United Airlines CEO Turns Down Performance Bonus. Is The Airline Improving?

An earlier version of this article had a reference to the size of Mr. Munoz’s bonus that was incorrect.  Thanks to the folks at United for helping to clarify the details

United Airlines has had a pretty rough year from a public relations standpoint.  They’ve run through two of the most visible public relations debacles in recent memory.  First, a passenger was dragged off a plane in bloody fashion with plenty of viral video to boot.  If that wasn’t bad enough, a flight attendant recently ordered a passenger to put their dog in the overhead bin.  The dog died.  There were plenty of other customer service missteps.  And, who can forget the leggings debacle?  But, those two are the “highlights”.

I was cautiously optimistic when Oscar Munoz was named CEO of United Airlines.  I’m less optimistic today than I was at the start.  United is my primary airline nowadays, even after racking up 3 million lifetime miles on American Airlines.  They have the most nonstop flights from my home airport.  That translates to more time at home with my family.  But, I certainly want them to improve.

Now, there’s news that Oscar Munoz turned down a performance bonus.  This is on the heels of my commentary on Doug Parker’s compensation at American Airlines relative to their competitors (and their EVP of People and Comms taking me a bit to task for it).  Matthew from Live and Let’s Fly quotes from Oscar’s letter to employees:

[Y]ou may hear that I did not receive a bonus for 2017. I suggested this to our Compensation Committee because I felt it was important to send a message about the culture of accountability and integrity that we are building here as a united team. We had some incredible successes in 2017 but also some setbacks. I’ve personally learned a lot from all of these experiences, and I am as determined as ever to achieve what we set out to do more than two years ago: delivering for our customers, our shareholders and you — our employees.

I’m optimistic that we can achieve that goal because of the incredible work you do every day. I’ve seen you put in the long hours and late nights, often far away from family and loved ones. I saw how you overcame all kinds of really tough challenges in 2017 to deliver our best year operationally, setting a record for on-time departures. That’s something you can all take great pride in. And it makes me feel incredibly proud and blessed to call myself a member of your team.

It’s a great message from a leader.  It strikes exactly the right tone about the challenges ahead and why he’s passing up the sizable bonus. The strategy is not an uncommon one to motivate employees.  But, will it work?   I read two interesting pieces recently that argue both sides of the argument on the future of United and Munoz.

Ben from One Mile at a Time argues that Munoz may not be the issue, but his tenure is disappointing:

I think the problem is that many of us assumed Munoz was different, that he wasn’t like “the other guys.” Actually, I think his ability to create that impression is exactly why he was hired, and what set him apart.

But as time passes, it’s clear United’s vision has changed. It’s clear that when Kirby was appointed as president, it was with the intention of eventually replacing Munoz. By doing that, I think United’s BOD is also offsetting any goodwill that Munoz created.

We all wanted to like Munoz. Fixing United was a tall order. Even though his intentions may have been good, I can’t help but feel like this “vision” of a new United has been a failure. I don’t think it’s fully his fault. Even if he wanted United to “sail in one direction,” United’s BOD undid that when they appointed Kirby as president. Kirby doesn’t care if the airline lives up to peoples’ expectations, as long as it’s profitable. Kirby doesn’t want to be “disruptive.” Kirby doesn’t care about making anything but United’s bottom line better.

Matthew from Live and Let’s Fly countered that opinion:

Has Munoz exaggerated some of his promises? Of course. And he should be held accountable for that. But despite dead dogs and dragged doctors, the situation at United is not bad. I’d argue it is quite good. As a frequent United flyer, I recognize that the status quo represents a marked improvement from the Smisek era. I get to my destination on time and still find MileagePlus fare more valuable than AAdvantage or SkyMiles.

United still has great potential and has missed many opportunities, but it simply would be dishonest to tell you I’m not a happy camper flying United. I maintain that overall, Munoz’s tenure has been encouraging.

Both articles are worth a read from beginning to end.  They represent to smart opinions on a difficult subject to nail down in just a couple of sentences.

The Final Two Pennies

I still want to believe Munoz can succeed.  But, I believe I drastically under-valued the impact of one key development.  Scott Kirby’s arrival really should have more significantly affected my opinion.

Kirby is not a “message” guy.  He’s not touchy-feely.  He’s a numbers guy.  His role really requires more than just numbers.  It requires a deft touch, a nod to the severely troubled relations between employees and management.  It’s unclear whether the board of United saw Kirby as a backup in case Munoz couldn’t recover from his health concerns or if they really wanted to change the tone and direction senior leadership was undertaking.

I believe someone can be successful changing the culture at a major airline life United. It needs to be someone who doesn’t come from the industry. Munoz checks all those boxes. I do wonder if the task is too big for one person. Time is the most important resource needed to turn around a ship like United.  Time to build relationships with employees about a more promising future.  With the demand for profitability that public companies face, I wonder if Mr. Munoz will have the time he needs.  The board’s support of his vision will continue to be the other key factor in his long-term success.

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