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Posted on Sun, Jul. 29, 2007
American execs share the pain but not the gain
By Mitchell Schnurman
Star-Telegram Staff Writer
If it's broke, why fix it?
That twisted logic describes what's going on with American Airlines' executive-bonus plan. The stock awards that are part of American's pay puzzle have outraged workers for the past year and a half, scuttled a lucrative bid for a D/FW-China route and helped usher in a new regime of more aggressive union leaders.
Despite such unintended consequences, American said last week that it had re-upped the plan through 2010, essentially unchanged.
It's confounding that American is standing pat, given that it regularly tweaks executive pay to respond to changing conditions. Two years ago, for instance, it created a new class of rewards for Chief Executive Gerard Arpey -- "career shares" that don't vest until 2015.
This is a way of bumping up the boss's pay considerably, so Arpey doesn't go elsewhere and triple his net worth. (With his record, that's more than plausible.) What's good about the career shares is they achieve the objective -- retaining Arpey over the long term -- without stoking a firestorm.
American should apply that same creative thinking to redesigning the stock bonuses. Figure out a way to reward managers, but make it contingent on others sharing the bounty.
According to last week's filing, American's top five officers could earn an additional $13 million in stock in 2010. That's not exactly a major windfall for people in that elite class, but the issue goes beyond the amount of money.
The larger principle: shared sacrifice, shared reward.
American leaders adopted that egalitarian slogan four years ago, and it helped persuade the airline's unions to accept deep cuts in pay and benefits. The concessions allowed the airline to avoid bankruptcy and stage a remarkable recovery, and it had a full-year profit in 2006.
All American employees have benefited from the turnaround. Compared with peers that restructured in Chapter 11, the company has kept more workers and pays them more. And American has continued to fund its pension, a costly benefit that nearly every competitor has abandoned.
But so far, the salary picture hasn't changed in a meaningful way for the rank and file. Workers took pay and benefit cuts estimated at 20 percent to 30 percent, and pilots who dropped down a seat lost even more. Since then, employees have received annual raises of 1.5 percent.
Executives and top managers, however, received a separate reward, courtesy of parent corporation AMR's soaring stock price and the stock-bonus plan.
Last year, $95 million in stock was awarded to about 1,000 top managers, and in April, the same plan paid out about $160 million.
Arpey got $6.6 million from the plan, in addition to a pay package valued at $5.4 million.
That led to howls of protest. Pilots marched on AMR headquarters, and flight attendants held rallies at airports. The bonuses were such a slap to pilots that they wouldn't agree to the flights between Dallas/Fort Worth Airport and China unless American gave them something of value; when management balked, American had to pull the bid.
Despite the complaints and collateral damage, American has now issued another round of executive stock with the same rules. How do we make sense of that?
Could leaders believe the incentive plan is working as envisioned? Alienating and demoralizing the work force can't be part of the goal.
Are they sending a top-down message that executive pay is their sandbox and union leaders don't get to play in it? This move rubs the unions' noses in it, whether or not that's the intent.
Are American officers holding back until labor talks get serious and they can trade changes in executive pay for concessions from the unions? That might be a savvy ploy under most circumstances, but imagine if employees took the same approach. What if they refuse to go the extra mile until new contracts are worked out next year?
It's always the right time to do the right thing -- that's what leadership is about -- and the stock bonuses should be redesigned now.
American uses a matrix of variable and fixed pay for its executives, based on dozens of factors.
Through 2003, the company's executive bonuses (not the same as its stock awards) could be triggered only if profit-sharing kicked in for all eligible employees. That was replaced by a plan based on customer-service rankings and pretax profit margins.
Maybe that profit-sharing trigger could be added to the stock bonuses, so everyone gets a piece of the action at the same time. Continental Airlines has done this, and it would give American managers some moral authority.
It would remind everyone that the troops eat before the generals.
Shared sacrifice, shared reward hasn't worked out for everyone at American, which is bad enough.
When the company doesn't try to fix it, the inequity stings even more.
Posted on Sun, Jul. 29, 2007
American execs share the pain but not the gain
By Mitchell Schnurman
Star-Telegram Staff Writer
If it's broke, why fix it?
That twisted logic describes what's going on with American Airlines' executive-bonus plan. The stock awards that are part of American's pay puzzle have outraged workers for the past year and a half, scuttled a lucrative bid for a D/FW-China route and helped usher in a new regime of more aggressive union leaders.
Despite such unintended consequences, American said last week that it had re-upped the plan through 2010, essentially unchanged.
It's confounding that American is standing pat, given that it regularly tweaks executive pay to respond to changing conditions. Two years ago, for instance, it created a new class of rewards for Chief Executive Gerard Arpey -- "career shares" that don't vest until 2015.
This is a way of bumping up the boss's pay considerably, so Arpey doesn't go elsewhere and triple his net worth. (With his record, that's more than plausible.) What's good about the career shares is they achieve the objective -- retaining Arpey over the long term -- without stoking a firestorm.
American should apply that same creative thinking to redesigning the stock bonuses. Figure out a way to reward managers, but make it contingent on others sharing the bounty.
According to last week's filing, American's top five officers could earn an additional $13 million in stock in 2010. That's not exactly a major windfall for people in that elite class, but the issue goes beyond the amount of money.
The larger principle: shared sacrifice, shared reward.
American leaders adopted that egalitarian slogan four years ago, and it helped persuade the airline's unions to accept deep cuts in pay and benefits. The concessions allowed the airline to avoid bankruptcy and stage a remarkable recovery, and it had a full-year profit in 2006.
All American employees have benefited from the turnaround. Compared with peers that restructured in Chapter 11, the company has kept more workers and pays them more. And American has continued to fund its pension, a costly benefit that nearly every competitor has abandoned.
But so far, the salary picture hasn't changed in a meaningful way for the rank and file. Workers took pay and benefit cuts estimated at 20 percent to 30 percent, and pilots who dropped down a seat lost even more. Since then, employees have received annual raises of 1.5 percent.
Executives and top managers, however, received a separate reward, courtesy of parent corporation AMR's soaring stock price and the stock-bonus plan.
Last year, $95 million in stock was awarded to about 1,000 top managers, and in April, the same plan paid out about $160 million.
Arpey got $6.6 million from the plan, in addition to a pay package valued at $5.4 million.
That led to howls of protest. Pilots marched on AMR headquarters, and flight attendants held rallies at airports. The bonuses were such a slap to pilots that they wouldn't agree to the flights between Dallas/Fort Worth Airport and China unless American gave them something of value; when management balked, American had to pull the bid.
Despite the complaints and collateral damage, American has now issued another round of executive stock with the same rules. How do we make sense of that?
Could leaders believe the incentive plan is working as envisioned? Alienating and demoralizing the work force can't be part of the goal.
Are they sending a top-down message that executive pay is their sandbox and union leaders don't get to play in it? This move rubs the unions' noses in it, whether or not that's the intent.
Are American officers holding back until labor talks get serious and they can trade changes in executive pay for concessions from the unions? That might be a savvy ploy under most circumstances, but imagine if employees took the same approach. What if they refuse to go the extra mile until new contracts are worked out next year?
It's always the right time to do the right thing -- that's what leadership is about -- and the stock bonuses should be redesigned now.
American uses a matrix of variable and fixed pay for its executives, based on dozens of factors.
Through 2003, the company's executive bonuses (not the same as its stock awards) could be triggered only if profit-sharing kicked in for all eligible employees. That was replaced by a plan based on customer-service rankings and pretax profit margins.
Maybe that profit-sharing trigger could be added to the stock bonuses, so everyone gets a piece of the action at the same time. Continental Airlines has done this, and it would give American managers some moral authority.
It would remind everyone that the troops eat before the generals.
Shared sacrifice, shared reward hasn't worked out for everyone at American, which is bad enough.
When the company doesn't try to fix it, the inequity stings even more.
