Opinion: Why Boeing chief Dave Calhoun’s $55 million pay is hard to justify

Boeing CEO Dave Calhoun. Photo / AP

OPINION

It is hard to believe that anything could render Elon Musk speechless. But when news broke that outgoing Boeing chief executive Dave Calhoun had been given a 45 per cent increase in total pay last year, the Tesla boss could only respond on his social media platform X with an exclamation mark.

Musk earlier this year lost his rights to a US$56 billion ($94.5b) share-based pay package, a sum deemed “unfathomable” by a Delaware judge. And while Calhoun’s US$33 million ($55.7m) package of pay and stock awards for 2023 pales into insignificance next to Musk’s, it is equally unfathomable given Boeing’s performance over the past year.

Even before a door panel blew off an Alaska Airlines 737 Max 9 aircraft mid-flight in January, Boeing had been the subject of a string of safety and operational controversies in its commercial aircraft division during 2023. Data analysis errors on the 787, problems with parts on the 737, and issues with anti-icing systems were just a few of the issues that raised questions about its operational performance.

Calhoun took over as chief executive in 2020 in the wake of two fatal crashes that revealed serious flaws in the company’s safety culture and operations. Yet despite repeated assurances that Boeing was addressing the bad old habit of focusing on financial returns at the expense of engineering expertise, a close reading of a proxy statement published this month shows how little has been accomplished, at least when it comes to annual incentives.

“In 2023, the Company Performance Scores for all three business units were weighted 75 per cent towards financial performance and 25 per cent towards operational performance,” Boeing said in the document, published this month ahead of May’s annual general meeting.

It took the Alaska Airlines incident for the board to rethink that approach, the document reveals. For the commercial aircraft division, the metrics have been tweaked to base 60 per cent of the annual awards on operational performance and 40 per cent on financial targets. The conditions remain in favour of financial performance for other divisions of defence and space, and global services.

There have been other welcome changes to remuneration criteria for 2024, including basing operational performance on the criteria of safety and quality. But by only adjusting these criteria this year, Boeing’s board is in essence admitting that it failed to adopt the cultural change that Calhoun himself has been demanding from the rest of the business for the past four years.

To be fair to Calhoun, the headline number for his remuneration package for 2023 looks significantly more generous than it was in real life. In cash terms, the Boeing boss took home US$5m in pay vs US$7m in 2022, according to the company. He also waived his right to a US$2.8m incentive payment after the Alaska Airlines incident.

Nevertheless, he was still given US$30m in stock awards last year - up from US$8.5m in 2022. Due to the sharp share price decline since the January incident, these awards are currently worthless. But he has 10 years to exercise his rights, which means 2023 might still be a lucrative year for Calhoun if his successors manage to turn things around.

Since taking over as chief executive Calhoun has received close to US$100m in pay and share awards. He will be entitled to the best part of another year’s remuneration before he retires at the end of this year.

Boeing benchmarks executive pay against packages at other big US companies such as ExxonMobil. Last week Exxon revealed that its chief executive, Darren Woods, had received remuneration of US$36.9m last year, slightly more than Calhoun and almost four times as much as the heads of Shell and BP. But Woods presided over the company’s second most profitable year. That is not the case at Boeing.

Boeing does not benchmark its chief executive’s remuneration against the most obvious peer, Airbus, perhaps because pay packages in Europe are generally far less generous than in the US. Airbus’s chief executive Guillaume Faury is no exception. He received less than €6m ($10.8m) in pay and share awards for 2023, a year when Airbus continued to outperform Boeing.

Shareholders across the globe are notoriously acquiescent when it comes to votes on directors’ pay. But Boeing is a case where generosity has its limits. Investors should think twice before waving the 2023 executive packages through at next month’s AGM.

Written by: Peggy Hollinger

© Financial Times