NWA ups payout for Steenland if he stays through Delta deal

0 Comments | Deseret News (Salt Lake City), Apr 21, 2008 | by Joshua Freed Associated Press

MINNEAPOLIS -- Northwest Airlines said it would boost the payout for Chief Executive Doug Steenland if he stays until the carrier finishes its combination with Delta Air Lines.

The new agreement also takes away a financial incentive for Steenland to leave in June.

Northwest added another $3.6 million to his payout if he leaves after the company changes hands, to a total of roughly $11.4 million, according to a regulatory filing on Friday. The new money is based on Friday's share price and will rise or fall with it.

Delta Air Lines Inc. and Northwest Airlines Corp. are looking to join to become the world's largest carrier, to be led by Delta Chief Executive Richard Anderson. They hope to close the deal by the end of this year. Steenland will leave but retain a board seat.

Under his old agreement, Steenland would have gotten roughly $7.8 million for leaving after a deal. However, he could have gotten the same $7.8 million by leaving in June -- giving him little financial incentive to stay until the combination is done. Steenland now gives up the payout for leaving in June. Instead, he gets $11.4 million or more if he stays and the merger is consummated, or $3.6 million -- vesting over four years -- if the merger falls apart, according a Securities and Exchange Commission filing.

In effect, Steenland is betting roughly $4 million that the combination with Delta will go through -- the difference between his forfeited payout to quit in June and what he'll get if there's no merger.

The $7.8 million figure is from a 2007 filing and has almost certainly risen since then. Company officials declined to update the figure on Friday, saying it would be part of Northwest's proxy, expected next week. That money is from a variety of sources such as cash severance, accelerated vesting of retirement benefits, and future medical benefits.

The new $3.6 million is based on 375,000 "restricted retention units," which are the right to receive money equal to the price of that many shares. On Friday Northwest shares closed at $9.69. At that price, the units would be worth about $3.6 million. The units are capped at a share price of $22, which would be worth $8.2 million.

The deal with Delta calls for the new airline to be based in Atlanta, although the company has said it will keep some operations as well as a hub in Minnesota.

The airlines have said they expect to avoid front-line layoffs but that some administrative positions will be cut. That could turn workers at Northwest's Eagan headquarters into job hunters before the companies finish joining.

With that in mind, Northwest said it would set aside $25 million for incentive payments to at least some of its 3,800 salaried workers, to be paid once the merger is consummated, or if it falls apart. The company said none of the money would go to officers.

The filing also said the deal has a $165 million breakup fee, to be paid by whichever company walks away. Executives have said previously that the fee would not be triggered if the deal fails because it's blocked by antitrust regulators.