Annual Meeting: April 29

Boeing’s chairman, president and CEO Dennis A. Muilenburg received total compensation of $23.4 million for 2018. This included an annual bonus of $5.4 million and $7.6 million in the payment of long term performance incentive awards that covered the prior three years.  In addition, according to the proxy statement: “Due to Boeing’s strong absolute stock price performance during that period, the PBRSUs paid out at 400% of the grant date target value, the maximum payout permitted under the terms of the 2016-2018 PBRSUs.” (The target amount would have been included in the summary compensation table in the earlier proxy statement.)

Boeing says its pay for performance compensation uses “annual and long-term incentive metrics that align with our business strategy, focusing our executives on increasing revenues, reducing costs, effectively managing net assets to optimize cash flow, and generating sustainable increases in shareholder value.”

The phrase that stood out to me as I read this was “reducing costs.”

Did compensation metrics aimed at reducing costs play any role, however inadvertent, in the decision to make cockpit add-on safety features a price-add item on the 737? Did they play a role in rushing a system out, with pilots trained on ipads rather than flight simulators?

According to an investigation by the Seattle Times, “Flawed analysis, failed oversight: How Boeing, FAA certified the suspect 737 MAX flight control system,” a report the author had begun before the second crash, “Several FAA technical experts said in interviews that as certification proceeded, managers prodded them to speed the process.” The same article noted that, “Minimizing MAX pilot transition training was an important cost saving for Boeing’s airline customers, a key selling point for the jet, which has racked up more than 5,000 orders.”

The on-going revelations following two crashes of the 737 caused the stock to fall more than 10% in a single week, and it is still unclear what the long-term costs to the company will be, in lawsuits, cancelled orders.

More quotes from Boeings proxy statement:  For annual bonus  “free cash flow, weighted at 50%, is the metric with the most significant impact on executive compensation.” The company lists several drivers for this annual bonus, including, “Operating cost management; First-time quality and on-time delivery.”

“Increased cost savings and improved efficiency from productivity initiatives” is listed as a driver of both the 2018 annual incentive plan and the 2016-2018 performance awards.

The 737 Max is not mentioned in the proxy statement, which would have been prepared after the Indonesia crash. In last year’s proxy statement the company lauded Executive Vice President, President and CEO of the Commercial Airplanes division for, “successfully transitioning the 737 production system to the 737 MAX while increasing delivery rates, securing 912 net new orders, and delivering a record 763 airplanes. Under Mr. McAllister’s leadership, the Commercial Airplanes business also launched the 737 MAX 10 and flew the 737 MAX 9 and 787-10 for the first time.” McAllister’s total compensation for 2016 was $20.8 million, exceptionally high for high for a division head. McAllister left GE and joined Boeing just as the two company’s stock plans took different trajectories, earning him an extra $30 million, a fact that was noted at the time. His compensation is not listed in this year’s proxy statement, presumably because he did not meet the criteria of being one of the four top-paid executive officers

Of course, it is the role of the government to regulate industry, but much has been written about the FAA abdicating such tasks. Notably, Boeing is one of the companies that spends the most on lobbying, according to this recent article.    

After reading many such articles as well as the Boeing proxies, I realized there are reasons beyond lowering my carbon footprint that I will cut back on flying.

Rosanna Weaver