For years, union leaders have criticized top executives at American Airlines for how much they make. But the airline's bankruptcy filing cost those executives millions of dollars.
In its annual report filed Wednesday, American's parent, AMR Corp., said it does not plan to distribute stock from incentive plans awarded to executives over the past three years because of the company's Chapter 11 filing.
For the top four executives, including new CEO Tom Horton, that means $17.5 million in stock awards and stock options are now essentially worthless.
Executive bonuses generated controversy in recent years when top managers received millions in cash and stock bonuses after rank-and-file employees took pay cuts to keep the airline out of bankruptcy in 2003.
Even though the stock awards evaporated, some union leaders say executive pay is still out of line.
"The disparity between the salaries of the top executives and the employees that are keeping this company chugging along is really just inexplicable," said Laura Glading, president of the Association of Professional Flight Attendants. "I don't think anybody is shedding a tear that they are not getting stock compensation. This is their own doing."
AMR filed for bankruptcy Nov. 29, and its stock was delisted from the New York Stock Exchange on Jan. 5. Shareholders usually get wiped out in bankruptcy as the stock loses its value.
Compensation experts say American's pay packages are in line with those at other companies that reward executives with stock incentives.
"Stock grants with vesting schedules are meant to make management take a long-term perspective," said J. Robert Brown, a University of Denver law professor who studies executive compensation. "Clearly, if they saw bankruptcy coming, they would have wanted cash bonuses."
In a letter sent to American managers Wednesday, AMR said its executive compensation plan ties 85 percent of its senior leaders' pay to the company's profitability and stock price. The company has not paid out cash bonuses under its short-term incentive plans in the past decade because American had not met certain performance goals.
"For the period 2001 through 2010, the compensation they actually received was less than 53 percent of what was awarded to them during that period," the letter said.
As part of its restructuring plan, American has proposed a profit-sharing program for employees and says it would not give executives cash bonuses unless employees received payouts from the program.
AMR has not put together a new executive compensation package in the bankruptcy process. That will likely be determined in court, compensation experts said.
AMR's compensation packages are "pretty reasonable," said Greg Ruel, a research associate at GMI Ratings, an independent corporate governance firm. However, he is concerned about the large deferred pension earnings that AMR lists for executives.
Horton's pension includes $805,030 in a retirement benefit plan and $3,605,329 in a nonqualified plan that can be paid in a lump sum when he retires. Former CEO Gerard Arpey, who resigned Nov. 28 and cannot draw his pension until he turns 55 in two years, has $1,020,964 in a retirement benefit plan and $5,746,393 in a nonqualified plan.
"The pensions are the most fruitful aspect of the compensation," Ruel said.
If AMR keeps its executive nonqualified pension plan while terminating its union pension plans, he said, it could generate more negative publicity.
In its annual report, AMR acknowledged that because of the bankruptcy filing, executives' pension benefits may not be paid in full.
Andrea Ahles, 817-390-7631
