Leo Mullin Shares the Pain -- a Lot of Pain
[Note: the company estimates that the total
value of Mr Mullin's voluntary pay cut is over $9 million. Here is
his statement --ed.]
To: All Delta Employees
From: Leo F. Mullin, Chairman and Chief
Executive Officer
Date: April 3, 2003
Subject: Executive Compensation
Following the release of Delta's proxy statement at the end of
March, much attention by the media and within the company has been
focused on the subject of executive compensation. Today, I would
like to address this issue with you directly, beginning with the
context in which the Board of Directors made the decisions
described in the proxy statement, over the course of 2002. I would
also like to share with you the actions I have taken in regard to
my own compensation, given the dramatic ways in which that context
has now changed.
Let me begin by noting that Delta's proxy
statement, which outlines the Board's executive compensation
decisions during 2002, was issued on March 25, 2003. The date of
issue was set in order to comply with Security and Exchange
Commission requirements for distribution prior to our April 25
annual shareholders meeting. However, the actions described in the
proxy statement occurred over the full course of 2002, with many of
those actions rooted in the events and the aftermath of September
11. As the Board explains in the proxy statement, a key priority in
response to the national and industry crisis following 9/11 was to
maintain a management team "capable of responding effectively to
the extraordinary challenges," including programs that would retain
and motivate the team members.
Among other actions, the Board established demanding performance
goals for Delta's executive team, placing primary emphasis on
ensuring adequate liquidity and drastically reducing the daily
"burn" of cash (generally defined as the amount by which costs
exceed revenue). The Delta team succeeded on both counts.
Consequently, Delta is the best positioned hub-and-spoke carrier in
the industry, a view supported by reports from many Wall Street
analysts. Because the key goals were met, the Board, in January
2003, approved the final 2002 incentive awards, as the proxy
statement details.
Also as part of its effort to retain Delta's management team
during the extraordinary challenges ahead, the Board in January
2002 established a Special Retention Program, as discussed in the
proxy statement. This program provides potential cash awards in
2004 and 2005 for Delta executives, tied to both retention and
performance goals.
In these and every other executive compensation program outlined
in the proxy statement, the Board has consistently acted in the
best interest of Delta Air Lines, meeting all legal and ethical
requirements and expectations at every point. The decisions in
regard to executive compensation were fully appropriate in the
context of the time in which they were made.
However, the reality of the airline industry is that the
context changes rapidly. Concerns we are now facing were not part
of the environment when those earlier decisions were made, or their
importance has been magnified, including issues related to:
- Impact of the War in Iraq
- Continuing, deeper than expected plunge in revenue and
traffic
- Increased competitive concerns as United and US Airways
restructure under bankruptcy protection.
- Further competitive pressure as American Airlines manages to
reorganize outside of bankruptcy -- and as others (most recently
Air Canada) declare Chapter 11.
- Need for immediate action in Washington to provide federal
relief from post-9/11 security costs and tax burdens.
- Competitive requirement that Delta's labor costs be brought in
line with that of the restructuring carriers.
With this said, I understand the concerns that have been raised
in the current context. Most importantly, I want to provide a basis
for moving forward so that we can resume our focus on the crucial
core business and strategic issues we face. Hence, I have chosen to
take the following steps:
- Reduce my salary rate by 25 percent (to $596,250), down from
the beginning of year salary rate ($795,000); this reduction
includes the 10 percent salary rate reduction taken earlier this
year.
- Not accept any Annual Incentive Pay that might be awarded to me
for 2003 performance.
- Rescind any Retention Award payment I might be eligible for in
2004 and 2005.
- Rescind the stock-based awards associated with the renewal of
my five-year contract (signed November 29, 2002), with a minimum
estimated Black-Scholes value of $5.5 million.
As Delta's CEO, I believe it is appropriate for me
to take these steps. Also as Delta's CEO, I believe it is
absolutely essential for the welfare of our company that I continue
to meet the requirement, using a competitive compensation program,
to attract and retain a highly motivated executive team. I am
enormously proud of the team we have assembled, and fully confident
of their ability to meet the challenges ahead. Most recently, they
have confirmed their commitment to shared sacrifice with the salary
reductions announced earlier this year. As with the entire Delta
team, their continued support is absolutely invaluable to me and to
the company as we move forward through the demanding days
ahead.
In closing, let me say that while the specifics of this decision
required careful thought and consideration, what became clear as I
worked through the process was that there was no absolutely correct
approach or set of actions. But, in the current circumstances, the
steps I am taking feel right to me. I hope you will agree.
Leo Mullin