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Old 04-07-2012, 04:24 PM   #1  
whtever
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Default CEO Gaffe of the Week: Pinnacle Airlines

"Menke the Monkey" getting the attention he deserves!

CEO Gaffe of the Week: Pinnacle Airlines (PNCL)

"This year, I introduced a weekly series called "CEO Gaffe of the Week." Having come across more than a handful of questionable executive decisions last year when compiling my list of the worst CEOs of 2011, I thought it could be a learning experience for all of us if I pointed out apparent gaffes as they occur. Trusting your investments begins with trusting the leadership at the top -- and with leaders like these on your side, sometimes you don't need enemies!

This week I havea gaffe that I'm certain will be a contender for goof-up of the year in CEO Sean Menke of Pinnacle Airlines (Nasdaq: PNCL**) .

The dunce cap
For months now I've been pointing out what I deem to be absurd CEO pay packages. Two weeks ago I highlighted Citigroup's (NYSE: C**) Vikram Pandit for the dubious weekly honor after he boosted his annual pay by a cool 14,900,000% (to be fair, that's from a dollar), despite paying out billions in mortgage and foreclosure settlements and failing the Federal Reserve's stress test. Earlier this week I pointed out that while I am a Bank of America (NYSE: BAC**) shareholder, I don't have to agree with the sixfold pay increase that Brian Moynihan received in a year that his bank barely turned a profit.
Yet Menke's pay increase puts these two to shame. Even though a $675,000 annual salary may not sound like much, let me explain to you why this 60% increase in pay from $425,000 might be the dumbest thing I have ever seen.

Just five days before Menke got his raise, his company filed extension paperwork with the SEC notifying the commission that Pinnacle would be filing its quarterly report late. It's always odd when an 8-K indicating a pay increase for the CEO can be filed in a timely manner, but corporate results can't. But it couldn't possibly get any worse than this ... could it?

Oh, yes, it can! On April Fool's Day, no less, just 11 days following Menke's 8-K, Pinnacle filed for chapter 11 bankruptcy protection! That is not an April Fool's Day joke; the company seriously boosted its CEO pay by 60% after delaying its annual filing and declared bankruptcy only 11 days later.

To the corner Mr. Menke ...

But wait -- there's unfortunately more!

Pinnacle didn't break out the corporate pinata just for Menke, either. Pinnacle's vice president also got a 45% boost in his annual salary, as noted in that same 8-K on March 20.

What's truly unnerving about these pay increases is that the warning signs of a portending bankruptcy had been there all along. Pinnacle had been in the process of renegotiating its capacity purchase agreements with Delta Air Lines (NYSE: DAL**) and United Continental Holdings and had shed 11 of its 29 officer positions while eliminating 26 director-level positions. Even after taking these cost-saving measures and renegotiating some of its long-term debt, Pinnacle's $800 million in debt proved to be too much for the airline to handle.

Pinnacle's major shareholders weren't willing to sit back and relax while their stock continued to dive. In early March, two of its largest shareholders (which owned a combined 6.2% of outstanding shares) sent a letter to Pinnacle's board of directors requesting that at least two stockholders be placed on the board. Their contention was that Pinnacle's upper management was severely out of touch with shareholders, since directors had purchased almost no shares of the company on the open market since 2007 and that $173 million had been invested in nonperforming assets over that time span. Would it honestly surprise anyone that Pinnacle's board denied their request?

For the icing on the cake, the company's CFO abandoned ship on March 5 to become Spirit Airlines' (Nasdaq: SAVE**) new CFO.
Ladies and gentlemen, we have a clear contender for Gaffe of the year"
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