United Airlines remixes its deal payouts …

When we highlighted the big payday coming to top executives at UAL Corp.’s United Airlines (UAUA) if the airline found a merger partner, the subject got a bit of attention, including from the Financial Times and the New York Times’ DealBook. (It also drew some passionate comments to our original post from airline employees.)

But yesterday, UAL filed an 8-K indicating that the company and its executives had agreed to make some changes in the wake of its announced merger with Continental Airlines (CAL). “UAL CEO to Waive Cash Severance,” trumpeted the headline on But as we read the company’s disclosure, we started to wonder just how much United CEO Glenn Tilton was really giving up.

The changes came because, as UAL says in the filing, Tilton will be stepping down from that position to serve as “non-executive chairman” of the combined company, replaced in the corner office by Continental Airlines CEO Jeffery A. Smisek; when Tilton retires fully in a couple years, Smisek gets the chairman’s gavel as well. Under his earlier employment agreement, this would have enabled Tilton to collect around $14.3 million, much of it in restricted stock and options. That figure was based on United’s stock price at the end of 2009.

Instead, Tilton has agreed to swap the $4.625 million cash severance he was promised for an equivalent value in restricted stock, which will vest as long as he finishes out his two-year term as chairman (or if the company sacks him without cause before then). He’ll also postpone the accelerated vesting of his stock-options, valued in the 8-K at $4.57 million, until “the earlier of the original vesting date and the Chairman Retirement Date,” which is Dec. 31, 2012, or the second anniversary of the deal, whichever is later. Tilton’s restricted stock will be treated the same way, vesting on his departure instead of with the deal; that’s $9.88 million.

Tilton is also taking a $1.73 million pro-rated bonus for the year instead of the full target bonus he’d otherwise be entitled to under the terms of his employment. Other execs agreed to similar changes. And while current executives will continue to get reimbursed for the taxes they’ll have to pay on free air travel in retirement, officers hired after May 1 this year no longer will get that benefit.

Once you parse through all the changes, however, not all that much has changed:: The deal still means Tilton will get most of what he was promised, totaling some $18.8 million at current stock prices. He’ll just have to work a couple more years to get it, and avoid doing anything rash like quitting his job or engaging in any malfeasance. In the meantime, of course, he’ll no doubt also collect some measure of compensation for serving as chairman.

In return, shareholders get his services for two more years. We’ll let them decide if it’s a fair trade.

Image source: Deanster1983 via Flickr


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