One of the most pressing issues facing business aviation is the shortage of pilots and maintenance professionals. And because of those shortages, most aviation organizations are modifying their total compensation structures.
While most Part 91 employers cannot match airline base salaries, many organizations are winning at the war for talent by offering a multi-faceted compensation program. This includes an attractive salary, potential bonus, equity in the company and company benefits.
What is Equity Compensation?
As a refresher, the granting of compensation in the form of equity can take many forms: options, restricted stock units and/or performance shares. Your total compensation could include cash, equity, bonuses and benefits.
This equity-based compensation provides income as it vests. It can also result in very lucrative, high-value compensation packages. But only if you hold and manage the equity piece for the longer term.
Equity is part of a “golden handcuff” strategy that usually incentivizes company executives to stay. And more aviation professionals are now enjoying this benefit.
This is very, very good news. Yet I fear that many aviation employees don’t seem to understand the value of their long-term equity. (Truth is, most employers could do a much better job of explaining, in plain English, how their plans work.)
Depending on the company and its vesting schedule (when it becomes yours), equity can be awarded annually. Some organizations offer pilots $50K per year in restricted equity, generally on a three-to-five-year vesting schedule.
Assume your equity grant is $50K per year on a three-year vesting schedule. Further, assume you are granted $50K for each ensuing year, on that same three-year vesting schedule. If you decide to leave that organization in year four or after, you could be walking away from $150K in future equity value. Will the subsequent employer that is recruiting you make you “whole”?
This type of incentive differs from a retention bonus. A retention bonus pays out on a certain future date, often a year or two away, as long as the pilot remains employed. But it only encourages a short-term stay. Meanwhile, a vesting program helps create long-term loyalty and commitment.
No matter what you might think of cash vs. equity conversation, keep in mind that equity is income!
So, if you’re looking to do the best for yourself long-term, equity grants can be very powerful. The question is: what do you do with the equity payout when it becomes yours?
Total Compensation: Tally Up the Benefits
Lately, I’ve been hearing from aviation candidates who say, “I just want the cash. Restricted stock units don’t pay my mortgage.”
I get it, but that’s a rather short-sighted view.
When it comes to compensation, sometimes, people don’t see the forest for the trees. For one thing, there are a lot more pluses to working in business aviation than just a salary.
In addition to long-term equity (which compounds over time), it’s important to tally up the benefits of working for a flight department. It equates to thousands of after-tax dollars per year.
Business aviation professionals are often issued laptops and/or iPads, home internet and the latest smartphone with the best mobile plans at no cost to them. Not to mention other benefits, such as tuition reimbursement; professional development training; and paid travel to various conferences, roundtables and industry networking events.
And we shouldn’t overlook the many travel incentives, such as free airport parking, rental cars (instead of a waiting for a hotel shuttle), and freedom to explore the local sights. They also tend to stay in nicer hotels and enjoy full expense reimbursement. And generally, they get to keep their “points and perks.” This provides free family vacations flying in reserved, and often upgraded seats.
As recruiters, our team members at API always point out bizav benefits and try to assign a value to them. We help candidates calculate them into the big picture. Unfortunately, these company incentives often don’t get the recognition they deserve.
Part 91 vs. 121 Compensation
Part 121 carriers offer lucrative salaries as well as 401K programs. Airline employees contribute a percentage of their salary that’s usually matched by the airline. Then, on top of that, many airlines “gift” another percentage to the employee’s 401K account (sometimes as much as 10-17 percent of employees’ salaries). This contribution occurs regardless of what the employees themselves put in. It is a tax-deferred “bonus” that employees will reap when they begin withdrawing from their plan after 59.5 years of age.
But let’s remember that you never get rich on salary alone. When you earn only a salary, you typically spend what you make.
To assist further with this topic, I turned to one of my great aviation industry collaborators, Jim Lara, of Gray Stone Advisors.
Jim pointed out that business aviation pilots are listening to the siren song of the airlines. “They’re using the airline union contracts to program out their future over the next 15 years,” he said. “And what we need to do is help pilots refocus on total compensation and building for the future vs. focusing only on cash.”
Creating Financial Security
As an aviation professional moves into a higher tax bracket, how will he or she create financial security? It’s not by earning a handsome salary—unless you’re extremely disciplined in saving, investing and not living beyond your means.
What exactly is wealth and how do you create it?
According to Jim, wealth, for him, is about not having debt on the balance sheet. “No house payment, no car payment, no school loans, no credit card debt. Instead, you want to make your discretionary cash flow work at making more money for you in both the short and long term.”
For anyone considering airline employment, Jim also suggests factoring in underlying assumptions. If you’re projecting a 15-year cash compensation and 401K contribution, think about whether the airline will be around in the next decade or two. And if your airline mergers with another, will you keep your seniority and the same 401K plan provisions?
Following are a few questions and suggestions to help you get your financial well-being in order:
- Do you know what your financial goals are?
- Do you have a plan to get out of debt?
- Do you have the discipline to save cash and build wealth?
- Stop thinking just in terms of cash. Figure out how can you better understand what your equity program offers.
- Hire a financial advisor to help who understands multi-faceted compensation programs.
- Tally up the value of everything your bizav job provides. Take into consideration any perks that you’d pay for with after-tax dollars if your employer didn’t provide them. Then multiply those expenses by 1.25 and add it to your base salary. That will give you the “tax-effected” value of how much you would have had to make to pay for those benefits.
It’s Up to You!
Everyone’s situation is unique. We can offer all the recommendations in the world, but only you (and your financial advisor) will know how to make a career in business aviation work to your advantage.