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During the past 20 years, the author has watch China move from being a developing country into an industrial superpower
Money Moves, 5/24: Chocomize Co-Founder Fabian Kaempfer talks with Bloomberg’s Deirdre Bolton about the business of customizing chocolate
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The Italian automaker and others are adding hybrid technology to elite cars
The storied bridge that links San Francisco and Marin County changed the face of California
Schools cultivate ties with startups before they're big successes
Dave McClure's traveling venture capital show scours the world for promising startups
Get Four
|  | DECEMBER 23, 2003
Herb Kelleher on the Record, Part 2 [Page 2 of 2] Q: Talk about options a little -- you spread those around to almost all employees, as I understand it. A: All the employees at Southwest Airlines get stock options because we feel that everybody, no matter where they work or what they do, should have an ownership position in the company. And we have seven, I think -- or maybe eight -- collective-bargaining agreements with our unions. We're the most heavily unionized airline in America that also has a stock-option base. [Employees] get options as part of their union contract, and they've done pretty well. I flew into San Antonio once, and Connie, who's been working there for a good many years -- about 15, I guess -- said: Herb, can I talk to you alone? Sure, I said. And she said, my stock is down to $1.2 million. Are you going to do something about that [laughter]? I try. We had a pilot who just retired and took with him $8 million in profit sharing, not including his 401(k). Q: Not bad. Is that at risk with the coming accounting for option expenses? A: I don't know. I'm very concerned about that. We don't mind having shareholders approve options for our officers -- they always have. But that doesn't work with collectively bargained stock options. Do you enter into an agreement with the union, then tell them we'll let you know after the shareholders meeting next May? The shareholders may not understand that the options are in lieu of wages, looser work rules, and so forth. We're deathly afraid that that's going to be foreclosed to us by the new rules. And when you look at the expense of an option, what is it? If the options are under water, they have no cost because no one ever exercises them. If they do exceed the strike price, then all the other shareholders benefit enormously. It used to be that stock options made people owners -- aligned them with the goals of the corporation. And everybody worked harder and better together as a consequence. Then all of a sudden, they fell into disfavor -- I suspect because some companies, particularly in high tech, were handing them out 100 million at a time. We'll figure something else out. But I'm very concerned. Q: How do you go about recruiting people? A: We have provided total job security, No. 1. No other airline has ever done that. We've never had an involuntary furlough at Southwest Airlines. This will be our 31st consecutive year of profitability -- and our people have benefited enormously from profit sharing. They've benefited enormously from options. They get a full 401(k) match. So we have this story to tell them essentially: First of all, if you come here, you'll be happy. And No. 2, if you come here, you'll be the most highly compensated employee in the airline industry. Not compensated the way other airlines compensate people, but when you put it altogether, why do you care? If you get it through profit sharing and 401(k) instead of some other way, it's still compensation. So we've got a heck of a story to tell, and we probably have 25 applicants for every job that's available at Southwest Airlines. Q: Are you getting more business graduates, MBAs, into the organization? A: Yes. We have a good many MBAs, but we look at them for attitude as well [as business smarts]. We will hire someone with less experience, less education, and less expertise, than someone who has more of those things and has a rotten attitude. Because we can train people. We can teach people how to lead. We can teach people how to provide customer service. But we can't change their DNA [laughter]. You might say that we tend to hire humble MBAs -- people who think they're just starting out on their career and have a lot to learn. Like any lawyer will tell you, it takes at least five years to become a really good practitioner. And that's why we look for humble MBAs. They understand they have to get to know the operations of the company, to get to know how we treat people. They have to know how to handle customers. And once they've done all that, then they're ready to start doing planning and all those other things. Tomorrow: Philadelphia here we come...
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