The Philadelphia Orchestra Association on Thursday secured the main prize in its Chapter 11 bankruptcy case: a deeply concessionary labor deal from musicians.
On the cusp of the opening of the orchestra's 2011-12 season, members of the ensemble approved a contract calling for a 15 percent pay cut, reducing the size of the ensemble, and replacing the defined-benefit pension with a defined-contribution plan.
The deal, also ratified by the association's board of directors, was mediated under the supervision of Stephen Raslavich, chief judge of U.S. Bankruptcy Court for the Eastern District of Pennsylvania, and is subject to bankruptcy court approval.
The American Federation of Musicians and Employers' Pension Fund, the $1.7 billion national plan that would be jilted by the new deal, has pledged to fight for up to $35 million it says it will be owed if the orchestra association withdraws from the fund.
Musicians accepted the deal only reluctantly, they said in a statement, because the alternative - a potential strike - could have meant "additional uncertainty and harm to the members of this great orchestra."
John Koen, cellist and chairman of the players' negotiating team, said in unusually pointed language: "It is the self-admitted failures of management and the board that have led us to this point, and we challenge them to make the changes needed to raise the funds necessary to operate and promote the orchestra with the same passion with which we create music.
"The members of the board of directors, in particular, must equal our total commitment to putting the orchestra on more solid financial footing. We hope our sacrifices for the good of the orchestra will inspire the community to demonstrate their support so that today's approval will mark the beginning of a process of renewal and that in four years the Philadelphia Orchestra will be stronger and more financially secure than ever."
In a statement from president Allison B. Vulgamore and board chairman Richard B. Worley, management called the contract "a critical step toward reaching an important goal within the reorganization process - achieving long-term financial stability for the Philadelphia Orchestra while also maintaining its artistic excellence."
Koen said he knew several musicians who were mulling positions - in other orchestras or at universities - who would now have to decide whether to stay.
Salary cuts in the new contract are so severe that in 2015, at the end of four years of incremental raises, musicians will still not be earning the base minimum amount promised - but reneged on - this season.
It is not clear what will happen to the pension benefits of those who have already retired, Koen said.
The deal, terms of which The Inquirer obtained, takes effect Nov. 1 and calls for:
A minimum annual salary of $106,000, rising to $111,800 in 2012-13; $117,000 in 2013-14; and in 2014-15 stepped up from $119,600 to $124,800. That last amount is the current base minimum.
A hiring freeze that will cut the official size of the ensemble from 105 instrumentalists and two librarians to 95 instrumentalists and two librarians, with the reduction achieved through voluntary retirements and attrition. Players have until Nov. 1 to apply for retirement.
Replacement of the current defined-benefit pension plans with a 403(b) plan in which the association contributes 8 percent of the minimum weekly salary for orchestra members under 40; 9.5 percent for those 40 to 49; and 10.5 percent for those 50 and older.
Paying substitute players, including returning retirees, at 85 percent of the minimum weekly scale, with a vague exploration of an expanded relationship with the Curtis Institute of Music to create "greater work and learning synergies."
In addition, the association has the right to split the orchestra into two parts, each potentially performing in a different venue at the same time up to eight weeks a year, increased from the previous two.
The salary minimums are earned by slightly more than half the orchestra. Others, such as principal and other titled players, earn more - in some cases much more. Compensation for those over-scale players will be reduced by an "applicable percentage."
The new deal calls for work-rule changes regarding vacation; what days of the week players can be required to work; allowing some longer concerts without overtime; and rehearsal rules. It also contains incentives for certain players to retire and others to stay. About $3.3 million is to be divided over the life of the contract among active musicians, as well as to retiring players to become "goodwill ambassadors" performing some nonmusical duties.
A two-percent salary bonus will be paid to musicians who have been given tenure and who have been on the job less than five years - in other words, those most likely to audition for other orchestras.
Changes in the pension plan are contingent on approval by the Pension Benefit Guarantee Corp., the federal agency that makes up pension obligations that employers are unable meet.
"In the event the PBGC does not agree to a distress termination, then this agreement may become null and void upon the election of either party and the parties may promptly meet to negotiate a new collective bargaining agreement," says the memorandum of agreement between the musicians' union and the association.
The memorandum of understanding also contains language underscoring the contentious nature of this round of negotiations, which came in the guise of the association's April 16 Chapter 11 filing.