Despite Boeing’s woes, top executives get big paychecks

Compensation for Boeing’s top executives last year was slashed by the company’s serious financial problems and falling stock price. Performance-based rewards paid nothing.

But no worries. Boeing’s annual proxy filing on Friday shows top executives have done well. They’ve won millions of dollars in cash and the board has given them big stock awards that will bring in millions more if performance improves in the years to come.

Boeing lost $4.2 billion in 2021 as the company battled the staggering blow of the COVID pandemic to the airline industry.

The commercial aircraft unit only slowly ramped up production of the 737 MAX, while quality defects all but halted 787 Dreamliner deliveries. Space vehicle launches have been repeatedly delayed, with Boeing’s space unit embarrassingly overshadowed by upstart SpaceX.

Still, CEO Dave Calhoun’s “take home pay” last year was $7.4 million in salary, cash bonuses and stock awarded when he became CEO which was acquired in 2021, according to the filing.

Additionally, Calhoun — CEO for more than two years — received new stock and option awards last year with a target value of $16 million.

Much of this estimated $16 million worth of stock awards depends on the future performance of the company and the stock price.

The total compensation he received in 2021, not including shares awarded when he took the job, is estimated to total $21 million.

In accordance with regulatory rules, the proxy filing directly compares that amount to the $124,844 in total annual compensation for Boeing’s “median employee.”

“Based on this information, we estimated that our CEO’s total compensation in 2021 was approximately 169 times that of our median employee,” the filing said.

Executive compensation by division

Last year, Boeing Commercial Airplane CEO Stan Deal’s “take home pay” was $5.7 million in salary, cash bonuses and stock awarded earlier and vested in 2021.

In addition, Deal — who was named local division CEO in October 2019 — received new stock and option awards last year with a target value of $4.7 million.

The total compensation he received in 2021, not including shares awarded in previous years, is estimated to total $7.3 million.

Leanne Caret, CEO of Boeing’s defense and space division, won $2.6 million, with stock awards added to bring her total compensation target value for 2021 to $6.3 million.

Ted Colbert, CEO of Boeing’s aftermarket services unit – the best performing division last year – took home $5.3 million, with stock awards added to bring his total compensation target value for 2021 at $5.7 million.

Greg Smith, who took early retirement as executive vice president and chief financial officer in early July, in addition to $2.2 million in salary and cash bonuses, walked away with $14.5 million in acquired shares.

After 31 years at Boeing, Smith had accrued a company pension valued at $2.1 million. After leaving in July, he received his first pension payments, totaling $349,000 for the rest of the year.

Brian West, who replaced Smith as chief financial officer at the end of August, received $1.6 million in salary, an annual cash bonus and an additional signing bonus. He also received $6 million in stock, bringing his total target compensation for 2021 to $7.6 million.

Change in value of stock awards

For executives, equity awards are designed to represent more than half of their total compensation. However, the value of these awards is highly dependent on Boeing’s future financial performance as well as the future share price.

Of the long-term cash and stock incentive awards granted in 2019 that now vest three years later, 75% are performance-based and therefore paid out at zero due to Boeing’s financial decline.

The remaining quarter of long-term incentive awards granted to executives in the form of shares in 2019 is now worth less than half the value it was at the time of the award due to the share price crash. .

To illustrate the potential fluctuation in value between award and cashout, consider that when former CEO Dennis Muilenburg was fired in December 2019, a company filing detailed how he walked away with around $62.2 million. dollars in stock and pension distributions.

However, of that amount, $13.1 million in 2019 performance awards turn out to be exactly zero, and a direct stock award worth $8.4 million at the time was worth half that at the time. time of acquisition.

The devaluation of other elements of Muilenburg’s total compensation upon his departure indicates that the current value is approximately $44 million.

However, the exact amount depends on when Muilenburg chose to sell its acquired shares. The stock price fell off a cliff from nearly $340 per share to under $100 at the start of 2020 after the pandemic hit, and has recovered to around $176 today.

Starting this year, the proxy shows that the board has introduced a new twist in executive incentive compensation that will elevate the stock price to the top of their minds.

Longer-term executive bonuses previously depended on the company’s financial metrics over three years — including revenue, earnings and cash flow — will now depend solely on the change in the share price during that period.

This part of the executive compensation will consist of half share grants and half stock options with an exercise price set at 120% of the share price at the time of the grant. The options will vest in three years but will pay nothing unless the stock is above this strike price.

Previous objectives not achieved

While these three-year performance-based long-term bonuses account for 70% of executive compensation, another important element is the annual bonus.

The company’s annual bonus payouts are determined by a set of metrics that are the same for all employees, but with much higher target payouts for executives.

Friday’s filing reveals that Boeing has decided to add two new parameters to this annual bonus.

In 2021, when finances were in a slump that risked dropping annual bonuses to zero, Boeing had already added to its existing financial metrics some operational metrics such as productivity, product and employee quality and safety.

The board has now added measures of the company’s focus on climate change and on diversity, equity and inclusion.

In an unusual move, the board is also recommending the adoption at the annual general meeting of an outside shareholder resolution on climate change. This would require Boeing to report regularly on progress toward its long-term goal of net zero emissions.

The board has also adjusted how CEO Calhoun can access his stock rewards.

“Calhoun may not sell or otherwise transfer stock acquired by the exercise of vested options until he leaves the company.” His vested shares will be distributed to him after he leaves in ten annual installments, the filing says.

With these changes, 93% of Calhoun’s total target salary is at risk or variable and will only be achieved by him based on Boeing’s long-term performance over a multi-year period, including after he leaves the company. .

Regarding his shorter-term performance, the board decided that Calhoun had yet to “substantially achieve” the key goals set when he was hired in January 2020 and therefore the $7 million in stock that were to be his reward for getting there are detained. until next year, when the board will reassess its progress.

Calhoun had three years to meet the 2020 goals, with half of the $7 million potentially paid after two years, which would be now, and the rest a year later.

Goals included the return to service of the 737 MAX, which was accomplished by the end of the year. And in the proxy filing, the board praised Calhoun’s implementation of a new security system in the company and how it reduced expenses and production in response to the pandemic.

Among the goals it failed to achieve were the entry into service of the 777X and a successful crewed Starliner spaceflight.

The 777X is delayed and likely won’t enter service until 2024. And Boeing will take another shot at a delayed second uncrewed Starliner flight test no earlier than May.

For Calhoun, this launch could cost 7 million dollars.

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