Boeing CEO doesn’t need a bonus to fix ailing 737 Max

Boeing Co.’s new CEO shouldn’t need an extra wheelbarrow of money to do his job.
David Calhoun officially took over the top role following the December ouster of Dennis Muilenburg over his ham-handed management of the crisis engulfing the 737 Max. With the plane having now been grounded for 10 months in the wake of two fatal crashes, Boeing decided to promise its new CEO a $7 million special long-term incentive award contingent on certain “key business milestones” including the successful and safe return of the Max to service.
It’s hard to overstate the importance of getting the Max flying again for Boeing. Jefferies analyst Sheila Kahyaoglu had estimated the airplane maker was on track to burn through $4.4 billion of cash every quarter that the Max was grounded before it decided to halt production entirely starting this month. The work stoppage likely only cuts that cash burn in half, though, while increasing the overall cost of the program and significantly complicating the process of ramping it back up. Every passing month also means more in compensation that Boeing owes to the airlines scrambling to adjust their schedules for a lack of Max jets. As CEO, the Max’s return is Calhoun’s top priority.
The thing is, a mechanism already exists that compensates executives for doing what’s expected of them in their job. It’s called a salary. Calhoun already is getting one of those to the tune of $1.4 million annually. He is also due to receive a yearly bonus with a target value of 180% of that salary – or about $2.5 million. That bonus will pay out at “no less” than the target in 2020, seemingly regardless of whether the Max is flying again. Calhoun will also receive long-term incentive awards — which are separate from the Max-related bonus — with a target value of 500% of base salary (about $7 million) and a supplemental award of restricted stock units valued at $10 million meant to compensate him for rewards he forfeited at Blackstone Group Inc. in order to take this job.
Calhoun has been on Boeing’s board since 2009. What happened with the Max is just as much a reflection on him as it is on Muilenburg. Salvaging his own reputation should have been incentive enough.
The special $7 million bonus also drew the ire of three Democratic senators who called for Boeing to scrap the payout, warning that it “represents a clear financial incentive for Calhoun to pressure regulators into ungrounding the 737 Max, as well as rush the investigations and reforms needed to guarantee public safety.” For a company that just last month was publicly dressed down by the Federal Aviation Administration for its overly optimistic timelines on the Max return and the regulator’s concern that Boeing was trying to pressure it into speeding up the process, this is an extraordinarily bold and tone-deaf move. Certainly a key part of returning the Max to service is smoothing over relations with the FAA and with Congress. So one could conceivably argue that just one day into his role, Calhoun is already not doing the job for which he is being so highly paid.

—Bloomberg