USAir's ex-CEO got millions despite record of failures

August 14, 2002|By JAY HANCOCK

IN 1996, WHEN what was then called USAir Group hired Stephen M. Wolf as top boss, airline director Mathias J. DeVito compared Wolf to hockey great Wayne Gretzky. Wolf's pay, at least, was Gretzkyesque.

The executive immediately got stock options for 1.3 million shares, which is to say he could make $1.3 million for every $1 increase in the airline's stock. Over the next six years, Wolf got more than $45 million in options, stock grants, benefits and cash.

In return, Wolf failed to rein in union pay, failed to make the company's Metrojet unit a serious contender, failed to merge the airline with United Airlines and failed to keep the company, now US Airways, out of bankruptcy court.

US Airways lost $363 million during Wolf's six-year term in the cockpit, and its stock has gone from $12 at his arrival to $80 to almost zero now.

The airline's executive-pay policies are set by its board's Human Resources Committee, of which DeVito, former boss of Rouse Co., is chairman. The committee's philosophy, as stated in regulatory filings, is to "more closely align executive compensation with company performance."

It is extremely difficult to see how Wolf's pay has been aligned with US Airways' performance.

US Airways shareholders are expected to be wiped out in bankruptcy proceedings initiated Sunday. Wolf, on the other hand, will retire to his wine cellar, fleet of Jaguars and millions made over a career of taking the stick at various airlines, engineering mergers and then pulling the ripcord.

So pliant are Wolf's bosses that last fall, after a failed merger attempt with United Airlines parent UAL Corp. that left US Airways unable to survive on its own or cope with the aftermath of Sept. 11, the Human Resources Committee gave him a big raise.

Farce and bathos

In addition to a boost in Wolf's base salary from $600,000 to $875,000, the committee awarded Wolf $1.4 million in stock grants and options for 390,000 shares, worth $1.3 million at the time, with an exercise price of $5.42. A respect for farce and bathos obligates me to quote the committee's reasons at length.

Why did Wolf and other executives get raises in base pay?

"The committee recognized the need to retain executive talent in light of the termination of the merger agreement with UAL" and "the business challenges facing the airline industry and the company following the Sept. 11 terrorist attacks," says the company's proxy statement.

How come Wolf and other executives got millions in new stock grants and stock options?

"The committee recognized that the financial impact of the termination of the merger agreement with UAL Corp. and the Sept. 11th terrorist attacks had significantly decreased the value of restricted stock and stock options granted to executive officers in prior years. ... The committee determined that new stock grants were necessary in order to incent executives to remain with the company."

In other words, Wolf and the other top US Airways managers were roundly rewarded for failure. The "business challenges" facing the company were largely of their making. They couldn't even get a Republican-run Justice Department to OK the United Airlines merger, and their obsession with the UAL deal left no Plan B.

They failed to hit performance goals, so the board punished them by boosting their pay and lowering targets required for bonuses.

Yes, of course, the Sept. 11 attacks have much to do with US Airways' problems, including a lengthy shutdown of Ronald Reagan National Airport, one of its busiest destinations. But some carriers, notably Southwest Airlines and Continental Airlines, are doing fine.

It should also be noted that Wolf turned down a base salary for the last four months of last year and declined the $275,000 annual raise the board gave him this year before he turned over the chief executive's seat to David N. Siegel. Wolf, whose unsold stock and unexercised options are nearly worthless, remains chairman.

Another raise

But it apparently never occurred to the board that Wolf and the other bosses, having steered US Airways into a hurricane, might do the honorable thing after Sept. 11 and stick around without a big raise.

Instead, the Human Resources Committee felt it had to "incent" managers with new blandishments "to remain with the company." I was unable to reach DeVito, who is on vacation, to talk about this.

The pattern at US Airways is the same as that many other companies: potentially gargantuan executive rewards for success, merely huge rewards for failure. Because bosses know they'll get rich whatever happens, they're more inclined to take risks that increase the chances for a tailspin.

This is what seems have happened at US Airways. Wolf bet the company on the United merger, on which he stood to earn an additional $30 million-plus. The merger blew up, and US Airways crashed, but Wolf banked a tidy, albeit smaller, fortune anyway.

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