It’s hard to overstate the importance of getting the Max flying again for Boeing. Jefferies analyst Sheila Kahyaoglu had estimated the airplane maker was on track to burn through $4.4 billion of cash every quarter that the Max was grounded before it decided to halt production entirely starting this month. The work stoppage likely only cuts that cash burn in half, though, while increasing the overall cost of the program and significantly complicating the process of ramping it back up. Every passing month also means more in compensation that Boeing owes to the airlines scrambling to adjust their schedules for a lack of Max jets. As CEO, the Max’s return is Calhoun’s top priority.
The thing is, a mechanism already exists that compensates executives for doing what’s expected of them in their job. It’s called a salary. Calhoun already is getting one of those to the tune of $1.4 million annually. He is also due to receive a yearly bonus with a target value of 180% of that salary – or about $2.5 million. That bonus will pay out at “no less” than the target in 2020, seemingly regardless of whether the Max is flying again. Calhoun will also receive long-term incentive awards — which are separate from the Max-related bonus — with a target value of 500% of base salary (about $7 million) and a supplemental award of restricted stock units valued at $10 million meant to compensate him for rewards he forfeited at Blackstone Group Inc. in order to take this job.
Occasionally, you will hear the argument that executives need to be showered with money to make them willing to take on especially complicated situations. General Electric Co., which agreed to pay former vice-chairman John Rice $2 million a year plus health and equity benefits for a part-time role, comes to mind. I am skeptical that companies would have that hard of a time finding capable people willing to be the CEO of a major entity like Boeing or GE, no matter how much it is struggling. Most of the time, they are simply paying for the value of a well-known name. But regardless, those arguments have no place here. Calhoun has been on Boeing’s board since 2009. What happened with the Max is just as much a reflection on him as it is on Muilenburg. Salvaging his own reputation should have been incentive enough.
The special $7 million bonus also drew the ire of three Democratic senators who called Monday for Boeing to scrap the payout, warning that it “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.” For a company that just last month was publicly dressed down by the Federal Aviation Administration for its overly optimistic timelines on the Max return and the regulator’s concern that Boeing was trying to pressure it into speeding up the process, this is an extraordinarily bold and tone-deaf move. Certainly a key part of returning the Max to service is smoothing over relations with the FAA and with Congress. So one could conceivably argue that just one day into his role, Calhoun is already not doing the job for which he is being so highly paid.
The other directors on Boeing’s board blessed this compensation arrangement. To my knowledge, none of them have offered to pay back the fees they received while watching this train wreck unfold, even as they (rightly) canceled Muilenburg’s 2019 bonus. For all of Boeing’s protestations about how it’s finally turned over a new leaf when it comes to transparency and accountability, all you have to do is follow the money to know the truth.
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Brooke Sutherland is a Bloomberg Opinion columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.