$86,885 for a country club membership at United?

Over my weekend travels I spoke with a bunch of employees, and the most common talking point was Pete McDonald’s $85,000 country club membership which United paid for. Pete McDonald is United’s Chief Administrative Officer, by the way. I figured it was typical exaggeration or maybe even fabrication, which commonly happens when rumors spread like wildfire, so I decided to take a look at the latest proxy statement filed on April 24, 2009.

The first thing I noticed is the amount of money these executives make. I’m not really surprised, but seriously Pete McDonald made over $13 million in 2006? For what?!?!

What’s really awful, though, is what’s towards the bottom of page 23:

Total amounts paid by the Company for Mr. McDonald’s country club dues were equal to $86,885.

Are you kidding me?!?!?!?!?! Eighty-six THOUSAND dollars for a country club membership while the company loses over five billion dollars? All this while many of your employees make less than $20,000  a year, and even the best of them lost much of their pensions.

If this doesn’t show how out of touch United’s upper management is, I don’t know what will. I’d love to hear United management explain this one.

C’mon folks, let’s spread the word on this one, especially since we have facts to back it up. This is DISGUSTING.

Filed Under: United
  1. Lucky – Are you a shareholder of United? Why do you care what their executives get? Sure, it’s a drag, but since you don’t own stock (do you?), why do you care to spread the word on this?

    Just curious

  2. I know where you are coming from, but why would it be better if instead of a country club membership there were (possibly much higher) expenses hidden in the accounts for entertaining CEOs and CFOs of major clients or potential clients?

  3. Hey Lucky – fight the good fight. I think top management is overpaid, overcompensated, and overprivileged. But that is the American dream.

  4. You don’t have to be a shareholder to be annoyed about this. As a customer when the airline charges you all kinds of extra fees and reduces service to an abysmal level even in First Class, and then you find out about this kind of waste – you should say something! If the airline doesn’t know you are unhappy about it, they can assume you approve. Of course you can say “If you don’t like it, fly another airline” but the problem is united flies where and when I want to fly. I want more accountability of the management as a customer. I think all of united’s execs should only make a base salary of $100,000 and then anything over that should be a percentage of the company’s profits. Sine the company is losing money instead of making a profit, that would be ZERO. Then maybe they would have some incentive to do a better job at managing the airline. This is just bad business. I could be CEO of United and make them lose $540 million in one quarter for half what Tilton makes. If I did half as bad a job at my employer as Tilton does, I’d be fired!

  5. When I saw this back in April, more than the country club membership, what got to me was that his contract was approved based on his receiving a competitive job offer (I would have wished him well and helped him clean out his desk). Also, as part of that contracf, his compensation is less risk based, more cash vs. stock, and all compenation paid into his Trust were fully vested in February of 2009.

    What is sad is that of the executives, Mr. McDonald is the only UA insider. He has been with United over 40 years, worked his way up through the ranks. You would think he would be more sensitive to frontline employee concerns. By the accelerated vesting of his Trust, he is saying he is not very optimistic about the outcome.

    Just landed at ORD. Will be at the shareholders meeting tomorrow. Not sure what to expect.

  6. I agree with you completely Ben, and I’ll post here as the thread in the forum where I first saw this is at “two minutes to midnight” so I’m not gonna waste my time there.

    People can argue the semantics of what’s “normal” or “routine” in good ole’ corporate America. However, there’s no arguing (IMHO) that expenditures such as this, combined with unreasonable (and more importantly undeserved) salaries are disgusting to all of the folks who struggle everyday to make ends meet. It extends far beyond the corporate realm: the professional sports and entertainment industries reek of it as well.

    The popular argument is that it wouldn’t have made any difference if they hadn’t spent this money in such a manner. I am willing to bet that if they’d randomly selected three frontline employees who’ve consistently received high praises and good feedback from customers and given them each a $25,000 bonus, it would’ve made a HUGE impact (positively) on many different levels.

  7. Come on, that’s part of their compensation package. And wether they are over paied isn’t up to the customer, the government, the tax payer, the media, or even the small shardholders to decide. Its up to the good old market forces. Don’t you think the US is close enough to Socialism (since GM is now “State Own”, might as well call it “The people’s Motor Company”)

    obviously there’s a good reason for the high compensation since it seems pretty average amongst large corporations. and FYI, the salary of many executives are linked to the company’s performance, and comapring his pay in 2006 and performance now, isn’t really fair. This membership is probably the few fixed compensation he gets.

    I enjoy your critism of the desissions executives make, but their pay package is something that should be between them and UA.

  8. Execs at a large number of publicly-traded companies care little for a) customers; b) the company they work for; or c) their company’s shareholder, caring instead solely for d) themselves & their pay packages.

    Then these execs come crying for taxpayer money, less regulation, and new fees for their customers…

  9. @Sam — regarding the “few fixed compensation he gets” — what would you call the base salary of $754,292 ? Pocket change?

    Close enough to socialism? You don’t even know what what socialism is 🙂 And who got us to where we are anyway? But yes, I agree, we should have just shut down GM. And Citibank and all the other banks that needed TARP funds. Survival of the fittest. Those darn Republican Bushocialists, what were they thinking!?

    Executive compensation is completely out of control, in this country and in other countries as well. I have no problems with hard-working, risk-taking and successful entrepreneurs making a lot of money. But do we find any of those at UA? Is UA a well-run company? I’d argue that the board of directors could find equal or better talent at half the cost.

  10. I can’t believe there would even be someone here who could actually defend an 86,000 country club membership as “part of the compensation,” as if it somehow justifies the egregious and reckless spending.

    Hmmm, that’s the kind of spending that runs corporations into the ground, and requires bailouts from our friends in Washington.

  11. I’m with Sam on this one… it’s part of the compensation and market forces should exact their toll.

    I personally don’t have enough information to say whether it’s a good or poor business decision (i.e. what would be the cost to do the business he was doing on the links elsewhere, both hard cost and opportunity cost). Because of that, I’ll withhold judgement.

  12. @soitgoes, the whole point of a performance bonus is to get the Execs to care about the shareholders, and if customer satisfaction is important for the profitability of the company, then they would care about customers too.

    @ Oliver, i don’t know what his “fixed compensation” is but if it is what you say, $754,292, then yes, i would call that pocket change. compare that to the $15 million Ben pointed out for the year of 2006. Considering the performance of the company this year, their compensation will probably be less than 10% of what they were just a few years ago! can you imagine taking a 90% pay cut just because your company is not doing well!

    I don’t know what sociallism is like? i grew up in Communist China! and i can tell you China has less government control of larget corporations then the US at the moment.

    and “Republican Bushocialists”? that’s right, blame a party that’s not even in power. If this happened two years ago, i’m willing to bet any money Bush would have let GM dissolve.

  13. For completeness, let’s note that a lot of the execs’ compensation is in the form of stock options – over $5M of McDonald’s $13M compensation in 2006, for example. While the strike price of these options is not immediately apparent from the proxy statement, you can be fairly sure that every single option is heavily underwater and will continue to be so barring a miracle.

  14. @lucky, huntersfo, gray – You are completely out of line to think that employee compensation is any of your business *unless* you are a stockholder. You are perfectly free to think it is absurd, state that you would vote otherwise if you were a shareholder, etc., but once you cross the line of implying that you should have some say or that you are being harmed, you are out of bounds. Private companies exist for profit – not as philanthropic organizations to serve your needs. Shareholders (owners of the company) elect board members, who in turn appoint directors. If the owners don’t like what they are getting, they vote (as owners, they have this right) for change. Customers of the airline nor anyone else not owning a piece of the company has no right to intervene. How’d you like it if I told you that I didn’t like the pay you were receiving? Any of my business?

  15. “Market forces should exact their toll”? Market forces have driven the US airline industry into the state it is today: disgruntled employees, poor service, laughable food / beverage offering, and continuous erosion of intrinsic shareholder value. I personally may not be a shareholder, but I am directly impacted by the shortsightedness of United’s excessive compensation. I am a big believer in pay for performance – I would encourage lavish bonuses, multiple country club memberships, etc., if there was merit in such compensation. However, in the case of the US airline industry, I can’t support these compensation practices. I’m sure the $86K country club membership is just one of many out-of-line comp practices. I am curious with what JA comes back with after the shareholder meeting.

  16. @Sinep My personal opinion: shareholders of UAUA need to have their head examined (I’ll exclude day traders who are in for a quick buck)

    @Sam — the Chinese government has less control of large corporations than in the US? Sorry, but that seems laughable, considering the control exercised by lobbyists and company contributions in US politics. But ignoring that aspect, guess who owns three large airlines (two now merged) in China?

    “The Chinese government is planning a share swap between China Eastern Airlines Corp. and Shanghai Airlines Co., paving the way for a merger between the two state-owned carriers, a person familiar with the situation said Monday.”

    I don’t believe the US government wants to own banks or car makers (who needs that headache?). Can you say the same about the Chinese government?

    Oh, and Bush had the opportunity to let GM/Chrysler go under. And the banks. It’s only been six months, how did you forget already?

  17. Hmm. As part of executive compensation, he did well out of that.

    Makes front line staff rather peved off though… for “minimal visible gain”

    I think that Pete McDonald has spend far too much time with our ministers of parliment and getting ideas from them personally 😉

  18. @ mike – personally affected or not, you still have no right *other than voting via your decision where to send your business* to expect they will change their compensation. buy shares if you want to have this right.

    @ oliver – fair enough, but i hope you understand that even crazy owners have the right to compensate as they wish. united is not a public entity – it is a for-profit private one.

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