New Boeing CEO’s Controversial Bonus Structure

Filed Under: Misc.

Executive compensation in the US is a hotly contested topic, and for good reason. We’ve gotten to the point where eight figure annual compensation just sounds standard for CEOs of big companies, even if they aren’t doing particularly well.

So while this is a controversial thing to begin with, the current situation at Boeing is getting an especially large amount of scrutiny, both for Boeing’s recently fired CEO, and for the newly appointed one.

This all came up after a public filing that Boeing made on Friday.

Fired Boeing CEO gets $62 million

Dennis Muilenburg, Boeing’s recently fired CEO, will be getting $62 million upon his departure from Boeing, made up of long-term incentives, stock awards, and pension benefits. The company states that this is what he is contractually entitled to, and that he’s not receiving any sort of severance package or bonus pay for 2019.

It says a lot when you walk away from a company with a $62 million payout, and that doesn’t even include a severance package or bonus for the year, eh?

The news of this came the same day that it was revealed that Spirit AeroSystems would be laying off 2,800 people. This company is a supplier for the Boeing 737 MAX, and production for the plane being suspended has caused them to lay off more than 20% of their workforce.

Meanwhile no Boeing employees have directly been laid off on a large scale.

New Boeing CEO’s controversial bonus

David Calhoun, Boeing’s new CEO, will receive a $7 million bonus if the company completes certain goals under his leadership, including bringing the 737 MAX back into service.

This has some US senators outraged, as they’re calling for Boeing’s board of directors to immediately cancel the $7 million bonus payment for the company’s CEO.

Senators Edward Markey, Richard Blumenthal, and Tammy Baldwin, have written a letter to Boeing’s board, which in part reads as follows:

“This payment represents a clear financial incentive for Mr. Calhoun to pressure regulators into ungrounding the 737 MAX, as well as rush the investigations and reforms needed to guarantee public safety. We believe that this bonus would be unconscionable in the face of two tragic plane crashes and proof that Boeing has not learned its lesson.”

Boeing has responded to this with the following statement:

“Dave Calhoun’s compensation is based on the fact that the safe return to service of the MAX is our top priority. This includes following the lead of our regulators and working with them to ensure they’re satisfied completely with the airplane and our work. The Board and CEO are in full agreement that the safe return to service of the 737 MAX must be done with full regulatory oversight. The FAA and global regulatory authorities will determine the timeline for certification and return to service of the 737 MAX.

The incentive award for Boeing’s new CEO, David Calhoun, will vest only after he has served in his role for multiple years and if he achieves a series of challenging strategic objectives across all three principal business units, including the full, safe return to service of the 737 MAX.”

Personally I think:

  • The optics of this are really bad, as nearly 350 people are dead, and Boeing has repeatedly attempted to push the timeline for the plane returning to service (even before it was grounded, Boeing’s former CEO allegedly called Trump to beg him not to ground the plane after other global authorities had); now a guy should get $7 million as a reward that’s tied to the plane being back in the sky?
  • At the same time, that’s just how it works for large corporations — executives get bonuses tied to performance goals, and currently Boeing’s biggest goal is getting the 737 MAX flying again

Bottom line

In some ways I think this whole situation is just so reflective of the state of corporate America.

A guy who lead what was once one of American’s most respected companies is walking away with $62 million despite the company performing horribly under his leadership. Worst of all, that $62 million doesn’t even include a severance package!

Then you have a new CEO who is being incentivized financially to get the plane back into the sky, even though Boeing has repeatedly shown that they’ve been more focused on a timeline rather than safety.

Probably saddest of all is that this is just kind of what I’ve come to expect. That’s how our economy works, I guess?

What do you make of the performance goal for Boeing’s new CEO? Is it appropriate, is it in poor taste, or…?

Comments
  1. I’m not surprised though. Had Muilenberg retired two years ago before any of these crashes he would have received over $50 million and no one would have said anything. He is entitled to his pension and stock options, etc. over several years of working at Boeing.
    As for Calhoun, that $7 million incentive to bring the 737 MAX back into service doesn’t make any sense to me. Safety first. Full stop. Why would he need additional financial incentive to bring a plane back to service? Isn’t it part of his regular job to bring the plane back to service and wouldn’t his base salary be enough of an incentive to do his work? Just some questions going through my head. Agree with you the optics and timing of these announcements don’t look too good for Boeing.

  2. The only outrageous point is that the old CEO who was responsible for the disasters and loss of life walked away with 62 million while the new guy will only get 7 million for bringing the MAX into the air safely.
    It should be the other way round.

  3. Give him a $70MM bonus. But only when the MAX has completed 3 years back in service without any incidents (not just accidents) that can be attributed to flawed design choices by Boeing.

    Companies really struggle with incentive structure, and it appears Boeing is no exception.

  4. So the guy should get a bonus for each month the 737MAX is NOT in service (instead of a bonus for when it’s in service).

    The guy can pressure the FAA all he wants. The FAA will decide on its own. If a Boeing guy can pressure and then cause the FAA to approve the 737 MAX, then the 737 MAX would already be in service.

    Looks like the politicians are just grandstanding.

    If there are no performance standards, then the Boeing CEO can just read the newspaper in the morning, go to lunch, nap, play video games in the afternoon and leave for home. Do that 4 days a week. Nothing would be done. People in the federal government do that. Not joking.

    The Secretary of Agriculture under Obama was so bored with no work to do that he was going to resign. Obama convinced him to stay and then gave him a homework assignment, which was to write a report on opioid addiction (which has nothing to do with the Department of Agriculture).

  5. A good argument for corporate reform, which will happen the day after never without political reform to force needed changes.

  6. It’s simple really: horseshit corporate governance by boards of directors. You should hear about some severance packages I’ve read: continued use of corporate jet for former CEO and family, company payment of federal taxes owed on bonus to be paid (this is a good one!), healthcare costs covered, education costs for kids, list goes on. And this isn’t even for huge corporations like Boeing.

  7. “despite the company performing horribly under his leadership”

    @Lucky 100% the optics look bad. and no excuses for MAX loss of life. But..

    The stock price more than tripled under his leadership, even after the recent losses.
    Profits have soared.
    The backlog book is huge.

    That is a lot of shareholder value.

    So the company, from a financial POV, performed quite well under his leadership.

  8. Political grandstanding at it’s finest by Senators Edward Markey, Richard Blumenthal, and Tammy Baldwin. The only people who should care about the $7M are shareholders and the board of directors. If it’s fine with them, than so be it.

    “This payment represents a clear financial incentive for Mr. Calhoun to pressure regulators into ungrounding the 737 MAX, as well as rush the investigations and reforms needed to guarantee public safety. We believe that this bonus would be unconscionable in the face of two tragic plane crashes and proof that Boeing has not learned its lesson.”

    No Mr. Calhoun, this payment is a clear financial incentive to take the necessary steps and follow the protocols to get this plane safe and approved by regulators, it’s as simple as that. If any malfeasance occurs, it’s the responsibility of the FAA and DOJ to address it.

  9. Severance packages shouldn’t be so high. I remember the guy (Nardelli?) who created all kinds of issues with Home Depot and they finally got rid of him but I believe he got a $100M+ package to leave.

    The whole compensation system is flawed. Often a stock will go up when the market goes up and not anything special the CEO does. And what if a CEO tears apart the company for short term gain but once he leaves it is a mess, does anyone ever go back and recapture the bonuses?

    I always hated when a manager (at any level) did a reorg and claimed how much it improved things. Then he leaves and no one actually check to see if things truly improved or actually got worse but he walks away with a promotion. Arggh…….

  10. If it is a contractual thing then he is entitled to it no matter the optics it entails. Said company cannot legally deny the $62m to the outgoing CEO. On the other hand it is poor form for him to accept the $62m. Whatever reputational damage he got for the MAX issues has now been multiplied manifold, and good luck to him finding another executive position.

  11. @rich Here’s one example of trying (don’t know if they succeeded):

    April 2017: Wells Fargo’s board said on Monday that it would claw back an additional $75 million in compensation from the two executives on whom it pinned most of the blame for the company’s scandal over fraudulent accounts: the bank’s former chief executive, John G. Stumpf, and its former head of community banking, Carrie L. Tolstedt.

  12. Guarantee Calhoun won’t work as hard or add as much value as tons of other people in the organization. He’s just better credentialed. You can accurately describe corporate America a lot of different ways but “meritocratic” is not one of them.

  13. The revolution will be televised but only on your own device on AA 😉

    I agree with Ben’s Lament, Big Corps and ultra rich people on the whole have lost their way starting in the 1980s and have spit on the workers and citizens who fund the whole governmental structure that allows their Payouts.

    I love to fly, but I am so disappointed in Boeing leadership 🙁

    leave it at that for this travel blog 🙂

  14. Boeing boldly assumes the Max8: will ever return to service, the flying public will trust it, and the 777x will not suffer the same consequences of Boeing’s corrupted culture.

  15. @Tom Smith

    Because they risked lives by using a 50 year old plane with a new engine not designed for it. They went cheap and easy risking the lives of many.

  16. Agree the 7 million$ incentive to get 737-MAX in the sky is terrible optics.

    But…. I find it amusing that you decry the nature of corporations and capitalism in general as being unfair and greedy. At the same time you make a presumably comfortable living within this capitalist country… essentially by doing nothing substantive. You feed the evil corporate banks more $ through your referral clicks and then blast the system as unfair by criticizing the structure of those corporations whom the banks finance.

    It’s easy to act “woke”. It’s much harder to realize that we are all part of the same system whether you like it or not.

  17. The bonus structure seems to be straight forward to me. If you murder a couple of hundred people but make sure someone else does your dirty work and then put up an academy award winning performance before congress you get $60 million.

  18. @Ben L.

    Good one!

    Couldn’t read many of them because I have to wake up tomorrow and actually go to work and help people in the hospital. You know, the whole contributing to society to make $ thing. Something Ben, the Kardashians and travel bloggers don’t understand.

  19. To be fair, Boeing’s outgoing CEO had a career there since starting as an intern in 1985 – his long term compensation is based on 35 years, not the last 2.

  20. One question, which CEO doesnt have legal agreements like this ? Why to pick on Boeing, every company has this .

  21. @Lucky agree with you for the most part but Muilenberg outside of 737 Max problems was a great CEO. Their stock price absolutely soared, Defense and work contracts renegotiated, became more focused on subscription service fees. These are the things board/shareholders care about and he did extremely well in these areas. Not saying it’s right just how it is.

  22. It’s a rigged system- you and i and most regular people in regular jobs, if we’re fired, or even let go, we don’t get severance packages. Why someone who is already earning in the millions gets another 60 million dollars for being let go…. I’ll never understand.
    why not instead use those 60 million dollars to help the families of the victims of the two crashes, and get the outgoing CEO to agree to the use of this money for that purpose.

  23. “A guy who lead what was once one of American’s most respected companies is walking away with $62 million despite the company performing horribly under his leadership.”

    Should be “led” not “lead”. “Led” is the past tense of the verb “lead”.

    The whole structure of executive pay is an abomination.

  24. While I agree the system is broken, but from a business perspective it’s not the worse.

    The old CEO did a good job creating value and is part of his compensation agreement.

    The new CEO having an incentive to bring back 737MAX is absolutely correct. It is a very bad optics like everyone feels given the timing and against public trust. But remember for a business with over 400 planes undelivered that is a lot of revenue missing. Trying to clean out the inventory is quite a big deal and should be given an incentive to do so. Again it looks bad but good for business. You have to blame Wall Street for this.

  25. I read elsewhere that his $62,000,000 package for being fired is almost as much as the compensation for the Ethiopian Airlines victims. That is just wrong on so many levels. How does the boss in charge of a company that killed 364 people walk away with $62,000,000. In any other country, he would have been walked away in leg irons.

  26. Do NOT mix things up.

    A quick wiki search land you “Muilenburg started work at Boeing as an intern in 1985…” He was holding a lot important management position cross all the projects including X32 (prototype of joint striker fighter project, now F35 even Boeing lost.)
    It is fair for him to walk away with 60M because it is contractual! This is the solid stone of USA and capitalism, an oath to be honored.

    However, he is also responsible for the crash of MAX. What the penalty is will be a year long court fight. But he definitely cannot walk away with that.

    Incentive for new CEO is only a matter of board and shareholders. Senators’ letter is also a pressure make them no different from Boeing pressure FAA.

    Also good to know:
    Senators Edward Markey D-MA
    Richard Blumenthal D-CT
    Tammy Baldwin D-WI

  27. We should all have our wages set by left wing politicians. They know a lot better what our labor is worth than a bunch of companies.

  28. “Isn’t it part of his regular job to bring the plane back to service and wouldn’t his base salary be enough of an incentive to do his work?” – agreed 100%.

  29. Revert to the 737 NG, because even when MCAS is “fixed”, those CFM Leap engines are still going to be too high and too far forward. And then, when everyone buys Airbus neos to get the fuel efficiencies, give up and do what you should have done in the first place, design a new airframe that can accept the new engines….

  30. @Pete: But is any single human being’s labor worth 62 million dollars? let alone, 62 million dollars for being let go? This is a luxury 99.999999% of the population does not even have.

    I’m not saying politicians should be deciding salaries, but something is wrong in the system. The ideal scenario would be they offer him the 62 million BECAUSE it’s in the contract- and then he turn it down and instead ask it be redirected to the victims. That would save his legacy and put the 62M to use for people who (likely) need it more than him.

  31. @lucky
    Whether or not he deserves such a bonus can be debated, but terrible timing as Bloomberg Europe’s headline this morning is of new revelations about Boeing employees referring to Lion Air as ‘idiots’ for asking for simulator training for the MAX and using ‘jedi mind power’ to convince Lion Air that it was not necessary!

  32. I think the optics are not good for Muilenburg given that all the issues Boeing has had with the 737 Max occurred under his watch. Even if he is not directly at fault, as they say, the buck stops with him. However, if those are the provisions of his contract, the only role for government here is to ensure that the legality of contracts is protected. The content of those contracts is up to the Boeing board, hence the bad optics.

    However, I do not see the bad optics for the new CEO. In fact, it sounds like this is precisely what a bonus SHOULD be: tied to a measurable and desirable outcome. He has a financial incentive to get the 737 Max back in the air which is obviously a huge objective for Boeing. It aligns his interests with those of the company. Yes, they should structure it so this is accomplished in the right way, but I do not, in general, see any bad optics here, but rather a bonus tied to a goal that adds value to the company. Even if you disagree with rewarding him for fixing the missteps in the past, HE does not own those missteps and his bonus is tied to an improvement from the status quo in place when he started in the position.

  33. If Muilenburg had an ounce of character,he would set up a charity to support the relatives of those people who were killed in the senseless tragedies as well as to pay mortgage and utilities for those in Kansas who are out a job with 2 mos severance (just the tip of the iceberg) IMHO. Downright shameful.

  34. @ interested observer:
    fully agree. However, this is something he/Boeing should do automatically- not be shamed into doing by the public.

  35. I don’t understand.

    No, I get the announcements. I don’t get the outrage. Are Americans really this blind?

    I’ve said repeatedly to people. We are a CAPITALIST SOCIETY. I don’t know what it will take for this to click to people.

    The previous CEO was smart. He signed a contract that entitled him to $X money “no matter what’. It’s a contract, they can’t break it.

    The answer is not to complain that the second CEO has to actually do work this time to get money. That’s better than the first one!

    The answer is to try and understand that the real issue is allowing businesses to execute contracts that don’t require quality, performance, ethics or even competence. It’s just a blank check. Why is that allowed? Why are not requiring a clause in EVERY C-level contract at the FEDERAL level that says, if there’s ANY legal action – whether you’re found guilty or not – that happens under your leadership, you forfeit however much money equivalent to what it takes to either settle or pay out.

    Do you know why they don’t do that?

    Because the Feds know that if they do that, the companies will raise prices. Which causes another recession.

    Because we are a CAPITALIST SOCIETY. And it’s time everyone accepted this. The only time you will face any sort of legal scrutiny is when you rip the Feds off. Other than that, they don’t care.

  36. @Pete thank you! I truly don’t understand all this band wringing about capitalism which has elevated more people from poverty worldwide than any other system. Yes, companies might be public but that means they can be owned by the general public not micro managed by politicians and unelected bureaucratic dimwits. I’ve worked for government…now that’s a slow death.

  37. @AT

    How can you say the labor of a CEO who added $100 billion to BA’s market cap is not worth $62 million? We have no idea how hard it is to do something like that. And yes, BA’s market cap rising is good for everyone. Much of the proletariat own BA through their retirement accounts.

  38. Whether we like it or not, the reality of corporate America is — if you want to attract top talent at a CEO level, then you have to pay them commensurate with what CEO’s make at comparable companies/industries. Period, end of story.

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