The Supply Chain Matters blog highlights reporting that a portion of Boeing’s CEO performance bonus was declined by the company’s board of directors. Was this action a gesture or an appeasement?
In our ongoing Supply Chain Matters industry specific coverage of the commercial aircraft global demand and supply network trending over the past five or more years we have highlighted the phases of extraordinary industry demand conditions and supply network ramp-up challenges. The duopoly players of Airbus and Boeing have each had unique challenges as well as market based opportunities in attempts to navigate and respond to market developments setbacks and indeed, extraordinary challenges.
Each has had contrasting quarterly and annual operational and financial performance, and since the global pandemic dramatically impacted domestic and international air travel demands, the consensus is that Airbus has been widening the competitive gap. Evidence has been in leadership for total annual aircraft deliveries over the past two years, and in new model aircraft engineering development and innovation.
Entering 2023, Airbus had an overall aircraft order backlog of 7,239 aircraft driven by increasing airline customer orders for the A320/A321 neo single aisle family of aircraft. Boeing’s backlog was 4,578 aircraft, with ongoing operational challenges related to delivery of the single aisle 737 MAX family after disastrous auto pilot engineering design decisions. Regarding the wide body 787 Dreamliner aircraft, the program has endured a number of component and manufacturing quality challenges, reportedly now taking four to five months per aircraft to address, with upwards of 100 aircraft yet to be modified for delivery. On the new aircraft development spectrum, Boeing has been especially challenged including the financial and engineering resources to bring a new aircraft to market in a market timely fashion.
Last week The Wall Street Journal reported (Paid subscription or metered view) that Boeing’s Board of Directors has declined to award CEO David Calhoun a planned $7 million performance bonus, specifically citing delays with the market introduction of the wide body 777X aircraft.
Reportedly when Mr. Calhoun was appointed CEO in January 2020, one criteria of his performance bonus was to lead the efforts to have the wide body 777 successor 777X aircraft approved by regulators and into operational service by the end of this year. This aircraft’s development efforts began in 2013. The aircraft maker’s latest estimate is that the 777X aircraft will be certified and introduced sometime in 2025.
The report further indicates that other goals at the outset of Mr. Calhoun’s CEO tenure included returning the 737 MAX to service. This single aisle aircraft was grounded worldwide in the wake of two deadly crashes in 2018 and 2019.
Boeing indicated in a proxy statement filed with a securities regulators in-part: “It is clear that this goal will not be met, albeit for reasons largely beyond Mr. Calhoun’s control.” Reportedly, the board’s compensation committee elected in August 2022 that the $7 million stock-based performance award would not vest.
The Journal report further indicates that in mid-February, Mr. Calhoun was awarded a separate stock award with a value of $5 million to recognize: “continued confidence in Mr. Calhoun’s strong leadership”
The filing further reportedly indicated that: “Despite these industry challenges, under Mr. Calhoun’s leadership, the company has substantially achieved, or is on track to substantially achieve, most of these specific goals”
Mr. Calhoun’s total compensation in 2022 is noted to be $22 million, up 6.6 from that of 2021. The figure is noted as including base salary and other forms of compensation such as stock-based awards.
After reading the report, our impression was that this action seems to be that of a gesture that reinforces accountability at all levels of management. Yet, one could surmise a sense of fuzzy math in the notion of denying a $7 million performance stock bonus but granting a $5 million stock bonus to recognize overall strong leadership.
Contrast Boeing’s actions from that reported by Apple in January of this year.
The consumer electronics and entertainment provider indicated that CEO Tim Cook had voluntarily asked for total compensation cut for 2023. Reportedly his total compensation target this year will amount to $49 million, according to a securities filing by the company. That compensation reportedly consists of a base salary of $3 million, an incentive bonus of $6 million, and a planned $40 million award of the company’s stock.
The $49 million number is more than 40 percent lower than Cook’s compensation level in 2022. We noted in our commentary that the filing indicated that the compensation changes: “are responsive to shareholder feedback, while continuing both to align pay with performance and recognize Mr. Cook’s outstanding leadership.”
According to other reporting from The Wall Street Journal, the median compensation for CEO’s of the largest U.S. companies was $14.7 million in 2021.
One common denominator may well be efforts in overcoming supply chain related disruption and overall contribution to the bottom line and to stock buyback returns for investors. But the numbers and operating performance representing these two companies have been far different in scope and dimension. One common denominator has been the double digit declines in stock values during 2022 brought about by visible supply chain and manufacturing shortcomings. In Apple case it was a public admission of too much reliance on China based manufacturing for the newest iPhone 14, along with other products.
Perhaps the one clear takeaway is that when it comes to performance bonuses of senior most executives, subjectivity bias trumps objectivity.
That is not necessarily a positive motivator for those workers whose compensation, careers or health status were negatively impacted by the extraordinary events of the past three plus years.
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