Truth, justice and congressional micromanagement

Posted: Apr 25, 2003 12:00 AM

For a peek into that absurd world called Congress, consider the $2.4 billion worth of airline funding attached to legislation paying for the Iraq war. It is the most embarrassing piece of public policy in recent memory, or at least during the past two weeks.

It recently was revealed that Delta CEO Leo Mullin enjoyed a compensation package worth roughly $13 million, even as he was begging for federal help for the airlines. This struck many people as unseemly.

Light bulbs went off all over Capitol Hill -- if something is unseemly, it ought to be outlawed. Arizona Sen. John McCain cried for an airline-executive pay freeze to bring truth, justice and mincing congressional micromanagement to the nation's skies.

Then Congress got busy. The House applied the freeze only to airlines that fly internationally, exempting one of the industry's feel-good stories, Southwest Airlines.

A couple of senators noticed that Mexico and Canada are foreign countries, meaning that airlines serving them fly internationally. For Nevada Sen. Harry Reid the significance was that America West, the biggest carrier in Nevada, would face the freeze. For Alaska Sen. Ted Stevens it was that Alaska Airlines would. They applied the freeze only to airlines making "trans-Atlantic and trans-Pacific" flights.

Problem: Hawaii is in the Pacific. Hawaii Sen. Daniel Inouye therefore exempted Aloha and Hawaiian Airlines from the "trans-Pacific" language.

There are roughly 70 airlines that will get federal funds under the law. The salary freeze will now apply to six. And to just the top two executives at each one. So, Congress was freezing the pay of ... 12 people.

Only a numerologist could decipher why 11 was considered too few, and 14 too many.

Many of the small airlines exempted from the freeze lose money just like the big ones. Exempted AirTran, for instance, loses money while its CEO made some $900,000 last year -- more than what nonexempted Northwest Airline's CEO made for running an airline 10 times larger.

No one can really believe that limiting the compensation of 12 people holds the key to renewed financial health for an entire industry. Of course, economic sense is not the point -- making a punitive, hollow and counterproductive gesture is.

Industry watchers wonder if money-bleeding American Airlines can't fire its CEO because he would make more money this year, given severance arrangements, if he were fired than not. Certainly Northwest Airlines, the stingiest of the major airlines when it comes to CEO pay, gets the perverse reward of having its CEO's pay frozen at a level below that of the leaders of other, supposedly wastrel airlines.

But there's nothing truly wasteful about executive compensation. It takes extraordinary talent to run a major public company. CEOs in every industry make lots of money, and they deserve it.

If it's hard for all large firms to find skilled CEOs, it's even harder for the large airlines. Their CEOs have to be willing to work at companies perpetually on the verge of bankruptcy. Indeed, the stock packages that inflate the reported compensation figures for airline executives might be worthless by the time they vest. That's not because money is thrown away on salaries, but partly because of unavoidable economic factors -- fuel prices, terrorism worries -- and partly because the major airlines are saddled with inflexible arrangements with pilot, mechanic and flight-attendant unions.

Jim Parker, the CEO of the profitable Southwest Airlines, gets paid less than the CEOs of the major airlines. But Southwest has none of the inherited union problems of the other airlines, so his job is easier. For him to leave Southwest to work instead at, say, American, he would: a) have to be crazy; b) have to get paid more.

In limiting executive pay, Congress is only making life for the airlines marginally harder by limiting their ability to keep, and attract, talent. Typical perversity from the people who make $155,000 a year telling other people how much they should make a year.

Trending Townhall Video