In a week when Southwest Airlines announced a “board reconstitution” amid a board shakeup following a settlement with an activist investor, the Dallas-based airline announced that it would be changing the compensation and travel perks its board members receive. It was also explained in detail.
Current compensation terms for “non-employee” board members include an annual maintenance fee of $90,000 and $1,500 per irregular board or committee meeting, according to Thursday’s securities filing. are. Members are also eligible to receive an equity grant (this year’s grant is $170,000), and members with at least five or 10 years of service are eligible for a cash payment of $35,000 or $75,000, respectively, as of their retirement date .
Additionally, member benefits while serving on the board include complimentary travel to the Southwest for directors, board spouses, and children, as well as 50 “unlimited” one-way Southwest tickets per year . Directors who serve at least 10 terms will receive “free travel for life” on Southwest Airlines for themselves and their spouses after serving on the board, according to the filing.
Analysts and corporate governance experts disagreed on how the terms compared with those of other companies. Charles Elson, founding director of the University of Delaware’s Weinberg Center for Corporate Governance, said compensation and stock grants are not uncommon, and that some companies will offer board members some sort of discount on their products. Ta.
But he noted that severance pay for executives is being phased out at many companies, and the amount of free travel allowances for members’ friends and family is unusual. “I understand discounting flights, but for so many people to be able to travel for free and bring their friends and family with them is extraordinarily generous,” Elson said.
Nicholas Owens, a Morningstar industrial equity analyst covering the Southwest region, agreed that lifetime travel for a long-tenured director is “a bit unusual,” but he said it’s not too costly for the company. said. Overall, he said, he doesn’t think the board’s compensation is “extravagant or outlandish” compared to what other U.S. airlines and companies offer. “These costs do not meaningfully impact the company’s operating income,” Owens said in an emailed response to questions.
A spokesperson for Southwest Airlines declined to comment beyond the submission. Elliott did not respond to requests for comment.
Southwest revealed details of director compensation on the same day it announced the appointment of six new independent directors to its board of directors, effective November 1, in connection with an agreement with active investor Elliott Investment Management. . The company said new members appointed to the board include Pierre Brévert, former chief financial officer of oil company Chevron.
Meanwhile, the company announced that Gary Kelly, Southwest’s executive chairman, will step down early and resign from the company’s board of directors, also effective November 1, after which he will assume the title of chairman emeritus. As previously announced, six other Southwest directors will also retire effective the same date, reducing the board of directors to 13 members, according to the release.
“We continue to renew our board with the addition of new directors who bring complementary skills and experience and look forward to working with Elliott,” Kelly, also the former CEO of Southwest, said in a statement. “We are pleased that we have reached this resolution,” he said in a statement. “We are confident that our board will continue to be accountable to management for executing our transformation plan and achieving financial performance.”
Elliott partner John Pike and portfolio manager Bobby Hsu also said they were pleased to reach an agreement with Southwest to add six new directors to “revitalize the board.” He said he thought so.
The move amounted to a “truce” between the airline and Elliott, with the company on the board but not giving Elliott the majority control it had sought, the Wall Street Journal reported Thursday. It was also reported that the settlement announced in 2017 “brings an end to a four-month long bitter battle.” The question is whether Southwest Airlines’ management can pull the airline out of turmoil. ”
As the industry’s operating costs have risen in recent years, Southwest Airlines’ profitability has faced competition from low-fare carriers and traditional airlines, a Morningstar report on Thursday said, adding to the pressure exerted by Elliott. He is also the target of a campaign.
“On October 24, Elliott and Southwest Airlines announced a compromise. The airline will appoint six directors, five of whom are Elliott nominees.” Former CEO Gary Kelly said the airline will appoint six board members, five of whom are Elliott nominees. Instead, he will step down this year, and CEO Bob Jordan will remain in place. “We believe that the business plan was primarily developed by Southwest,” the report said, adding that Southwest detailed the new business plan in its third quarter report and that The company added that it expects the new seating plan to increase profits by $4 billion by 2027. Marketing and sales of some aircraft have been improved.
