A management employee at United Airlines reached out to me in regards to recent articles I published reflecting how United is reacting to the COVID-19 scare. Through those conversations, we agreed to have them provide their thoughts on the current state of the management culture.
In light of the current bailout of the airlines and their performance over the past two decades, the thoughts shared here seem relevant for us, the taxpayer. These thoughts are not my own. I summarize my thoughts at the bottom of the article.
The bailout has been passed and now the American taxpayer is holding up United Airlines. As a result, the taxpayer should be well informed about their new investment. While the airline proclaims that their President and CEO are not taking any salary, and company officer’s pay has been cut 50%, there is a much more potent and lasting step that could save the company money, and hundreds of jobs. A simple reorganization of the management structure, and major cutting of the executive fat could save the company millions of dollars and hundreds of jobs of the everyday workers (the gate agents, ramp workers, maintenance people) trying to get by. Most large organizations have long dispensed with the Managing Director title in favor of having directors of each organization and allowing for more direct command of the organization and strategy execution.
A brief introduction to United’s employee structure. United has a total of 9 paybands called “levels” that exist from 1-9, 9 being the lowest, and 1 being the Managing Directors (above 1 is the rarefied air of the Vice Presidents).
For example, an employee working on a help desk for the website would have 3 or potentially 4 levels of management before reaching their Managing Director. From there, the Managing Director would likely have two levels of VP above them before reaching the President, Scott Kirby and CEO Oscar Munoz. Internal company culture prohibits utilizing anything but the proper “chains of command” which means that often times a front-line individual will have to go through four or even five supervisors before getting to a proper decision maker. This level of padded bureaucracy can serve in good times, but these are far from good times.
These executives are very well compensated. Based on information from Glassdoor, a Managing Director’s salary is anywhere between $167-$242K annually, with a cash bonus on average of $61k, and a stock bonus on average of $38K. Maintaining just one of these executives costs the company approximately $300,000 a year in just salary and bonus, which does not include benefits (First class for all business travel – booking directly into first and United Club membership included), and other perks that come with being a United company officer.
This expense would not be as severe if there were a limited number of Managing Directors, however there are an estimated 60-80 of these individuals. To give an idea of how many Managing Directors are out there, The HR organization at United has 16 Managing Directors, Finance has 24 and these are non-operational organizations. Each individual maintenance hub has their own Managing Director as well. The average Vice President at United has 5 Managing Directors answering to them and there are well over two dozen Vice Presidents at United.
Based on these perks, one should expect a lot of value and experience coming from these officers, correct?
Except they don’t. These low/mid-tier executives sit between the vice-presidential level (already bloated with Executive, Senior and regular VPs) and the directors of the individual departments. At best, they serve as additional filter for information coming up from within the organization. At worst – these individuals draw large salaries based on seniority or political patronage and are not held accountable for providing real value. There are several Managing Directors that do not manage any employees. The Chief of Staff to the executives is a Managing Director. They are not shot-callers of airline operations that their salaries command, but are a vestigial layer of middle management that can be lost with little to no ill effect to the airline’s operations.
The airline is begging employees to take unpaid leave, buy vacation, or reduce their schedules. Perhaps the Managing Directors should go first, and the rest of the organization will follow their leadership… for once.
When I was approached by this individual to write an article for my site, I was curious to see how they felt about how United is run as an airline and as a company. I have strong feelings, both as a customer and as a business person. As a customer, I want to like United. They’re my hometown airport and I’ve witnessed some pretty heartwarming efforts by the airline. At the same time, I’ve witnessed some painful practices. Their Wi-Fi was horrendous for years. As a business traveler, that’s a critically important detail. Taken further, conversations I’ve had with airline executives about their lack of progress on the issue were equally painful, without much of a foreseeable plan or concern for how pervasive the issues were. I do wonder if the thoughts above about the layers upon layers of management contribute to a lack of accountability for such issues.
United Airlines isn’t the first large corporation to have employees feel like they’re too bloated in the upper management ranks. Still, if United has 60 Managing Directors that each cost the airline about $300K per year, that’s $18 million a year in payroll. For a company that was earning roughly $1 billion per quarter, that might not seem much. But, amongst record drops in passenger count there have been reports that United could be losing as much as $100 million per day.
I learned quite a bit at United Airlines’ media day late last year. There were plenty of positive attributes to point to at the time. Growth seemed to fit the airline well. The expansion of premium elements such as the Polaris Lounges are a good example of that. I’ve been a big fan of Oscar Munoz’ leadership. Conversely, Scott Kirby’s values as an airline executive do not match my priority as a customer. I’ve heard plenty of outrageous comments about Scott Kirby over the years, virtually none of them in support of his leadership or values. Those are all from the customer’s perspective. He does find ways to make money for shareholders. That’s not necessarily a bad thing.
But, I was one of the folks who believed American Airlines had a dedicated set of premium customers willing to pay more for some of the services they were trying to offer. Doug Parker and Scott Kirby stepped in at American Airlines and didn’t even really give those methods a chance to develop, essentially dumping them overboard for more affordable methods. There was some indication last year that United might be trying to attract some of those premium customers. Alas, my concern is that the current crisis gives Scott Kirby the chance to go back to what he knows best, managing the bottom line (frequently at the expense of the top line).
All this leads to the question, should taxpayers have more say in the airlines if they’re going to bail them out again? It’s a worthwhile question, and I suspect there are layers of management that could be consolidated or eliminated at United Airlines.
Do you think United Airlines should be making management cut salaries/positions as part of a bailout?
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