United Airlines: Smisek Ouster – Jeff’s Golden Parachute (Details From The Separation Agreement)

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After customers rejoice over the ouster of ex-United CEO Jeff Smisek, some details have surfaced about the benefits he will receive as part of his separation agreement.

 

SEC United

Mr Smisek doesn’t need to worry, he is well taken care of as the documents United had to file with the U.S. Securities and Exchange Commission (SEC) for his departure / replacement reveal.

On Tuesday, John wrote about the sudden departure of United’s rather unpopular ex-CEO Jeff Smisek (access here). In this process of leadership transformation United has to file certain documents.

Form 8-K is a very broad form used to notify investors of any material event that is important to shareholders or the United States Securities and Exchange Commission. This is one of the most common types of forms filed with the SEC. After a significant event like bankruptcy or departure of a CEO, a public company generally must file a Current Report on Form 8-K within four business days to provide an update to previously filed quarterly reports.

The details on this form and attachments to it can sometimes reveal interesting things such as in this case as it shows what the departing CEO is entitled to in terms of compensation.

You can access the 8K which United filed on the SEC website here and review it below.

Download (PDF, 122KB)

Here are some highlights:

Mr. Smisek will receive a separation payment in the amount of $4,875,000, payable as a lump sum in cash (the “Separation Payment”).

Annual Incentive Award. Mr. Smisek will remain eligible for a pro-rated (based on the number of days elapsed in 2015 prior to the Separation Date) annual cash incentive award for fiscal year 2015.
LTRP Awards and PRSU Awards. Mr. Smisek will retain a portion of his outstanding awards for fiscal years 2013, 2014 and 2015 pursuant to the Company’s Long-Term Relative Performance Program and Performance-Based RSU Program. In particular, Mr. Smisek will remain eligible for a pro-rated cash payment.
Restricted Share Awards. Based on time served by Mr. Smisek in the respective performance periods under his Restricted Share Awards for fiscal years 2013, 2014 and 2015, the Company will vest and deliver to Mr. Smisek a total of 60,746 shares of the Company’s common stock. [current value about 3,500,000$]

Mr. Smisek and his eligible dependents will be provided continued coverage under the Company’s welfare benefit plans until he becomes eligible for Medicare coverage under applicable law (but in no event beyond age 65), plus tax indemnification payments on any income imputed to him from such coverage.

 
Mr. Smisek will also receive flight benefits (plus tax indemnification payments on such flight benefits) and parking privileges for the remainder of his lifetime.

The Company will also transfer to Mr. Smisek the title to his current Company vehicle.

So to sum it up, he will get about 8.5 Million US$ plus outstanding performance awards in addition to benefits of Medical Insurance until retirement age, lifetime flight benefits [First Class for sure] for himself and dependents as well as a car. Ka-Ching!!

The only caveat that comes with his departure is a 2 year non-competition clause and that he has to fully cooperate with ongoing investigations, especially the matter that lead to his ouster (the Chairman’s Flight affair). Should Smisek be found in violation of these duties United could deny the benefits outlined in the separation agreement.

Conclusion

Compensation in this dimension is not uncommon, especially for U.S. based companies. Given how United under performed their competition the question is if such a high compensation is justified but that is a question that the shareholder can form an opinion on.

I had the impression Jeff Smisek was never liked as the CEO of United Airlines. On the other hand let’s be honest, being CEO of an airline is really a thankless job. I still remember back in the day when I flew United a lot, employees reviled then CEO Glenn Tilton. From the customers perspective the airline was pretty ok though at that time. After the merger with Continental and the appointment of Smisek things went down the drain quickly and United transformed into a glorified cattle carrier.

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