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American drops exec bonus
Outcry from unions that took pay cuts prompts end of retention bonuses; exec pensions stay in place.
April 18, 2003: 6:03 PM EDT

NEW YORK (CNN/Money) - American Airlines announced Friday that its top executives have agreed to give up retention bonuses after an outcry from leaders of unions whose members had agreed to deep pay cuts earlier this week.

American had revealed the retention bonuses in a Securities and Exchange Commission filing on Tuesday. The bonuses program, which had been in place since March 2002, would have given six executives two years of base pay if they stayed with the airline through January 2005, and 1.5 times annual base pay to a seventh executive. But the firestorm of criticism from the unions prompted the airline to announce that the officers had given up the bonuses.

"I have apologized to our union leaders for this and for the concern it has caused our employees," said a statement from Don Carty, CEO of American parent AMR Corp.

"Those executives who have made the personal commitment to remain with American during this financial crisis, myself included, are not here solely for monetary reasons, and we have all agreed to give up these retention payments in order to give our employees confidence in management's on-going commitment to shared sacrifice."

Officials with the three unions -- the Allied Pilots Association, the Association of Professional Flight Attendants and the Transport Workers Union -- had criticized the executive compensation revealed in the SEC filing.

After Friday's news, American Airlines Capt. Steve Blankenship, the chairman of the union's communications committee, said the pilots "appreciate the gesture ... it's a move in the right direction." But Blankenship said "trust has been violated" because of the way the disclosures were made.

George Price, spokesman for the Association of Professional Flight Attendants, agreed, saying "this (the foregoing of bonuses) is the only responsible thing AMR could have done. But the element of trust has been damaged."

The Transport Workers Union could not be reached for comment Friday, though James Little, president of the unit of the Transport Workers Union had railed against the benefit.

Earlier AMR had been defending the bonuses, as well as the funding of a pension plan for top executives, as "conservative and responsible." But the plans had brought at least the public threat from one of the unions that it would not sign off on a concession labor agreement the airline said it needed to avoid filing for bankruptcy.

The company is keeping the pension plan for executives in place and funded to the level disclosed in the SEC filing. The plan has been in place since 1985, compensating top executives that paid them amounts in excess of Internal Revenue limits on pension payments. But it had not funded the plans, instead making the payments out of general operating funds, said the airline's statement.

In October it decided to create a trust fund to provide some guarantees for executives due payments from that pension plan that they would receive payments even if the airline went bankrupt. The plan is about 60 percent funded, the company said, which is a greater level of underfunding than the company's other pension plans.

"[AMR] felt it was important to provide the senior management and their families with the same level of pension security as that of its other employees," said Carty's letter to Little in defending the plan. Friday Carty said that since employees had been earning benefits from the plan over the last 17 years, the funding of the plan remains in place.

While a letter from Little to his union's members threatens to refuse to sign off on the concession contracts, even if it puts the airline into bankruptcy, his letter to Carty does not make that threat.

"I believe the failure to disclose the existence of this program was a material breach of the company's duty to provide relevant information, and I have asked our legal staff to determine whether there are remedies at law," said Little's letter to Carty.

"In the meantime, I urge you to carefully examine the impact of the existence of this sort of program on the morale of your rank and file work force and the credibility of any notion of shared sacrifice to preserve American."

Airline spokesman Bruce Hicks said that the airline was not concerned that TWU or other unions would not give final approval to the contracts due to the executive compensation controversy.

"No union has indicated to the company that they have any intention other than to sign the agreement," said Hicks. "We believe that's what is important."

Shares of AMR (AMR: Research, Estimates) closed Thursday up 77 cents, or 18 percent, at $5.00, after Wednesday evening's final union contract ratification. Shares did not trade Friday due to the Good Friday holiday.  Top of page

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