the customers happy.

Frankly, if my company changes and thrives as a result of restructuring and Mr Li's investment, then my focus will be on my/our future as in-it-for-the-long-haul, pensioned employees and not on our senior executives' future or how they are remunerated because we'll all be doing well. If we don't do well and those bonuses are still retained, I don't need to elaborate much on the reaction. As I have said many times, I think the upside potential is significant, but the devil will be in the details.

With thanks for anyone's clarifications...

Don

ChicoChico · November 15, 2003

Mitch you know a lot! You me and 20 to 30 thousand other AC employee noticed that our two top execs signed a sweetheart deal for themselves whilst we twist in the wind.

We noticed!

See this Globe story for further proof...

http://www.globeandmail.com/servlet/ArticleNews/TPStory/LAC/20031115/RREGU15//?query=reguly

November 15, 2003

Companies talk big when it comes to labour relations, but rarely deliver and they really don't care.

For example, at NavCan we've had the same CEO for about 6 years and most employees blame him for the dismal labour relations. A co-worker had an opportunity not long ago to have a conversation with a member of the BOD and the CEO's handling of labour relations was discussed. He was told that the BOD was well aware of the shortcomings in the labour relations area, but that because they felt that the CEO was good on the business end (that is another debate) he was worth keeping.

Business is business as they say. So, as long as the stakeholders are happy (funny thing, many companies, including NavCan, claim employees are stakeholders) with the Executives business ability no one cares much about labour relations except as window dressing and feel good statements.

ChicoChico · November 15, 2003

Mitch you know a lot! You me and 20 to 30 thousand other AC employee noticed that our two top execs signed a sweetheart deal for themselves whilst we twist in the wind.

We noticed!

See this Globe story for further proof...

http://www.globeandmail.com/servlet/ArticleNews/TPStory/LAC/20031115/RREGU15//?query=reguly

Don Hudson · November 15, 2003

Mitch;

Please see my post to Richard.

An old friend employed the phrase, "I'll suspend judgement in favour of curiosity".

In two years, this plan had better have worked, for, as Dagger observes, it'll be academic soon after. I expect executive remuneration to reflect that fact, should it end up that way.

The contrast between what has been attempted with our pensions and the retention bonuses is stark.

However, I think understanding is important before leaping in and so I am not passing judgement as an employee, either way until I know more.

If we're doing as well as I (and many others) think we'll be doing in two years, this whole matter may be a distant memory.

OTOH, if, through leadership issues (which have been discussed here and elsewhere) or through other factors we do less than expected, I would like to know what Mr Li's alternatives are, for surely in any strategic planning, that scenario has been considered as well.

Don Hudson · November 15, 2003

Richard;

You are correct in observing that there has been a lot of controversy generated over this aspect of Mr Li's investment in our airline.

I need to understand something about this aspect of the investment. Dagger, leap in if you will.

I understand first, that this retention bonus is being paid directly out of Mr Li's pocket. I am unfamiliar with the mechanics of how this is to be done and perhaps someone can help here.

In other words, Air Canada's new stock issue, when it comes, remains undiluted by this special executive bonus, (which existence of, at least, was clearly stated right up front unlike other executives have done in the past).

My further understanding is, this bonus is commensurate with, and is paid only if the new public issue of Air Canada stock increases in price.

In different words, my understanding is that (as a corollary to the first understanding) our two top executives receive nothing if Air Canada underperforms and the stock price doesn't take off.

I am unsure of the technical time limits (if any) on this aspect of the investment, but I recall Dagger saying that in practical terms, its a fairly short term matter because the new, restructured/debt-reduced AC will have to perform very well immediately, and sustain that performance for AC to stay in business (and thus drive up the stock price).

Quite naturally, I, like many, have a visceral response to the stark contrast between the current troubles my/our pensions are in (after paying in for 31 years).

I would like to restrain that gut reaction until I have a clear understanding of the arrangement.

Like Herb Kelleher says (and he is so right, even about low-cost), when employees do well and are content, the customers do well and so does the shareholder.

From the front lines, my constant observation is of an employee group working hard to do just that: keep the customers happy.

Frankly, if my company changes and thrives as a result of restructuring and Mr Li's investment, then my focus will be on my/our future as in-it-for-the-long-haul, pensioned employees and not on our senior executives' future or how they are remunerated because we'll all be doing well.

If we don't do well and those bonuses are still retained, I don't need to elaborate much on employee reaction. As I have said many times, I think the upside potential is significant.

With thanks for anyone's clarifications...

Don

Don Hudson · November 15, 2003