Posted on 04/05/2003 9:46:26 PM PST by Fixit
Within a day of the news that Delta Air Lines boosted executive compensation in 2002 -- a year of huge losses and job cuts at the airline -- upper management was taking a public thrashing.
Sen. John McCain (R-Ariz.) called such raises "insulting" at a time airlines were seeking more federal aid. Letter writers teed off in newspapers. Internet bulletin boards sizzled.
The backlash was swift, intense -- and completely predictable, experts say.
Company documents show higher-ups were warned that at least parts of the compensation changes could irk many people. They made them anyway.
Now Delta is stuck with a public relations migraine, following recent disclosures that the ailing airline spent more than $42 million last year on bonuses and pension trust payments for top leaders.
"It will end up being among the textbook examples that people like me use to teach what not to do," said Margaret Duffy, who teaches advertising and public relations at the University of Missouri. She said the problem lies not in bad public relations, however, but in the actions themselves.
Delta's situation is more than academic. The controversy complicates the debate over federal aid for the industry. It also has angered workers, including unionized pilots who are being asked to consider pay cuts.
"This makes absolutely no sense," said Atlanta PR consultant Al Ries. His advice to Delta is to apologize. "It's never too late to say, 'I was wrong,' " he said.
Delta Chief Executive Leo Mullin sought to quell the controversy last week by announcing he will forgo millions in compensation. That includes any 2003 bonus he would have gotten under a new formula adopted last year. It produced 2002 bonuses for 60 executives, despite the company's $1.3 billion loss.
The bonus plan apparently remains in place for other executives, and Mullin keeps his $1.4 million bonus for 2002. Delta has made no move to reconsider a controversial pension trust plan, in which 33 top executives' retirement benefits are being prepaid into special bankruptcy-proof accounts at an initial cost of $25.5 million.
Some image experts see Mullin's gesture as halfhearted. Duffy said Mullin is "really not apologizing."
Tom Slocum, Delta's chief of corporate communications, said the executive pay revisions were developed after the Sept. 11, 2001, terrorist attacks to hold together a good management team.
"We knew we would have to have conversations with our people to explain why these decisions were essential," he said. He said executives and managers now are doing that in employee meetings, "place by place and person by person."
Slocum said public attention was intensified by the timing of the annual regulatory filing in which the bonuses came to light. Its March 25 release, amid a new round of airline cutbacks and debate over federal aid, "heightened the commentary," he said.
Some say Mullin's move last week was a good one. Bob Dilenschneider, founder of a New York PR shop, said the head of a big, troubled company deserves a competitive pay package, but Mullin is smart enough to understand public sentiment. "Should Leo have explained it more fully? That might have been a good thing," he said.
Experts are puzzled over why Delta didn't heed concerns about backlash.
In a January letter to Delta protesting the pension trusts for top executives, some retired executives warned spending millions on such trusts would backfire badly "in a post-Enron environment." The retirees' concerns were dismissed; after the story broke they went public with their letter.
Internal documents also show the company considered perception risks to be "manageable."
Duffy said the decision-making, which included approval of a board of directors committee, was an example of executive "group-think."
"People get very caught up in their own kind of tunnel vision," she said. "It seems entirely sensible to them at the time."
Now they're paying the price, with the Internet fueling the negative buzz.
At TheStreet.com, columnist George Mannes last week bestowed Delta with two of his "five dumbest things on Wall Street." The first was the pay bonuses. The second was for Mullin's pay cut, which Mannes found lacking in sincerity or substance.
Julia Hood, editor of PR Week, said the brouhaha is a cautionary tale.
"We are in a time right now when I don't think any CEO can underestimate the frustration and fear of average Americans."
Staff writer Russell Grantham contributed to this article.
Turnaround. Southwest can land, taxi, unload, reload, taxi, and takeoff faster than any of the old-line carriers. This is in part because they stay out of big airports like O'Hare, and in part because they're simply good at it.
It should be noted, though, that while Southwest does what it does better than anyone else, there are many things it does not do. For example, not only does Southwest not have any trans-oceanic flights (I don't think they even have any international flights), but they don't even serve most airports from which such flights depart. Such international airports tend to be big, and their size severely impacts turnaround. A Southwest plane at a small airport could land, taxi, unload, reload, taxi, and takeoff before a plane landing at a larger airport could even make it to the gate.
While I'm not sure Peotone is a good site for an airport, it seems much more logical to me to use smaller airports for domestic travel than to try to push everything into megaports like O'Hare.
I don't remember the exact circumstances, but I do remember the whole situation was a zoo; I don't blame SWA for having to wait awhile before I could actually get on a connecting flight, but I, and many others, were annoyed at SWA's failure to tell us what was going on.
Still, one bad experience out of many flights is a pretty good record--better I think than any other airline I've tried except Delta (four flights; zero problems), and even there the difference is within the statistical margin of error [i.e. I may have just gotten lucky and had four good flights].
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