Hopeful
Veteran
- Dec 21, 2002
- 5,998
- 347
BUSINESS
Soaring AMR stock leaves workers behind
Resentment over execs' bonus pay weighs down airline's labor relations
08:33 AM CST on Monday, January 29, 2007
By TERRY MAXON / The Dallas Morning News
tmaxon@dallasnews.com
Leaders from labor and management exchanged high-fives at a December 2005 meeting when shares in AMR Corp., parent of American Airlines Inc., finally broke $20 for the first time in 3 ½ years.
But Tommie Hutto-Blake, president of the flight attendants union, was surprised to see something else when she looked across the room at a senior financial executive: a look of disquiet and unease.
Only later did Ms. Hutto-Blake understand the cause of the official's distress. The high price guaranteed that American's managers would receive large incentives, and he knew that the employees wouldn't like it.
AMR Corp 37.51
11:15 AM ET +0.98
Previous close: 36.53
The furor broke soon afterward when American's unions realized that top executives and other management would share in nearly $100 million of bonuses based on the stock's rise, while employees were still waiting for their reward for sacrifices made in 2003.
The presumption by many was that the incentive plans would pay off at the same time, with the employees getting to share in pretax profits and the executives' payoff to come from a rising stock price caused by those profits.
But in fact, AMR stock started its rise long before AMR began showing a profit.
AMR shares more than tripled in value between the start of 2003 and the end of 2005, a three-year period in which AMR posted pretax losses of $2.9 billion. That meant that executives got their incentive pay, while employees had to wait.
Union reactions
The ramifications of that anger are still being felt, most notably in American's dealings with the Allied Pilots Association. Hostilities over the bonuses have been blamed for a stalemate between management and the pilots union that sabotaged American's efforts to get rights to fly from Dallas/Fort Worth International Airport to China.
The Association of Professional Flight Attendants has also criticized the management payout, although not as harshly as the pilots. The Transport Workers Union last week announced it would open talks with American this fall, saying it was time for TWU members to get their share.
The question of who gets how much is a touchy issue at most companies, but nowhere more so than at American, where unions in 2003 gave up $1.6 billion in annual pay, benefits and other concessions to keep the Fort Worth-based carrier out of bankruptcy.
The anger and rhetoric are likely only to rise this year as the "performance share plan" probably will pay out more than $200 million in stock, as AMR's shares continue to rise and outperform the stock of most of its competitors.
The actual value of the payout will depend on share prices on April 18, the day the incentive awards are distributed. But the plan will pay out the maximum possible in stock, 175 percent of the base incentive, because AMR shares have risen so sharply compared to those of other carriers.
AMR shares hit $41 on Jan. 17, their highest level since a June 1998 stock split and a record when adjusting for the stock split. Shares closed Friday at $36.53, the price dampened by the issuance of 13 million new shares of AMR stock.
Jeff Brundage, American's senior vice president of human resources, defended the performance share plan as a smart one: It's helped AMR retain managers and it's benefited shareholders.
"It did exactly what it was intended to do," he said. "It only was going to be worth something if the stock price increased, and you could get it only if you stayed with the company and stuck it out."
Executive compensation plans have three parts: base pay, cash bonuses and long-term incentives such as stock plans, he said. The unions in the 2003 deals agreed that the AMR board would decide what stock awards could be handed out, he said.
Opposing viewpoints
Discussions about American's stock plans can be like arguing in different languages. While AMR officials stress the philosophy of executive compensation, the labor groups emphasize the idea that nobody should share in the airline's improving fortunes until everyone does.
Ralph Hunter, pilots union president, said union leaders and employees did not gladly accept the pay cuts and other concessions they had to make in 2003. But they understood the givebacks were needed at that time.
"The general basis of that was we're all going to do this together, we're all going to survive together, and someday we're all going to thrive together," Mr. Hunter said.
Instead, the stock payouts have rewarded executives while employees are still waiting, he said.
The union has adopted a stance in contract talks that members will regain everything they gave up in 2003, plus adjustments for inflation.
Mr. Hunter simplified the demands further: "At the end of the day, they only have one contract requirement: That's to recover at exactly the rate as any other employee group has recovered. It's not absolute dollars. It's 'Look at how they've done since 2003, and look at how we've done.' "
Ms. Hutto-Blake said the employee groups were "knocked over" when they learned in late 2005 and early 2006 about the payouts, particularly since management originally intended to distribute the awards in cash. The unions were "so incensed" because top airline officials had continuously preached the need to conserve cash and build up AMR's cash reserves, she said.
After the pilots union, flight attendants union and TWU filed a joint grievance, the AMR board of directors reworked the plan to pay most of it in stock. Further payouts for 2007, 2008 and 2009 are to be entirely in AMR stock.
Mr. Hunter said while the pilots were angry, they waited to see if the AMR board would fix the problem for future stock plans.
But in July 2006, the AMR board adopted a performance share plan that would pay out in 2009 based on stock performance between 2006 and 2008. Mr. Hunter said it was no fairer than the previous plans, in the eyes of rank-and-file employees.
That convinced the pilots union that the tack it had taken since 2003 – a more cooperative relationship with management – wasn't being rewarded.
"We've tried the alternatives. They haven't worked particularly well," Mr. Hunter said. "So we're back to square one."
Contract talks haven't shown much progress since starting at American's request in September. Mr. Hunter said he doesn't expect a new contract anytime soon, not with the company seeking a contract that will lower its costs to compete against rivals like Continental Airlines Inc., whose contract with pilots provides for more productivity, and Northwest Airlines Inc., which negotiated huge pay cuts with pilots after flying into bankruptcy court.
Billion-dollar divide
"Pilots want their $660 million back, and the company is giving all indications they want Continental's contract with Northwest's pay rates," Mr. Hunter said. "That's about $1 billion apart. The pilots are going to need to be met well beyond halfway."
The other two unions continue to work more cooperatively with American. The TWU in particular has worked out several job-saving agreements with American to keep aircraft maintenance in house and to bring in work from other carriers.
Ms. Hutto-Blake said the unions and management are working to find a new incentive-based plan to reward employees for their contribution. They've already visited a steel company where the bulk of employees' compensation is performance-based, and they plan to visit a unionized railroad with an innovative program.
The flight attendants union's cooperation with American shouldn't be viewed as an indication that the union likes the performance share plan, she said.
"In my opinion, it's a ridiculous amount. It's very insulting to labor," she said. "I don't think we have any tool left to fight it through a dispute, through the courts, arbitration or whatever."
Instead, she said she's focusing on a solution where the airline puts in place a plan to reward everyone for the airlines' success. And it needs to be done outside contract talks, she said.
"I don't want this to be part of collective bargaining," she said. "I don't want to have to buy this."
Mr. Brundage said the company views the commitment it made to the executive stock plan as being as important as its commitment to keep the airline's pension plans and retiree medical plans intact.
"There was no guarantee that stock was going to be worth anything," Mr. Brundage said. "We cannot today not live up to those commitments, either."
The 2003 deal didn't leave employees out. They received options to buy 38 million shares in 2004-06 for $5 a share, and many employees are still holding on to their shares at the greatly appreciated price.
If the pretax profit for any year exceeds $500 million, employees would get 15 percent of the excess in profit sharing. If profits exceed $1 billion, employees would get a 2.5 percent bonus.
So far, that hasn't paid off. AMR just announced a $231 million profit for 2006, its first annual profit since 2000 but far short of the thresholds.
Most analysts expect AMR this year to earn several times its 2006 earnings, results that would trigger profit sharing and perhaps a sense that employees were finally sharing in AMR's good fortunes.
Soaring AMR stock leaves workers behind
Resentment over execs' bonus pay weighs down airline's labor relations
08:33 AM CST on Monday, January 29, 2007
By TERRY MAXON / The Dallas Morning News
tmaxon@dallasnews.com
Leaders from labor and management exchanged high-fives at a December 2005 meeting when shares in AMR Corp., parent of American Airlines Inc., finally broke $20 for the first time in 3 ½ years.
But Tommie Hutto-Blake, president of the flight attendants union, was surprised to see something else when she looked across the room at a senior financial executive: a look of disquiet and unease.
Only later did Ms. Hutto-Blake understand the cause of the official's distress. The high price guaranteed that American's managers would receive large incentives, and he knew that the employees wouldn't like it.
AMR Corp 37.51
11:15 AM ET +0.98
Previous close: 36.53
The furor broke soon afterward when American's unions realized that top executives and other management would share in nearly $100 million of bonuses based on the stock's rise, while employees were still waiting for their reward for sacrifices made in 2003.
The presumption by many was that the incentive plans would pay off at the same time, with the employees getting to share in pretax profits and the executives' payoff to come from a rising stock price caused by those profits.
But in fact, AMR stock started its rise long before AMR began showing a profit.
AMR shares more than tripled in value between the start of 2003 and the end of 2005, a three-year period in which AMR posted pretax losses of $2.9 billion. That meant that executives got their incentive pay, while employees had to wait.
Union reactions
The ramifications of that anger are still being felt, most notably in American's dealings with the Allied Pilots Association. Hostilities over the bonuses have been blamed for a stalemate between management and the pilots union that sabotaged American's efforts to get rights to fly from Dallas/Fort Worth International Airport to China.
The Association of Professional Flight Attendants has also criticized the management payout, although not as harshly as the pilots. The Transport Workers Union last week announced it would open talks with American this fall, saying it was time for TWU members to get their share.
The question of who gets how much is a touchy issue at most companies, but nowhere more so than at American, where unions in 2003 gave up $1.6 billion in annual pay, benefits and other concessions to keep the Fort Worth-based carrier out of bankruptcy.
The anger and rhetoric are likely only to rise this year as the "performance share plan" probably will pay out more than $200 million in stock, as AMR's shares continue to rise and outperform the stock of most of its competitors.
The actual value of the payout will depend on share prices on April 18, the day the incentive awards are distributed. But the plan will pay out the maximum possible in stock, 175 percent of the base incentive, because AMR shares have risen so sharply compared to those of other carriers.
AMR shares hit $41 on Jan. 17, their highest level since a June 1998 stock split and a record when adjusting for the stock split. Shares closed Friday at $36.53, the price dampened by the issuance of 13 million new shares of AMR stock.
Jeff Brundage, American's senior vice president of human resources, defended the performance share plan as a smart one: It's helped AMR retain managers and it's benefited shareholders.
"It did exactly what it was intended to do," he said. "It only was going to be worth something if the stock price increased, and you could get it only if you stayed with the company and stuck it out."
Executive compensation plans have three parts: base pay, cash bonuses and long-term incentives such as stock plans, he said. The unions in the 2003 deals agreed that the AMR board would decide what stock awards could be handed out, he said.
Opposing viewpoints
Discussions about American's stock plans can be like arguing in different languages. While AMR officials stress the philosophy of executive compensation, the labor groups emphasize the idea that nobody should share in the airline's improving fortunes until everyone does.
Ralph Hunter, pilots union president, said union leaders and employees did not gladly accept the pay cuts and other concessions they had to make in 2003. But they understood the givebacks were needed at that time.
"The general basis of that was we're all going to do this together, we're all going to survive together, and someday we're all going to thrive together," Mr. Hunter said.
Instead, the stock payouts have rewarded executives while employees are still waiting, he said.
The union has adopted a stance in contract talks that members will regain everything they gave up in 2003, plus adjustments for inflation.
Mr. Hunter simplified the demands further: "At the end of the day, they only have one contract requirement: That's to recover at exactly the rate as any other employee group has recovered. It's not absolute dollars. It's 'Look at how they've done since 2003, and look at how we've done.' "
Ms. Hutto-Blake said the employee groups were "knocked over" when they learned in late 2005 and early 2006 about the payouts, particularly since management originally intended to distribute the awards in cash. The unions were "so incensed" because top airline officials had continuously preached the need to conserve cash and build up AMR's cash reserves, she said.
After the pilots union, flight attendants union and TWU filed a joint grievance, the AMR board of directors reworked the plan to pay most of it in stock. Further payouts for 2007, 2008 and 2009 are to be entirely in AMR stock.
Mr. Hunter said while the pilots were angry, they waited to see if the AMR board would fix the problem for future stock plans.
But in July 2006, the AMR board adopted a performance share plan that would pay out in 2009 based on stock performance between 2006 and 2008. Mr. Hunter said it was no fairer than the previous plans, in the eyes of rank-and-file employees.
That convinced the pilots union that the tack it had taken since 2003 – a more cooperative relationship with management – wasn't being rewarded.
"We've tried the alternatives. They haven't worked particularly well," Mr. Hunter said. "So we're back to square one."
Contract talks haven't shown much progress since starting at American's request in September. Mr. Hunter said he doesn't expect a new contract anytime soon, not with the company seeking a contract that will lower its costs to compete against rivals like Continental Airlines Inc., whose contract with pilots provides for more productivity, and Northwest Airlines Inc., which negotiated huge pay cuts with pilots after flying into bankruptcy court.
Billion-dollar divide
"Pilots want their $660 million back, and the company is giving all indications they want Continental's contract with Northwest's pay rates," Mr. Hunter said. "That's about $1 billion apart. The pilots are going to need to be met well beyond halfway."
The other two unions continue to work more cooperatively with American. The TWU in particular has worked out several job-saving agreements with American to keep aircraft maintenance in house and to bring in work from other carriers.
Ms. Hutto-Blake said the unions and management are working to find a new incentive-based plan to reward employees for their contribution. They've already visited a steel company where the bulk of employees' compensation is performance-based, and they plan to visit a unionized railroad with an innovative program.
The flight attendants union's cooperation with American shouldn't be viewed as an indication that the union likes the performance share plan, she said.
"In my opinion, it's a ridiculous amount. It's very insulting to labor," she said. "I don't think we have any tool left to fight it through a dispute, through the courts, arbitration or whatever."
Instead, she said she's focusing on a solution where the airline puts in place a plan to reward everyone for the airlines' success. And it needs to be done outside contract talks, she said.
"I don't want this to be part of collective bargaining," she said. "I don't want to have to buy this."
Mr. Brundage said the company views the commitment it made to the executive stock plan as being as important as its commitment to keep the airline's pension plans and retiree medical plans intact.
"There was no guarantee that stock was going to be worth anything," Mr. Brundage said. "We cannot today not live up to those commitments, either."
The 2003 deal didn't leave employees out. They received options to buy 38 million shares in 2004-06 for $5 a share, and many employees are still holding on to their shares at the greatly appreciated price.
If the pretax profit for any year exceeds $500 million, employees would get 15 percent of the excess in profit sharing. If profits exceed $1 billion, employees would get a 2.5 percent bonus.
So far, that hasn't paid off. AMR just announced a $231 million profit for 2006, its first annual profit since 2000 but far short of the thresholds.
Most analysts expect AMR this year to earn several times its 2006 earnings, results that would trigger profit sharing and perhaps a sense that employees were finally sharing in AMR's good fortunes.
