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By Dan Davis trekkerphoto.com
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March 11, 2009 — Vail Resorts Wednesday announced sweeping wage cuts to combat the collapsing economy, reducing compensation to top executives by 10 percent and most seasonal workers by 2.5 percent.
CEO Rob Katz will forego his salary for a year beginning April 2, and then take a 15-percent reduction in April of 2010. He also will not take part in a stock issuance to all full-time, year-round employees meant to ease the blow of the wage cuts.
The restricted stock awards to the company's 2,500 full-time, year-round employees dramatically increases the number of workers who own stock in VR from its current level of about 260.
All seasonal employees will have their wages reduced 2.5 percent after the end of this ski season, beginning April 30. Full-time employees will see their wages decreased April 2 by a sliding scale of between 4 percent and 6.5 percent depending on their grade, but will receive stock awards anywhere between 1.5 percent and 4.5-percent of their pre-reduction salary.
Top executives will have their wages cut 10 percent but receive stock awards of 7.5 percent of their pre-reduction salary.
Katz said the pay cuts are meant to stave off widespread layoffs currently plaguing other business sectors around the globe. Katz issued the following letter to all employees Wednesday:
Everyone:
We are all truly living and working in unparalleled times. Unfortunately, since I last emailed you in December things have only gotten worse. The stock market has fallen an additional 21% and consumer confidence is at the lowest level ever recorded. Most distressing is that since December 2007 over 4.4 million people have lost their jobs, with over half of that coming in the last few months, and the unemployment rate is the highest in a quarter century. This loss of jobs is both devastating to those affected and to the economy.
But thanks to every one of you, Vail Resorts has performed admirably so far in a tough environment and prudent management of the Company over the past five years has left us in a relatively strong financial position. However, our profitability will be significantly down this year and we need to both respond to our lower performance and prepare for the potential of an even more challenging environment in the future. Part of our response is lowering expense, including labor costs.
Today, many businesses are addressing labor costs by implementing broad-based layoffs. We have made the decision to approach this differently and try to preserve as many jobs as possible, as both an important goal in and of itself and to allow us to protect and improve upon the experience we provide our guests. Preserving jobs allows us to continue to add new activities, experiences and businesses, like the “Summer Epic” program we announced today, creating new jobs for guides and supervisors in the summer. In order to best preserve jobs, we have decided to implement a companywide wage reduction. While no one wants to see their pay reduced, we believe this is the best course of action for our people and for the Company, and represents an effort by all of us to best position Vail Resorts for the future.
We have structured the wage reduction so that the more highly compensated employees have the largest percentage reductions. As part of the reduction, we have made the decision to issue restricted stock awards to all full-time, year-round employees. This will increase the number of our employees that own stock in our company from around 260 to over 2,500 and will allow many more people to participate in the performance of the Company. We believe this gives people a sense of ownership and an avenue for them to participate in the Company’s future successes. The following outlines how the wage reduction will be implemented.
* All seasonal employees will see a wage reduction of 2.5% implemented AFTER the end of the winter season (April 30th)
* All full-time employees Grades 25 and below will see a wage reduction of 4.0% and will be granted restricted share units (RSUs) in the amount of 1.5% of their pre-reduction salary.
* All full-time employees Grades 26 & 27 will see a wage reduction of 5.0% and will be granted RSUs in the amount of 3.0% of their pre-reduction salary.
* All full-time employees Grades 28, 29 & 30 will see a wage reduction of 6.5% and will be granted RSUs in the amount of 4.5% of their pre-reduction salary.
* All executives will see a wage reduction of 10.0% and will be granted stock appreciation awards in the amount of 7.5% of their pre-reduction salary.
* All wage reductions for full-time employees will be effective with the pay period starting April 2, 2009.
In terms of me personally, I have decided to not take any salary for the 12 months beginning April 2, 2009, and then have my salary reduced by 15% on April 2, 2010. I will not be participating in the stock issuance. This decision was based on my view that before asking you to take a reduction, any cuts need to start with me. In addition, each member of the board of directors has agreed to reduce their annual cash retainer by 20% as part of the wage reduction plan
Many of you may be wondering about these RSUs and how we came up with these numbers. The RSUs are just like owning stock, except that they vest over time. If you are employed by the Company on the first anniversary of the grant date, you would “vest” in one-third of the RSUs and would do the same on the second and third anniversary as well. One way to look at the stock grant is that if our stock price stayed flat, you would earn 1/3 of the RSUs in each of the next three years, partially offsetting your wage reduction. If the stock price went up, the RSUs would be worth more and it would further offset your wage reduction. Obviously, if the stock price went down, the converse would be true. For each group, we looked at the percentage wage reduction, net of one-third of the RSU grant, to get a total financial impact from the program. So for each group the “net” reduction would be as follows:
· Seasonal -- 2.5%
· Grade 25 and below -- 3.5%
· Grade 26,27 -- 4.0%
· Grade 28,29,30 -- 5.0%
· Executives -- .5%
Everyone in the Company, except executives, recently received an annual raise. A portion of these reductions essentially represents a rollback of those merit increases. Our sincere hope is that this decision, though painful, will allow everyone to get focused on the future without the constant worry of “what’s the next shoe to drop”. I am sure many of you will question the wisdom or fairness of this decision. Many might feel that the Company is taking out its economic issues on its employees or that the shareholders should be shouldering more of the pain. While these concerns are very understandable, this decision is ultimately about saving jobs and preserving the best future for the Company and as indicated by our current stock price (down 62% over the past year), people can rest assured that shareholders are also shouldering part of this burden.
We are clearly in uncharted waters and there are no easy roadmaps for the right decisions in times like this. Our goal is to be candid about this tough environment and be proactive and agile in setting the Company up for long term success. As many of you know, we launched numerous new promotions and value opportunities for our guests this season. Today we re-launched the Epic Pass for next season at the same price as last year and the Heavenly Pass at a reduced price. And we are also launching a whole new summer program, where guests can enjoy our mountains for an all-inclusive, very low price. The wage reduction is part of this effort. While I know this news may take a little time to set in, we are still in the middle of one of our most important seasons. For success, we will need everyone to keep their focus, their effort and their commitment very high. I strongly believe that together we will come out the other side of this recession in an even stronger position.
A couple of questions that you may be thinking about:
* Why are we announcing this now- in the middle of the season? Because of two responsibilities we have. One is to implement cost saving opportunities in a timely fashion. The other is to communicate in a timely fashion with our employees when we see that something is coming that will impact them. While I know this announcement can be a distraction- it’s critical that that we all remain focused on delivering at work. That’s another way to preserve jobs.
* By instituting these wage reductions, is the Company guaranteeing that there will not be layoffs in the future? I wish I could guarantee that, but I can’t. However, I can say that our leadership team and our board of directors is aligned in their commitment that this wage reduction program is the only company-wide step we feel is necessary to address labor costs in the current environment.
* Does this decision mean I will never be being laid off? No. Our goal is to preserve as many jobs as possible, but that does not mean that every job is protected. Unfortunately, yesterday we informed 34 people that their positions were eliminated and changed 51 positions from full-time to 10 months or seasonal. Our hope is to minimize any future job losses, but that does not mean no positions are ever eliminated.
* Are any changes being made to our medical benefit plans? We did consider whether reducing benefits was appropriate in this environment. While the Company will always look at our plans to make sure they are competitive, we are not making any wholesale reductions to our benefit plans in an attempt to continue to meet the basic needs of our employees and their families.
* Will the Company reinstate everyone’s wages once the economy returns? While I cannot make any guarantees about that, I can commit that the Company will be aggressive in making any wage adjustments to ensure people are paid appropriately when times get better.
* Will employees who make the minimum wage need to take a wage reduction? No.
* Why are seasonal employees part of this announcement, if it does not affect them until next season? The wage reduction plan is something that will affect everyone at the Company, including seasonal employees. We want to communicate with everyone about these changes, regardless of when people are first impacted.
* Why are seasonal employees not being given RSUs? Why are seasonal employees getting the lowest wage reduction? Seasonal employees are a critical part of the Vail Resorts family and are a huge part of providing the exceptional experiences to our guests. However, because they leave the Company for a portion of each year our options for compensating them are more limited and so we do need to treat their compensation a little differently.
* Is Specialty Sports Venture (SSV), our retail operation, affected by the wage reduction plan? No. SSV is a joint venture and has different wage, benefit and incentive plans. However, they are also making necessary adjustments to their labor costs based upon the current environment.
* Is Colorado Mountain Express (CME) affected by the wage reduction plan? Yes, however because we are still in a transition period with CME since the acquisition this Fall, the plan will not be effective until May 1, 2009.
* Are the RockResort Managed Properties affected by the wage reduction plan? Yes, however the plan will not be effective until May 1, 2009 as there will be discussions with each property owner about certain details affecting specific properties.
* I am glazed over reading this email, what are the key things I should take away?
o The economy is terrible
o Vail Resorts has held up pretty well
o We still need to reduce costs, including labor
o We want to preserve jobs and protect the guest experience
o To do that, we are instituting a wage reduction plan
o We are also issuing stock to all full time employees
o We are NOT making any wholesale changes to our benefit plans
o There are no guarantees
o We need to come together and stay focused
Thank you for all that you do each and every day.
Rob
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