Air Canada gets more time to top up pension plan, executive pay frozen

Discussion in 'Air Canada | Aeroplan' started by tcook052, Mar 12, 2013.  |  Print Topic

  1. tcook052
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    tcook052 Silver Member

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    http://www.theglobeandmail.com/repo...ion-plan-executive-pay-frozen/article9700077/

    The federal government has approved Air Canada’s request for a reprieve from funding its pension deficit, but has imposed a host of conditions – including a freeze on executive pay and a ban on dividends or share repurchases.

    The deal requires the airline to make contributions to the plan of at least $150-million a year totalling at least $1.4-billion over seven years. The special contributions would be on top of the current service payments required by the pension plan.
     
  2. YULtide

    YULtide Gold Member

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    The comment at the end of the story is apt: there should be some pension relief for all pension plans. The pension deficit is in many cases entirely artificial, as a result of low interest rates. Solvency funding in current market conditions is extremely difficult to meet. The one difficulty is what happens when a company with temporary relief from solvency funding goes bust. But then, in such a case it's probably not going to be any worse than without such temporary relief.

    The hope for Air Canada is surely that interest rates will go up over the next seven years, which will help with the solvency problem.
     
  3. http://www.theglobeandmail.com/glob...rieve-imposes-exec-pay-freeze/article9700077/

    Freezing executive pay is stupid and another dumb shortsighted Tory move. Calin is near retirement age and recruiting or promoting someone into that job w/o bonuses for several years could hurt the company. They may also lose some other existing execs who could be in demand elsewhere as.AC is considered a well run carrier by their peers.
     
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  4. 2by4

    2by4 Silver Member

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    The same provisions for relief that were given to Air Canada are available to the rest of the 1,500 pension plans administered by the Feds. It is already contained in the applicable legislation.

    They just need to ask.

    Pension plans administered by the provinces have almost identical legislation.
     
  5. LETTERBOY
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    LETTERBOY Gold Member

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    If someone knows there's no chance for them to get a raise/bonus, they have less incentive to put forth any more than the bare minimum effort. Dumb.
     
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  6. YULtide

    YULtide Gold Member

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    If someone knows there's a chance they won't get their promised pension, they have less incentive to put forth any more than the bare minimum effort.
     
  7. The Lev
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    The Lev Silver Member

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    Nice to see the govenrm,ent take a balanced approach - they've asked ALL parties to give something up - workers have to live longer with underfunded pension, shareholders get zero dividends and management gets to live with their current (not insignificant) compensation levels. AC will be able to find top talent willing to work for $5 million per year when Calin retires. It is now up to the Board to ensure they continue to create the right incentive package for management within the limits the company has accepted.

    The government has prevented AC from undergonig another HR/PR disaster by awarding huge bonuses to management for negotiating this reprieve.
     
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  8. Calin won't be replaced @$5MM. He was topped up IIRC and not really given a raise. His successor cannot get any options or other bonuses that Calin currently has during the catch up period which is 7 years. Those in senior positions below him, while well paid, are going to be more restless.
     
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  9. tcook052
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    tcook052 Silver Member

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  10. http://www.theglobeandmail.com/glob...ming-of-an-interest-rate-hike/article9752992/

    The country's largest carrier had a pension solvency deficit of $4.2-billion at the start of last year. For every 0.25-percentage-point increase in the discount rate – which determine liabilities on an accounting basis for pensions – Air Canada's pension solvency deficit would fall $460-million, PI Financial Corp. analyst Chris Murray said in an interview Wednesday. (Air Canada calculates its pension obligation using a discount rate based on corporate bonds rated double-A or better.)
     
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  12. tcook052
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    tcook052 Silver Member

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    Visible enough for you to quote it. :p
     
  13. QSG
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    QSG Gold Member

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    Both still showing their true colours..........:p
     
  14. AND YOU HAVE CHANGED?
     
  15. http://www.theglobeandmail.com/repo...illed-by-executive-pay-freeze/article9716383/

    Now, consider what reining in Mr. Rovinescu's pay will do to address Air Canada's pension solvency deficit, which stood at $4.2-billion at the start of last year: almost nothing. Mr. Rovinescu earned $4-million in 2011 and, in addition to his regular compensation, got a $5-million retention bonus from the board last year. Even if, hypothetically, he paid that bonus back, and all that money went toward the pension deficit, it would be a rounding error's worth of difference.
     
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  16. YULtide

    YULtide Gold Member

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    You are correct that Rovinescu's salary and bonus wouldn't put much of a dent in the deficit. But $5M is more than a rounding error, even if it is a relatively small proportion. It adds up to 2.5% of what AC is required (on average) to contribute to the pension fund each year for the next 7 years.

    This is about optics, not fixing the deficit single-handed. A side benefit is that it will avoid adding more irritation into the management-labour mix.
     
  17. So tell me what his salary should be considering the fact most CEO's of major companies make more then he does. We live in a market economy where talent moves for money.
     
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  18. canucklehead
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    canucklehead Gold Member

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    Tough to say what a CEO's salary is, but if the airline has major debt to settle, its also difficult to maintain high salaries if others lower down have been asked to tighten their belts.

    As for what other CEOs get, thought the Forbes list might help
    Forbes 2012
    Kelley (Southwest) 2.29M
    Parker (US) 1.82M
    Smisek (UA) was rumoured to be about $13M as he shepherded <cough, cough, hack, hack> CO and UA into merger. This was triple his previous year's renumeration of $4.6M.

    Ignoring the incorrect name of Air Canada, here is a survey of CEOs of NA airlines
    Rovinescu's salary is 4th highest on the list.
    Similarly in 2009 ranking.

    Duffy and Saretsky have been well paid at Westjet, but the company is financially better off and provided more consistent profits.

    Christoph Franz's salary at Lufthansa is nice, but about 2/3 of AC's equivalent. LH is a larger and more diversified airline with a larger population base to feed from.

    Here is Mr. Choon Phong Goh's salary - $1.75M. He's CEO of SQ. Actually, according to Bloomberg, the average CEO salary in the airline industry is $1.3M - of course, this is probably lowered by the number of Chinese airlines CEOs who make <$150K US.

    So what's my point? Well, relative to NA, Rovinescu's salary is pretty good, very likely top half of all CEOs. On the international scene, he is a paid very well. Is he talented? Perhaps, but he would hard pressed to move to a higher paying job.
     
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  19. His salary is measured against other top drawer companies in Canada and I'm not very interested in what the SQ guy makes , for example, because he lives in a completely different economic environment . CR has restructured AC, made it more competitive and yes he beat the unions down. He also worked hard to get a pension deal done that in fact saves the Company. There is value added in what he has done. Plus if you look at other forms of compensation for other CEO's, most of them get options, immensely large pensions and other benefits.
    He did not create the structural problems at AC but he has fixed most of them and the shareholders will benefit. That's how the paycheck is calculated.

    I've been to china many times and rest assured the 150K of reported salary for a CEO is only window dressing to show the masses how socialist they are. However, these guys have Hong Kong bank accounts and so many other forms of compensation. They actually make millions
     
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  20. Upon releasing details it appears there is some level of SANITY to this pension issue:
    "In granting this arrangement, the government has imposed conditions included limiting increases in executive pay to the rate of inflation, a prohibition on special bonuses and limits on executive incentive plans.
    However, in a conference call and letters to unions on Tuesday, Finance Minister Jim Flaherty noted that the top 24 executives at Air Canada can still receive bonuses under the company's annual incentive plan, according to people who were part of the call and received the letter.
    Union representatives confirmed that Mr. Flaherty told the unions that if Air Canada makes its $200-million annual pension payment, then the executives will receive their full annual incentive plan bonuses. (The annual incentive plan covers cash bonuses given when the airline meets its financial targets.)
    If Air Canada only makes a payment of $175-million to its pension deficit in the year, the top executives would receive only half of their annual incentive plan, or AIP. If the airline only pays $150-million, then no performance incentives would be paid to the executives. Other bonuses, such as retention payments to keep an executive at the company, would be eliminated."
    http://www.theglobeandmail.com/glob...d-to-pension-deficit-payments/article9805501/
     
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  21. tomh009
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    tomh009 Gold Member

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    And I think that's reasonable. Shared pain, shared gain.
     
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  22. The Lev
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    The Lev Silver Member

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    The "average" income in 2011 for CEO's of the "top 100" companies in Canada was $7.7 million. Problem with average is it gets skewed by a few high earners - Frank Stronach is included and he took home almost $62 million. Calin's income is likely above the median of CEO's of the top 100 companies. A comparator might be Fred Green from CP took home $5.3 million - at a larger, more complex and more profitable company in the transportation sector.

    Bottom line, there would be qualified people lining up at the door to earn $4-5 million at AC as CEO.

    Calin might be able to earn more as an investment banker but probably nowhere else.
     
  23. YULtide

    YULtide Gold Member

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    This sort of comparison is a mug's game. The trouble is that the market economy only seems to work in this way for a very few. What's he worth? Who knows? Any answer will be arbitrary. The spectacular rise in executive compensation over the last couple of decades has been driven by a self-perpetuating feeding frenzy, which is in fact anything but a free market.
     
  24. I don't disagree with that premise either. However, the feeding frenzy was applied to CR's salary. Granted he has made major changes to the Company that seem to be paying off and that is worth a lot to shareholders.
     
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  25. JamesSanders00

    JamesSanders00 New Member

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    Freezing executive compensation would hurt a lot especially that we just undergone recession. Executive pay is not only composed of our salary, but also our benefits, bonuses, etc. If they freeze our executive pay, there will be a tendency to have scarce resources. If you do not get a pay raise this year, please check personalmoneynetwork.com for further information.
     
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