Despite criticism from U.S lawmakers, Boeing CEO David Calhoun stands to enjoy a massive payday when the grounded 737 MAX returns to service. That’s because of special clauses in the executive’s compensation agreement that give him multi-million dollar bonuses when he achieves several milestones.
Tying Calhoun’s pay to the Boeing 737 MAX could incentivize him to push the plane back into service, even before it is ready. Although the plane has been grounded since March 2019, regulators in the U.S and Europe are still finding problems with the embattled jet that has already killed 346 people in two fatal crashes.
Is Boeing incentivizing the sort of bad behavior that led to this mess in the first place? Several U.S lawmakers think the answer is yes.
David Calhoun, who took over from Boeing’s (NYSE:BA) ousted CEO Dennis Muilenburg, enjoys a fat salary. The company gives Calhoun a base pay of $1.4 million on top of an incentive award potentially valued at 180% of his already large income. That’s on top of two additional long-term incentive awards targeted at 500% of base salary and $7 million flat.
Calhoun will earn the $7 million cash incentive award upon completion of what Boeing calls “several key business milestones.” These milestones include the “full safe return to service of the 737 MAX”.
But that’s not all.
In addition to the already massive list of bonuses, Boeing’s new CEO will also be awarded restricted stock units valued at $10 million. These options have a three-year vesting period and are designed to compensate Mr. Calhoun for the stock he lost when he left his previous employer – that’s according the company’s 8-k filing on the matter .
Many are not happy with Calhoun’s massive paychecks; this includes several U.S. lawmakers. Democratic Senators Edward Markey, Richard Blumenthal and Tammy Baldwin believe Boeing could be repeating its earlier mistakes by putting profits over safety and incentivizing bad behavior from its leaders.
They state Boeing needs to:
Really to prove it has learned its lesson about prioritizing safety over profit, then it will cancel the proposed bonus immediately and make sure there is no financial incentive for its new CEO to rush the 737 MAX back into the sky.
Boeing believes that tying Calhoun’s compensation to the 737 MAX is key to reaching its goals as a company and in the best interest of the flying public.
They stated the following in a letter to U.S lawmakers in January:
We believe tying our new CEO’s incentive-based compensation to key strategic objectives, including the safe return to service of the 737 MAX, is in the best interest of our company, our workforce, and the flying public.
The letter also points out that Calhoun’s contract includes an enhanced clawback policy that lets the company limit his compensation if he engages in misconduct that compromises the safety of Boeing’s products.
Despite being grounded for almost a year, regulators in the U.S and Europe are still finding problems with the Boeing 737 MAX. Most recently, officials at the European Union Aviation Safety Agency (EASA) clashed with the FAA over the location of potentially dangerous wiring in the controversial jet. They believe the wire’s placement could increase the likelihood of short circuits that could disrupt the plane’s flight control systems.
Boeing has publicly announced that it expects the Boeing 737 MAX to be back in the sky by mid-year . When the plane returns to service, Calhoun will enjoy a massive payday. But the flying public can only hope that the plane is actually ready by then.