Smisek’s Golden Parachute: Here’s What It Costs to Rid Yourself of a Toxic CEO

Brian Sumers details former United CEO Jeff Smisek’s payout to walk away from the airline.

  • $4.8 million cash severance
  • Vesting of $3.5 million stock
  • He still gets a performance bonus (!) — a pro-rated based on the portion of the year he served as CEO and United’s meeting stated performance targets.
  • full family benefits for the next 4 years (until he becomes eligible for medicare)
  • flight benefits and parking (and cash to cover taxes on those benefits) for life.
  • He also gets to keep his company car.

The only kicker? If he’s convicted, pleads guilty, or no contest to a “crime of moral terpitude” relating to his service with the airline, he loses benefits and may have to pay back his severance and stock award.

He’ll clearly say anything the government wants in connection with his involvement in the scandal surrounding the former Chair of the Port Authority of New York/New Jersey as long as it keeps him from being charged with a crime. He’s got about $10 million in walk away money on the line.

Or — and this is completely speculative — if the Department of Justice insists on charging him, they may need to get United to waive the severance agreement’s clawback provisions in order to secure Smisek’s cooperation. United could be willing, since the airline doesn’t want to be charged, either, in connection with their having provided a private benefit to the bureaucrat overseeing Newark airport (scheduled flight service to and from his weekend home in Columbia, South Carolina which they terminated days after he resigned).

Ironically it’s Smisek, who in the end was the one being extorted by a politician with great power over the success or failure of the airline’s business, that runs the greatest risk here of anyone involved in the Bridgegate scandal:not just legal jeopardy, but as a result of the terms of this severance agreement substantial financial jeopardy as well.

I might even feel sympathy for Smisek’s predicament, had he not taken a cronyist approach himself to using the government to keep out competition. Live by government favors, put yourself in jeopardy via those favors.

And in the end he walks away with big money as long as he can escape prosecution. The big money, though, is all probably worth it just to retire Smisek from United’s safety videos.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. It really is stunning. If a lower level employee had done a fraction of what’s alleged here, he’d be kicked to the curb faster than anything. Here, Smisek gets $10 million in cash and bennies.

  2. Welcome to America!
    Why is anyone surprised here?
    Higher up the ladder, bigger the liar. Capitalism at work!

  3. I’ve abandoned United ever since the CO merger, so I’ve forgotten about these safety videos. I just watched this one…and holy crap, is Smisek creepy in it.

  4. A small price to pay to get rid of that cancer on United Airlines. This man was despised by both the rank-and-file workers as well as frequent flyers. And but for fuel prices dropping to record lows, he would have been despised by stockholders as well.

    While the golden parachute might seem excessive to some, it is actually relatively small compared to the golden parachute deals that many C-level executives get when exiting a Fortune 100 company. (I believe that United was #79 on the Fortune 500 list.)

    C-level executives, particularly the CEO, shape the destiny of a multi-billion dollar company, and deserve to be compensated accordingly. Generous compensation packages allow companies to try to attract the best and the brightest, and a good CEO makes enough money for a company that it more than covers the generous compensation package that he/she will receive. The unfortunate flip side of this is that even an incompetent CEO like Smisek gets compensated within the CEO paradigm.

    Reminds me of what Charlie Sheen said about his proclivity for hiring hookers: I don’t pay them to have sex with me; I pay them to leave afterwards!

  5. Interesting analysis, and I certainly wouldn’t want to be the former Port Authority chairman, given the financial incentive Smisek has to talk.

    As much as I disliked Smisek, I don’t think he did anything wrong with the Port Authority. Any more than a US airline does something wrong when it “listens” to congressmen who want flights to their home districts/states from DCA. It can make good business sense, and I don’t see how it’s illegal.

    Your analysis goes off the rails, however, when you start railing against Smisek for trying to stop the invasion of massively subsidized Middle Eastern flights to the USA. Smisek would have been even more mediocre as a CEO had he not done this. I know you don’t believe this, but there is nothing ethically wrong with trying to stop foreign companies from dumping their heavily subsidized products in the USA. It’s good public policy to prevent this.

  6. The line that caught my attention in this golden parachute was: “flight benefits and parking (and cash to cover taxes on those benefits) for life.” He has to pay taxes on his free flight benefits? Can someone explain to me how ordinary airline employees avoid paying taxes on their free flight benefits when they fly as non-revs?

  7. “Any more than a US airline does something wrong when it “listens” to congressmen who want flights to their home districts/states from DCA. It can make good business sense, and I don’t see how it’s illegal.”

    The publicly available evidence here is that the 2x/week flight didn’t make good business sense. Also, it was started after the meetings in question, and was ended as soon as the Port Authority head left the agency, ie. could no longer extract special treatment.

    Obviously we’ll see if anyone gets charged, but using the leverage of one’s public office to extract private benefits – or agreeing to provide those benefits – is not kosher.

  8. The stock market has voted – UAL stock is up almost 2%. Investors feel the company is better off paying Smisek to leave. Everyone wins!

  9. Not a moment too soon….can’t figure out how he stayed so long. The moral with employees has been so terrible – maybe now UA can move ahead and become a great airline again.

  10. Under the terms of Smisek’s severance agreement, which was an exhibit to the Form 8-K SEC filing announcing his departure, Smisek also stands to receive additional millions of dollars from Long Term Relative Performance (LTRP) program and Performance-Based Restrictive Stock Unit Awards (PRSU) payments. Unlike payments he will receive for his vested benefits in the Executive 401k plan and the apparently frozen Continental Retirement Plan and the Supplemental Executive Retirement Plan, the LTRP and PRSU payments are listed as payments for Smisek signing the severance agreement. Similar to Smisek’s payout under the Annual Incentive program mentioned in Gary’s third bullet, the amount he gets from the LTRP and PRSU depends on UA’s performance relative to the goals of each plan and his length of service under each plan.

  11. “C-level executives, particularly the CEO, shape the destiny of a multi-billion dollar company, and deserve to be compensated accordingly. Generous compensation packages allow companies to try to attract the best and the brightest, and a good CEO makes enough money for a company that it more than covers the generous compensation package that he/she will receive. The unfortunate flip side of this is that even an incompetent CEO like Smisek gets compensated within the CEO paradigm”

    Sounds like self-serving logic to me, given that CEOs were making an order of magnitude less in the 1950’s, and are still the same basic human beings they were then, and the S/P 500 has comparable P/E ratios then as now.

    But given the “I’ll scratch your back and you scratch mine” ethos on compensation committees and on company boards, this sort of logic is hardly surprising.

  12. To Don in ATL: fringe benefits (perks) that are ‘no additional cost’ benefits to the employer are tax free to the employee. So an FA riding in an otherwise empty seat costs the airline nothing, so no income to the FA. If Jeffy uses a first class seat that would otherwise be sold, there is a cost to the airline which is an opportunity cost, so his usage may be taxable.

  13. When this THIEF gets prison time, hopefully for many many years to come, and LOOSES ALL his “benefits” totally!! It doesn’t deserve ANY separation benefits of ANY sort as he is a convict and this would continue his habitual STEALING, especially if it is convicted on ANY or ALL counts against it.

  14. When this THIEF gets prison time, hopefully for many any years to come, and LOOSES ALL it’s “benefits” totally!! It doesn’t deserve ANY separation benefits of ANY sort as it is a convict and this would continue its habitual STEALING, especially if it is convicted on ANY or ALL counts against it.

  15. “flight benefits and parking (and cash to cover taxes on those benefits) for life.”
    I don’t get it, what are the parking benefits? Parking at multiple airports? As in the off-airport employee lot? Curious…

  16. A few years back a friend of mine on his retirement from Bejing to EWR invited his parents to the flight deck so they could see what his job entailed. Somebody reported him to management. He lost all his benefits. Everything. Now they are rewarding Jeff Smisek a reward for his terrible caper in NewJersey. I wouldn’t doubt if somebody didn’t grease the wheel, meaning Smisek, to get the airline to relocate to Chicago. Let’s get the Captain privileges reinstated.. Smisek belongs in jail.

  17. Why are we paying him anything when he OWES us the money he put in HIS pocket when we kept that archaic computer system, literally had to pay for counseling for CS after they could not operate SHARES…There should be a class action law suit to get our money back and after he trashed any progress on our merge contract..more wasted $$$…total loser..

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