Thursday, March 22, 2007

Gerald Grinstein

Readers ofthis blog know where we stand on the issue of "executive compensation," the pay that goes to CEOs and other high ranking corporate leaders that is well in excess of what is just. USA Today this week carried the following editorial on this sbject, and it appears there is some good news for at least one company. It carried the headline, A refreshing refusal.

Bankruptcy is never pretty. It forces employees to accept cuts in pay and benefits, and sometimes lose their jobs. It forces creditors to accept a fraction of what they are owed. It dumps massive liabilities onto the taxpayer-backed Pension Benefit Guaranty Corp. And it leaves shareholders holding the bag.

It is even more distasteful when insiders use the bankruptcy process to enrich themselves, as happened last year at United Airlines. Some 400 executives walked away with 8% of the newly reorganized company in the form of restricted shares worth about $ 400 million. (They originally wanted 15% of the company.) CEO Glenn Tilton, a relative newcomer to United and the airline industry, got shares worth more than $40 million. This bounty was made possible in part by pay cuts in the range of 10% that United workers had agreed to.

All of which is why the decision by Delta Air Lines CEO Gerald Grinstein to forgo the $10 million he would be due under a restructuring plan at his company is all the more commendable. Grinstein said Monday that his money should go to scholarships and hardship assistance for struggling employees and retirees.

Grinstein, 74, who is set to retire this summer, gave voice to something that has been painfully obvious to shareholders recently. Executive compensation, he said, has "gotten out of control" and become a "salary derby." His decision, along with Delta's more reasonable plan to have 1,200 executives share 2.4% of the new company when it emerges from Chapter 11, could help to keep the United deal from becoming an accepted standard.

The business of executive self-enrichment can take considerable creativity in the airline industry, which has been beset by big losses and languishing stock prices. So it's not surprising to see some executives try to use the reorganization process to line their pockets. But it's refreshing that at least one airline CEO has recognized it as unseemly — and has provided a welcome antidote to unfettered greed.

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Albany Catholic commends Mr. Grinstein. We have a new favorite air carrier.