Arpey's Rewards Will Rise With Aa's Performance

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Jan 3, 2004
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Arpey's rewards will rise with American's performance

By Mitchell Schnurman
Star-Telegram Staff Writer

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Finally, Gerard Arpey of American Airlines has a chance to make some real money, some CEO millions. And almost nobody's complaining.

This is no small achievement, considering that executive pay is one of the most contentious issues at American. Just two years ago, the subject almost derailed the company's restructuring and led to the chairman's resignation.

Yet American can't freeze executive pay forever. Several senior managers have moved to companies in other industries, and they got a lot more money.

So American's board has to walk a fine line: How does it dangle enough incentives to hold on to talented managers without enraging employees and losing their trust?

In a quarterly filing last week, American provided a look at its new blueprint. Arpey received a variety of stock awards, including a new class of shares that vest in a decade.

It's a complex approach to compensation that's heavily tied to corporate performance. The potential value is difficult to estimate, but it could be lucrative.

The leaders of American's unions were briefed about the pay package, and they haven't criticized it publicly. They appear to accept the argument that management stability is worth paying for, at least when the payment isn't cash.

Arpey, who's chairman, president and CEO of the world's biggest airline, may still be the most underpaid executive in America, considering the magnitude of American's turnaround.

His salary and (zero) bonus last year totaled $518,837, about one-fifth the median salary and bonus for a large-company CEO. But at least now, the 47-year-old Arpey has a piece of the upside if American continues to improve.

Since 2003, Arpey has twice turned down pay increases and once declined an offer for stock options, because employees were making so many sacrifices.

"It just didn't feel right," he said last year.

Well, he's loosening up. Or maybe the board has simply crafted a program that he's more comfortable with.

In July, Arpey received 58,000 shares of stock that have 11 performance thresholds -- and a 10-year vesting period. The company said he would get at least that many shares annually for the next four years, and it hinted at more to come.

American's 10-Q filing said the grants are "the first steps to induce Arpey to remain as the CEO and to motivate him during his tenure."

He also got 140,000 performance units, which pay out in three years but have a slew of hurdles.

He got 95,000 stock options, whose value hinges entirely on the stock price, and 24,000 deferred shares that are based on tenure alone. The deferred shares vest in three years.

Add this to what he received in 2004: 135,000 performance units and 172,000 stock options at $8.88 a share, and it's possible that Arpey's current package could top the $10 million mark.

That may be a lot of money to you and me. But in the world of corporate CEOs, it's below the median annual take for salary, bonus, stock options, stock grants and perks.

And Arpey's windfall is hardly a given. If American struggles and remains mired in red ink, he might net $1 million from it all -- years from now.

But if American ranks No. 1 among its peers, hits its financial goals, maintains good relations with its unions and essentially knocks the cover off the ball, his pay elements would be worth $14 million at American's current stock price.

There are a lot of ifs in that equation, from besting JetBlue and Southwest in the stock market to scoring high on employee satisfaction and labor relations.

If all this happens, it's worth noting that American employees would be along for the financial ride. When they agreed to make deep cuts in pay and benefits in 2003, they got a piece of the upside, too.

If American's pre-tax profit margins hit 5 percent, employees could get 10 percent of their pay as a bonus. If margins are 2.5 percent, bonuses would be 5 percent.

It has been so long since American demonstrated sustained profitability that the awards may seem like a pipe dream. But the company has made great strides in cutting costs and focusing on services that customers are willing to pay for.

If not for $60 oil, the financial picture would be a lot brighter. That would make it easier to boost pay for managers and hold on to them. American says its turnover for senior managers is about 4.5 percent.

In some pockets of the company, however, the rate is 13 percent to 29 percent. Some of the departures are the result of working in a struggling industry. American also has a history of being a starting point for up-and-comers.

But the board's compensation committee acknowledged the money issue in the latest proxy. It noted that no bonuses have been paid since 2000, most stock options granted earlier are underwater and performance shares that have been awarded were far below what was expected because of the company's weak performance.

That's probably fitting. If American can't make money, it shouldn't be paying a lot to its leaders.

But American competes against the world for executive talent. Maybe it can count on the loyalty of Arpey, but two chief financial officers and the top human resources executive bolted in the past two years, along with others below them.

Will the new pay packages be enough to stem the tide? Only if they pay off.

That's the one way to make everybody happy.

Mitchell Schnurman's column appears Wednesdays and Sundays. (817) 390-7821 [email protected]
 
Such encomia are premature as well as overly laudatory.

It's not a turnaround until our pay and benefits are turned around, too.

I smell flackery (or claquery).

I need a daquiri.
 
That’s just what Mr Arpey was waiting for. Now he can take that 1.5 billion the company saved on the concession contracts and buy back stock to raise prices just like He and Carty did in 1998. How does this tie his pay to company performance. People who fill they have some ownership in there company and control of there own union are going to perform much better. I don't think the possibility of 50 dollars a quarter is going to get the job done. NO VOTE NO PEACE!!! :angry:
 
It's not a turnaround until our pay and benefits are turned around, too.

Your pay is not coming back. Take a look at the article in the Dallas Morning News about all the Delta employees laid off in DFW early this year. None of them got comparible jobs, pay, or benefits, until airline workers start to leave for other opportunities, the glut of workers will keep wages low. As long as management knows you won't leave no matter how hard they make it, you're not getting a raise. Supply and Demand.
 
Oneflyer said:
Your pay is not coming back. Take a look at the article in the Dallas Morning News about all the Delta employees laid off in DFW early this year. None of them got comparible jobs, pay, or benefits, until airline workers start to leave for other opportunities, the glut of workers will keep wages low. As long as management knows you won't leave no matter how hard they make it, you're not getting a raise. Supply and Demand.
[post="286719"][/post]​

Union employees will never think any differently...it's all Me, Me, Me. The company is always out to screw me. If the unions were running the airline industry, ALL carriers would be BANRKRUPT.

:up: To Gerard Arpey and his team for doing a great job..
 
Imagolfer said:
:up: To Gerard Arpey and his team for doing a great job..
[post="286741"][/post]​
Golfer, are you paid by the word or by the post? Or do you just get a pat on the head?

Or, perhaps, the opportunity to play golf with your supe.
 
Wretched Wrench said:
Golfer, are you paid by the word or by the post? Or do you just get a pat on the head?

Or, perhaps, the opportunity to play golf with your supe.
[post="286767"][/post]​
[/q65uote]

I don't work for American anymore. I did something that most of you don't do, I knew that AA was in for hard times and pay cuts were inevitable, so I took the VELA and took a job for 60% more than I was making at AA.

Instead of whining and complaing at management....GET ANOTHER JOB
 
Imagolfer said:
Wretched Wrench said:
Golfer, are you paid by the word or by the post? Or do you just get a pat on the head?

Or, perhaps, the opportunity to play golf with your supe.
[post="286767"][/post]​
[/q65uote]

I don't work for American anymore. I did something that most of you don't do, I knew that AA was in for hard times and pay cuts were inevitable, so I took the VELA and took a job for 60% more than I was making at AA.

Instead of whining and complaing at management....GET ANOTHER JOB
[post="286839"][/post]​

Why are you here then?
 
Bob Owens said:
Why are you here then?
[post="286843"][/post]​


Because I loved what I did for a living, and like to keep abreast of the airline industry. I never woke up in the morning dreading what I did. But after my wife and I had a baby, I realized that it was time for me to start making a better living so she could stay at home. I pursued a different path and have been very rewarded finacially for doing so.

If I could go back to AA and make the same kind of cash, I would do it in a heartbeat. I think AA is the best airline in the world. It's unfortunate that oil prices and LLC's have impacted the marketplace such as they have. AA is a forward thinking company and will survive. They were the first airline to cut costs dramatically and avoided bankruptcy (it's sad that the employees had to sacrifice their pay, but that is what was needed to be done). DL and NW are now on the verge of Chapter 11 because they were not as quick to recognize they needed to cut costs fast. Now those employees are going to have to continue to take cuts. If you think it's just AA in this position, you are wrong.

The airline business is not as glamarous as it used to be.
 
Imagolfer said:
Because I loved what I did for a living, and like to keep abreast of the airline industry.  I never woke up in the morning dreading what I did.  But after my wife and I had a baby, I realized that it was time for me to start making a better living so she could stay at home.  I pursued a different path and have been very rewarded finacially for doing so.

If I could go back to AA and make the same kind of cash, I would do it in a heartbeat.  I think AA is the best airline in the world.  It's unfortunate that oil prices and LLC's have impacted the marketplace such as they have.  AA is a forward thinking company and will survive.  They were the first airline to cut costs dramatically and avoided bankruptcy (it's sad that the employees had to sacrifice their pay, but that is what was needed to be done).  DL and NW are now on the verge of Chapter 11 because they were not as quick to recognize they needed to cut costs fast.  Now those employees are going to have to continue to take cuts.  If you think it's just AA in this position, you are wrong.

The airline business is not as glamarous as it used to be.
[post="286845"][/post]​

I thought your avicom was Bush, but I see now that its you.
 
Imagolfer is right. AA is not the only airlines that thought the government would bail them out when fuel prices started rising. They all went to congress and cried about not being able to hedge fuel like southwest and jet blue. The government said ok we will help you out with low interest loans or no interest loans but it will put a cap on greedy executives pay. The low life executives said never mind we will just rape our employees. Mean while over at Southwest the executives with brains hedged fuel for the long term because they knew lobbing missiles at a middle eastern country and having Bush and Chainy both oil men in office was not going to be good for oil and gas prices. Then they turned around and gave there mechanics a 15% unsolicited pay increase with no work rule changes. Last year Southwest’s profit increased by 60% and another 40% this year. They did all this without 47 V.P.s and thousand of supervisor and managers. Wake up Imagolfer these people are raping the workers in this country and strong craft unions across the country with common interests are the only way we are going to turn it around. The ability to effectively shut down the airlines as a hole or the railroad as a hole or farming as a hole is the only way we can stop it. You can buy all the drink and hookers for the politicians you want but they are not going to just give the power to control there income back we have to take it. These people make 600 percent more than a skilled aviation maintaince technician makes because they spent years dividing the people with common interest. NO VOTE :angry: NO PEACE!!!
 
Union employees will never think any differently...it's all Me, Me, Me. The company is always out to screw me. If the unions were running the airline industry, ALL carriers would be BANRKRUPT.

To Gerard Arpey and his team for doing a great job..

I would do a great job too if I got 2.8 million in stock options.

But all the twu members got was a sodomy job and 50 bucks a month YAHOOOO :lol:
 
TIME FOR CHANGE said:
I would do a great job too if I got 2.8 million in stock options.

But all the twu members got was a sodomy job and 50 bucks a month YAHOOOO :lol:
[post="286984"][/post]​

If you don't like your job, go back to school, get an MBA, work your way up the ranks of a company and you too can get 2.8 million in stock options ;)

Otherwise, you can keep coming home with smaller paychecks and greasy fingers. :lol:
 

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