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Southwest Airlines stock option rule under scrutiny

By Bill Zeeble, KERA 90.1 reporter

Dallas, TX – Gary Kelly, Southwest Airlines Chief Financial Officer: I don't think anyone uses stock options with their contract employees the way we do.

Bill Zeeble, KERA 90.1 reporter: Southwest Airlines' Chief Financial Officer Gary Kelley says that's because the company believes in stock options not just for executives and directors, but for the rank and file, too. Employees own about 10% of the company. Kelly says the policy's helped unite a business which has consistently made money in the past few, tough years, while others have lost it.

Kelly: It offers such an outstanding opportunity to create wealth and far greater upside potential than what we could offer them in straight cash compensation.

Zeeble: Only now, straight cash may have to become the option. Recent rules from the New York Stock Exchange, designed to increase and improve shareholder oversight, say stock owners must vote on all stock compensation plans. That could put Southwest management at a disadvantage, according to securities attorney David Washburn. He says options have been a bargaining chip in labor negotiations as a way to conserve cash while offering employees something of long-term value.

David Washburn, securities attorney: Now they're having to either go to labor unions and say, "Listen, this deal will have to be subject to shareholder approval." Or go to them with a pre-approved plan, but show their cards, see? Now it'll show the number they've received approval on, and suggest to the union that's their maximum number, and so they're giving away some leverage.

Zeeble: Southwest's Kelly says shareholders might grant the company advanced approval to set aside shares, but only if that's allowed by regulators, which still isn't clear.

Kelly: It's not the optimal bargaining position to be in.

Washburn: It suggests all public companies will now be in a true glass bubble. That'll impact business.

Zeeble: Some union members say it'll affect them, too.

Tom McDaniel, President, Transportation Workers Union Local 556, representing Southwest Airlines flight attendants: No company or labor group wants to put itself in a position of having shareholders approve a collective bargaining agreement.

Zeeble: Thom McDaniel is the president of Transportation Workers Union Local 556, which represents Southwest's flight attendants. He says shareholders interests are already represented.

McDaniel: They've never been involved in collective bargaining agreements before. Management is always bargaining to stay profitable which benefits shareholders, and at Southwest, that's a vested interest of employees also to make sure the airline remains profitable.

Zeeble: The New York Stock Exchange heard that kind of argument over several months and rejected it, saying on its website that shareholder approval of stock options provides both checks and balances, and a voice for shareholders. Southwest believes this rule will make complex labor talks even harder at a time when turning a profit has become tougher than ever. The company has consistently attributed its profitable record in part to its employees and the good relationship its maintained with them. For KERA 90.1, I'm Bill Zeeble.

To contact Bill Zeeble, please send emails to bzeeble@kera.org.