Northwest CEO has 8 million reasons to leave

MINNEAPOLIS - Northwest Airlines CEO Doug Steenland will have about 8 million reasons to bail out of the struggling carrier in June.

His contract - signed the day Northwest entered bankruptcy more than two years ago - gives him an unusual one-month window to leave voluntarily and collect a special payment of at least $7.8 million. Steenland could get the same windfall if he leaves after a merger, but it's far from certain the carrier's talks with Delta Air Lines will lead to one.

Compensation experts said such lucrative escape clauses are an incentive to keep the CEO from leaving during the rough times. Others said CEOs whose companies go into bankruptcy shouldn't get that kind of reward.

Without a merger, quitting outside the June window would bring Steenland only $558,164. Stock and options aimed at giving him a reason to stay are worth less than his June departure package because Northwest's shares have lost two-thirds of their value since the company emerged from bankruptcy.

A deal like Steenland's is rare, but not unprecedented. Former US Airways CEO David Siegel exercised a similar clause in his employment agreement in 2004 to leave the company one year after it exited its first bankruptcy. He collected $4.7 million.

Steenland, 56, joined Northwest Airlines Corp. as deputy general counsel in 1991 and has led what is now the nation's fifth-largest carrier since October 2004. Northwest entered bankruptcy in September 2005. Northwest declined to comment on the payout or on Steenland's plans.

All the figures are from Northwest's most recent salary disclosure in an April 2007 SEC filing, and are based on Steenland's pay as of the end of 2006.Both Siegel and Steenland gave up big chunks of their compensation before and during bankruptcy. Siegel - like other US Airways shareholders - had hundreds of thousands of shares of the airline's stock canceled. Steenland took a 15 percent cut in his base salary in 2004 and a 10 percent cut in 2005. Steenland also lost equity awards that had been valued at $3.8 million when they were granted.

"I guess the moral here is, are these really horribly crafted deals? I don't think so," said Laurence Wagman, a senior research analyst at compensation and corporate governance consulting firm James F. Reda & Associates.

Wagman said that when corporate boards offer such payouts, they're thinking, " 'We want this guy to stick around, we want this transition to work out smoothly.' "

Susan Shultz, president of SSA Executive Search International in Phoenix, was less forgiving. She said the bottom line is that Northwest needed bankruptcy protection on Steenland's watch. "On the surface it doesn't seem to me beneficial to the shareholders for him to be rewarded for failure, regardless of its source, to that degree, when the shareholders are not going to be rewarded," she said.

The company has said it was headed for liquidation when Steenland took over in 2004, less than a year before it entered Chapter 11.At that time, Northwest had been unable to get most of its workers to agree to pay cuts, and fuel prices had jumped after the Gulf Coast hurricanes.

Steenland also has restricted shares and options that vest over four years starting from May 31, 2007, but they may not give him an economic reason to stay.He was due to receive $26.6 million in restricted stock and options when Northwest emerged from bankruptcy on May 31, 2007. But Northwest shares, which were offered at $27 before it left bankruptcy, have been trading below $9 recently.So Steenland's options are under water. And the nearly 650,000 shares of restricted stock he still owns are worth about $5.6 million - far less than the $7.8 million he could lock in by leaving in June.