Getting Fired And Cashing In At Boeing
Boeing’s ousted CEO departs with $62 million, even without severance pay, NBC
“Boeing Co’s ousted chief executive officer, Dennis Muilenburg, is leaving the company with $62 million in compensation and pension benefits but will receive no severance pay in the wake of the 737 MAX crisis. Muilenburg was fired from the job in December as Boeing failed to contain the fallout from a pair of fatal crashes that halted output of the company’s bestselling 737 MAX jetliner and tarnished its reputation with airlines and regulators. The compensation figures were disclosed in a regulatory filing late on Friday during a difficult week for Boeing when it also released hundreds of internal messages — two major issues hanging over the company before new CEO David Calhoun starts on Monday. The messages contained harshly critical comments about the development of the 737 MAX, including one that said the plane was “designed by clowns who in turn are supervised by monkeys.”
Keith’s note: Muilenburg has it nice. Getting fired is lucrative, Meanwhile families who lost people in Boeing 737 Max crashes have not gotten a penny. With the delivery halt, suppliers are already laying workers off. Boeing workers will inevitably be laid off too. They are not going to be as generously paid. Meanwhile the guy who got fired is going to get enough money to buy a commercial crew seat on Boeing’s Starliner.
The corporate equivalent of CFIT – where the passengers are all killed but the pilot walks away unscathed.
Yes, it is disgusting how our culture revolves around money and protecting its acquisition rather than the taking care of each other and our planet. Oh well.
This is fairly obvious. The board of directors, and whoever else had to approve this, would be very aware of precedent. If any one of them gets fired under similar circumstances, they’d certainly want this sort of compensation to be the standard for the industry.
He is scheduled to get more than all the crash victims combined. Boeing’s philosophy also applies to space where they want more money for performance that is both slower and poorer than Space X.
There’s too much inbreeding with boards of directors. They are all on each other’s boards. Aside from setting industry-wide compensation packages, I believe they are unofficially price fixing. We need some kind of federal act to make the market more competitive from the boardroom to sales. I don’t know what.
That’s an difficult question. When it comes to reviewing proposals for government funding, there are some specific standards for conflict of interest. If you or your employer stand to benefit (financially) from the selection, you have to recuse yourself from the decision. And at some academic institutions, you have to recuse yourself from decisions about subcontracting to a company you or a relative has financial ties to. (Or get approval not to do so. And my annual form about this is due, so I should probably be filling that out rather than making this comment…) But when it comes to setting industry standards for pay, in a way which benefits yourself, that’s a bit vague and nebulous. I’m not sure how you could regulate against it. When it comes to ineffective laws and unintended consequences, “I know it when I see it” is probably the worst thing a legislature can enact.
Corporate compensation committees tend to be mostly populated by CEOs and CFOs from other corporations, as well as a couple of members of the employer’s board. Do you think those C-suite types are ever going to do anything that would drive executive compensation down to reasonable levels?
This is the root of the problem. Executives at companies sit on the boards of other companies. It’s an “old-boy network” that’s nearly as old as business itself. So, of course if you’re on a board of directors you’ll vote to give the executives a huge golden parachute in their contract. They’ll always do the same for you, right?
I have wondered about that. If you have a small number of major companies that control the vast majority of a particular enterprise, and the same people sit on the boards of directors of all of them (given a bit of musical chairs as you go from board room to board room), how is that not a de facto Monopoly?
Well, because the companies and boards are all separate from each other. And even though they pull from the same pool of people, the “old-boy network” is careful to not make it obvious by putting all executives from company A on the board of company B and vice-versa. So the executives from company A will be spread to companies B, C, D, E, F, G, and etc. See this reference:
https://www.fastcompany.com…
From above:
“78% of the top 50 companies in the S&P 500 are directly connected through one or more board members, a new data visualization concludes.”
Negatives include:
“However, as Paul Hodgson explained in 2012, this interweaving of board members can have very negative consequences. According to GMI Ratings–which publishes research on environmental, social and governance practices at corporations–there’s a clear link between corporate board interlocks and bad practices, including “egregious retirement/consultancy agreements for CEOs,” along with “excessive pay for failure” and option backdating. “What is needed here is awareness, transparency, knowing about the interlocks,” Hodgson concluded.”
And so our relentless worship at the Church of Free Enterprise continues. There’s no downward pressure on salaries, especially in a world where there is so much money around that even millions are hardly noticeable.
Recently I closed on a new home here in Naples, and experienced the unhappy sense of so many hands in my pocket, each seeing so many zeros, and only asking a pittance point or two. Which I can tell you adds up.
Here’s an example of downward pressure in a slightly different arena, where Mr. Musk will get a buttload of money but it’s fair to say that he made it happen:
https://www.teslarati.com/t…
I wouldn’t call this “free enterprise”, at least not in an Adam Smith sense. That’s largely about a large number of people deciding how much something is worth based on the nature of the goods or services. This is more like a small number of people (a board of directors or similar people) who have a vested interest in the result (by keeping the industry standards for compensation high, they keep their own compensation high.) I think it’s important to remember that “free” does not just mean free of government control.
Free Enterprise is used as the equivalent of ‘capitalism’, which it is not. And it is capitalism with the focus on production rather than labor, that has created so many problems, like this one.
Per the sourced article, these are payouts/benefits set-up when he became President (Dec2013) and/or CEO (July2015), at which point the MCAS SNAFU put in place by Boeing Commercial Airplanes (BCA) and the avoidance/rubber-stamping with the FAA was already done (Jun2013 per article).
Would Muilenburg, coming from a career on the defense side, have known about this stuff prior to the crashes? I doubt it, but don’t know.
I do suspect the pain will be felt by all going forward – I am expecting there to be no annual bonus given to all Boeing employees (not just BCA) this year (usually awarded in March of each year).
Full Disclosure: I am a former BDS (Boeing Defense, Space & Security) employee, my wife is a current BDS employee.
I love it. These guys command insane salaries due to their entrepreneurial genius ( he started Boeing in his garage right?) And essential leadership skills. Of course, as soon as something goes wrong, I know nothing or how could I be expected to know. Just goes to prove, it is good to be the king!
While I could say Mr. Muilenburg should have known about the problem and done something about it, that’s not really the point. He was in charge when Boeing did a very poor job of handling the crisis, and, before that, he was given a generous, guarantied settlement package regardless of how well or poorly he did his job. That strikes some people as unreasonable.
Hmm it does seem odd how we consistently reward failure and promote the ill-suited or incompetent out of the way. It does tend to swim upstream of the capitalist shibboleths, that supposedly enforce efficiency and midwife a meritocracy. Then on the other hand this could be all an exercise in spin as the remittances in question were probably awarded for past success and are only coming due now. Either way the optics are not good.
It does lend weight to the argument that many of the business leaders are being disproportionately rewarded for achievements that were little to do with them. That said It would be hard to argue that the 737Max fiasco was other than a systemic failure: Boeing is no longer an engineering company and is now a financial management company which specializes in the Aerospace sector. So this is a failure of management.
Does this predate Muilenburg? Assuredly. Will his falling on the sword change anything? eh no. It is a good distraction though.
The article is either contradicting itself, or is worded strangely.
It says he’s getting no severance pay. He gave up his 2019 bonus and stock award. So, it appears that the $62 million he’s leaving with is:
– his pension benefits
– his previous stock grants and options (excluding the 2013 options he got at hiring)
– his previous salary
It would be nearly impossible for the company to claw back any of that. You would need to prove he had defrauded the company in some way, or was guilty of a crime.
Regardless of whether Muilenburg was there when the Max was designed, he was definitely there and in charge when Lion Air crashed. No new information came out from the Ethiopia crash that was not available after Lion Air. If Boeing, and the FAA, had done their job properly at that time, and understood what the data were telling them, the Max would have been grounded after that crash, and Ethiopia would never have happened. Instead, either out of incompetence or out of a desire to protect their stock price, they mischaracterized and minimized the safety hazard posed by the single-string MCAS architecture during takeoff, and another airplane crashed.
And this was under Muilenburg’s watch.
I think the best long-term way to address top executive compensation is by having a diverse board of directors that truly represents all of the stakeholders involved. By my count (you can slice resumes different ways, this is just my interpretation), Boeing has board members that can be classified as: 4 from Private Equity, 4 CEO’s, 2 former Military officials, and 3 former political appointees.
In contrast, Boeing’s BOD mission statement reads “The Board and the corporate officers recognize that the long-term interests of the company are advanced when they are responsive to the concerns of communities, customers, employees, public officials, shareholders and suppliers.
What’s missing from Boeing’s board are members that represent the employees, suppliers, the local communities where major Boeing plants reside, and civilian customers. If given a voice, I think many of these stakeholders would want a less top-heavy pay structure at Boeing.
So, IMHO Boeing should add the Mayor of Everett Washington, a union leader, an Aerospace supplier advocacy group (like AIA), and the largest shareholder (Vanguard). They could lose a couple private equity and CEO’s.