Sweetening the deal at United Airlines __»

April 21, 2010

Merger talk is swirling around United Airlines (UAL), with reports of a deal in the works first with US Airways (LCC) and more recently with Continental Airlines (CAL).

We’re sure there are plenty of operational reasons United’s management might be looking for a deal. But we also couldn’t help noticing that the company has made it substantially more attractive for the top officers themselves to seal a deal — in the case of Chairman and Chief Executive Glenn Tilton, more than three times as attractive as in prior years.

According to the proxy that UAL Corp., parent of United Airlines, filed at 5:25 p.m. on Tuesday, Tilton’s payout if there’s a change of control rose to $9 million last year — up nearly fourfold from the $2.4 million listed in last year’s proxy. If he loses his job within two years after a deal, his payout would be $14.3 million, up 78% from $8 million last year.

Other executives have seen similar jumps. Executive Vice President John Tague, also president of United Airlines, would see his payout in a change-of-control rise to $3.7 million, from $1.1 million. Total cost for the top five officers under a change in control scenario, even if none of them are fired: $17.6 million.

A change of control, for what it’s worth, includes

“(i) certain acquisitions by a third-party or third-parties, acting in concert, of at least a specified threshold percentage of the Company’s then outstanding voting securities; (ii) consummation of certain mergers or consolidations of the Company with any other corporation; (iii) stockholder approval of a plan of complete liquidation or dissolution of the Company; (iv) consummation of certain sales or dispositions of all or substantially all the assets of the Company; and (v) certain changes in the membership of the Company’s board of directors. “

The rise in payouts hinges not on the cash severance the executives are promised — that figure has stayed pretty steady at a little over $5 million for Tilton, for example — but in the treatment of their equity and option grants. Whereas last year, getting fired after a merger would have accelerated $2.4 million in restricted stock awards for Tilton, now it would mean $1.4 million in restricted stock, $3.2 million in stock options and $3.6 million in restricted stock units, as well as $866,667 for an additional cash bonus. (Not to worry: They’ll still get travel benefits on their airline when they go, for whatever reason — a $23,683 value for Tilton, plus a whopping $119,240 to defray taxes that would be due on the benefit.)

All that, of course, is above and beyond what they get from any merger itself, in return for the shares and options they already own outright, plus the pensions and deferred-compensation benefits they have accumulated over time.

For good measure, the company also boosted the payout executives would get outside of a change-in-control, if they are fired “without cause” — including if, say, performance isn’t up to snuff or a deal falls through. For Tilton, that figure almost doubles to $12.6 million, from the $6.6 million listed in last year’s proxy. (His everyday pay rose, too.)

If UAL ultimately does tie up with another airline, we’re sure to hear soundbites about synergy and the value that shareholders and passengers can expect from the deal. As with any merger, only time will tell how much of that value really is there.

Meantime, for UAL’s top executives, the value of a deal is there in black and white.

Image source: Deanster1983 via Flickr

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