AC CEO took home $9.5MM pre tax last year

Discussion in 'Air Canada | Aeroplan' started by guinnessxyz, May 31, 2013.  |  Print Topic

  1. http://www.theprovince.com/business/Canada took home more than million 2012/8462342/story.html

    The picture in the article is not that of Calin Rovinescu.

    His total compensation package last year was more than twice that of the $4-million he earned at the helm of the airline in 2011.
    Air Canada, as a whole, earned a modest $53-million profit in 2012, but it was the first annual profit recorded by the airline since 2007.
    The bulk of the increase in Mr. Rovinescu’s compensation came from a one-time $5-million retention bonus he received on March 31, 2012, as part of the terms of his contract with the airline.
     
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  2. http://www.flyertalk.com/forum/air-...o-took-home-more-than-9-5-million-2012-a.html

    I note this thread from TOB as a reminder about how out of touch most people are over there and to some degree, here as well. Rovinescu actually did save AC from going down the toilet and has been rewarded appropriately. He beat the unions into reality, introduced capacity controls that WJA soon followed, made in flight service somewhat better (an ongoing process) and most importantly has got over $2BB cash in the bank.
    The fact they are in a low margin business operating a legacy airline makes the CEO role even more important. A bank CEO makes even more money and lives in a world where real competition is virtually unknown and who operates behind a heavily government regulated veil.

    AC is much more stable than it was 10 years ago and Calin has pretty much been a part of it. In the years between AC assignments he made a lot more money in the investment management arena which of course will really frost the socialists on these boards.
     
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  3. YULtide

    YULtide Gold Member

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    Actually, Calin made more than 3 of the top 6 Canadian Bank CEOs last year.

    Glad to hear that AC has $2 billion in the bank. It will make it easy for them to make their special pension deficit payments over the next few years.
     
  4. They need that as working capital to stay in covenant with their banks. The stronger stock market will do more to reduce their deficit than excess profits as that is how the deficit was created. DB pension plans work like that which is why Calin has negotiated his way out of them for the most part. That will have saved AC billions over the next many years but will still see all employees getting money to invest in their own pension schemes like RRSP,etc. That's why he's paid the big bucks.
     
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  5. YULtide

    YULtide Gold Member

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    Actually, the bigger problem with DB pension deficits is interest rates, not stock market returns. The problem was created, yes, by stock market losses. But it was compounded by low interest rates, and it is the latter that is holding back the pension plans. Stock markets have recovered, but pension plans have not.

    In addition to whatever covenants it may have with banks, AC has a covenant with the government (and indirectly with their employees) to put a minimum amount into their pension plan to reduce the solvency deficit.

    RRSPs are great - for the banks with their high MERs. A well-managed DB pension plan provides benefits for lower cost than a DC plan or an RRSP. And the simple fact is that many people do not have the financial sophistication to manage their own RRSPs or DC pensions. Companies loved DB pensions in the late 1990s when they thought they could predict double-digit returns forever and the plans cost them next to nothing in contributions. Those chickens came home to roost.
     
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  6. A DB pension plan is the biggest potential risk for any large corporation because their potential liabilities are astronomical and unlimited if markets tank, both interest rate and performance. In a perfect world DB plans are great. The biggest beneficiaries of them these days are government workers who feed off the public trough and small business owners who can create their own individual DB plans with business income deductions and allowable inputs much larger than RRSP allowances on earned personal income.
     
  7. YULtide

    YULtide Gold Member

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    That being the case, you have to wonder why so many sophisticated business leaders set them up in the first place.
     
  8. You will not have seen a new DB set up in the last 20 years or so and in fact all the banks have abandoned theirs for new hires in the last ten years or so. These plans were set up in the years when interest rates and stock market growth could provide.
     
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  9. YULtide

    YULtide Gold Member

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    So they have no faith in the future recovery of market conditions.
     
  10. LETTERBOY
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    LETTERBOY Gold Member

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    Considering the way the economy's been the last several years, can you blame them?
     
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  11. Its the unevenness that makes it actuarially impossible to predict which is how AC got into difficulty. Most major DB pension plans have deficits these days, including union and some municpal employee plans.
     
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  12. The salary contained a one time $5MM bonus for achieving a series of board demands and he made every one of them.
     
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  13. canucklehead
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    canucklehead Gold Member

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    I can only find reports that his $5M bonus was a retention bonus, not a performance bonus. He did exceed certain metrics the board had set forth, but I am not sure this was the reason for his $5M bonus. He also received a significant cash bonus ($1.6M more than the previous year). Could the cash bonus be for performance?
     
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  14. The $5MM bonus was promised in 2009 to be paid in 2012 if he met several board metrics, which he obviously did. The $1.6MM bonus was for meeting EBITAR promises last year.
     
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  15. YULtide

    YULtide Gold Member

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    Actually, since DB pensions are in for the long term, they should not generally be worried about short-term fluctuations in the market. The market will fluctuate in the short term. I think most people are aware of that. But a pension plan that assumes it will be around for several market cycles takes that into account.

    A DC pension plan, or an RRSP, is very much at the mercy of short-term fluctuations. You can decide with your DC plan that you will retire in three months. Then the market tanks and you're toast. Either you have to postpone your retirement (if your company will let you) or you retire on less than you had planned. That doesn't happen with a DB plan.

    The real problem is the importing of short-term thinking into what ought to be long-term planning.
     
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  16. Not so. Interest rates play a role and no actuary 20 years ago could have built in the low interest rates we have seen for the most of the last decade. Inflation was always built in at 3% and we have nowhere near that level. Sustained market growth going froward may help reduce some of the pain. The other issue is the bulge in baby boomer retirees against a slow growth market, something actuaries across the board appear to have missed in their projections. you are correct, somewhat, in saying its not the program itself that becomes the issue but the money available to pay for it. AC and most DB pension fund related Companies would have relied on their actuaries reports to build their nest egg. the difference between a DB and DC plan is that if the DC doesn't quite make it the individual is responsible to make up the difference or suffer a lower retirement income. In a DB plan the employer is responsible for the annuitant's life to uphold that pension obligation. That, clearly is wrong in today's world of unpredictable economics and ever increasing life spans.
     
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  17. YULtide

    YULtide Gold Member

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    The word "wrong" suggests a moral or ethical judgement in the last sentence, and I respectfully disagree.

    DB pensions are a matter of spreading risk among a large group and fitting risk with capacity to address it. A pension plan of any size has an array of actuaries, investment specialists and lawyers working for it that no individual can possibly match. It is capable over the long term of estimating trends, smoothing investments, building in safeguards and riding out temporary headwinds. Again, no individual can match that.

    Putting one's eggs in a DC pension or RRSP without the financial acumen to make optimal decisions, and without the abilities mentioned above, makes for a very risky future for individuals. And there is a large and growing number of individuals in precisely that situation.

    Surely there are better solutions than simply getting rid of all DB pension plans.
     
  18. Of course there is and that is to limit the liability at the retiree's retirement age and spread the risk that way. Of course no union would accept that on behalf of its members.
    As for the word wrong no moral judgement was intended. The idea of one being an employee for life,effectively, with a DB plan is just not good business and shareholders have spoken loudly about that. If a union wants to do it and gets its membership approval good on them, but many of those are now hurting badly. Unions are being forced to merge and in some cases downsize the pensionable benefits.
     
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  19. This shift in life expectancy has already destabilized both public and private pension schemes everywhere and helped accelerate the move from defined benefit retirement plans — whereby a pensioner receives some level of his final salary in perpetuity — to “defined contribution” plans put the onus on savers in the US and around the world. At the end of 2011, 3% of US private sector workers participated only in a defined benefit plan and 31% participated in a defined contribution plan and 11% had access to both.
    Your real retirement saboteur Blame misguided trust for a shortfall in Americans’ retirement savings
     
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  20. YULtide

    YULtide Gold Member

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    DC pensions are a horrible deal for participants. Companies love them because they're cheap and predictable. Companies love DB plans when times are good and hate them when times are bad. The basic problem is that companies look at the short term whilst pension plans are long-term affairs. And the cost of an equivalent pension is higher for a DC plan than for a DB plan.

    The problem is not a shift in life expectancy. The problem is a short term dip in interest rates, and companies that can't see beyond the next quarter.
     
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  21. Companies don't want to be lifetime employers which is what DB plans do to them. And, employee mobility is another factor. A DC plan allows employee the opportunity to better their career elsewhere and not lose out on pension penalties.
     
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  22. YULtide

    YULtide Gold Member

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    It's not exactly true that a DB plan makes the employee an employee for life, in the sense that the company stops paying salary (and often benefits) when the employee retires. Any pension plan is a form of deferred income which is pre-funded. So the company is not longer actively paying the retiree out of current income, but rather paying a pension out of a pot of money that has been amassed. Yes, with a DB pension the company is on the hook for any shortfalls, but that can be an incentive to manage the plan well to avoid shortfalls.

    A DC plan is worse than an RRSP. All the risk is on the employee and the employee has virtually no way to assess or manage that risk. It's really a crapshoot. And for the same cost as a DC plan, a well-managed DB plan can pay out a better pension.

    As to employee mobility, it is a fact of life, but there once was a time when companies wanted to offer incentives to keep valued employees. In my view, then don't particularly want to encourage employee mobility; they want to maintain full flexibility to ditch employees at any time.
     
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  23. If the DB PP goes under water the employer is required to fund the deficit, therefore the lifetime comments are valid.
    What you are suggesting about DC plans is that the employee is incompetent and should rely on his employer to invest on his behalf.
    In terms of ditching employees, businesses are not government. If someone no longer fits the role or the job disapppears should they, as you are hinting, just let them hang around and get paid.
     
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  24. YULtide

    YULtide Gold Member

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    Most people are not knowledgeable investors, and thus, without the implied pejorative value judgement, are in fact incompetent. And besides, DC plans typically offer a choice of a half dozen different mutual funds as investments, ranging from ridiculously conservative (mainly GICs) to ridiculously aggressive (all equities). In effect, there is very little choice there even for a competent investor. So you get the worst of both worlds. Most people just take the default anyway.And all the options carry an MER that's great for the insurance company running the plan. And then at the end of the day, when the employee retires whatever is sitting in the account is converted to an annuity, the payout of which depends on the prevailing interest rates. Good luck if you're retiring today.

    As I said, worse than an RRSP.

    As to ditching of employees, there once was a model in which a valued employee was treated with some dignity. Now if I'm your employer and I think I can get the same work out of someone else for less money, then to hell with you.

    I guess I would make a terrible CEO, because I wouldn't lay off $20 million worth of people in order to get a $20 million bonus.
     
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  25. LETTERBOY
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    LETTERBOY Gold Member

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    That seems to be, for better or worse, the way the world works now. If an employee is costing more money than they bring in, they're going to go. If you keep them around when they cost you money, that makes no business sense. It would be nice if treating "a valued employee with some dignity" and bringing in maximum profits were both possible all the time, but it isn't always possible to do both. And if a company chooses a course of action that will cost it money, they're not doing their job. Their primary job is to make money, not be nice to everyone. If they can do both, great. If they can't, well, life's tough. Deal with it.
     

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