American chief rejects pay raise
By Trebor Banstetter
Knight Ridder News Service
FORT WORTH, Texas - When Gerard Arpey, American Airlines chief executive officer, was tapped to take the company's chairman job earlier this year, the position came with more than just a new title.
The board of directors of AMR Corp., American's Fort Worth parent, voted to give Arpey a 22 percent raise along with the new position a total of more than $110,000 annually, the company said Wednesday.
But Arpey surprised many board members by turning down the money. He argued that accepting a raise would send the wrong message to employees, who have seen hefty pay cuts during the past two years as American has struggled to overcome steep losses.
"I think he's always been a believer in shared sacrifice," said Roger Frizzell, a spokesman for American, the world's largest airline. "From a personal standpoint, he thought the timing wasn't right."
Arpey earns about $514,000 annually, according to Frizzell. The raise would have boosted his salary to $625,000.
The airline disclosed the attempted pay increase on the same day it filed papers with the Securities and Exchange Commission outlining stock options that will be granted to Arpey and four other top officers under the company's executive performance plan.
Those options, which total 400,000 shares, are linked to the airline's long-term stock performance, and cannot be accessed until 2007, Frizzell said.
Although Arpey declined to accept the raise, it technically remains in place for the joint position of chairman and chief executive officer, Frizzell said.
Arpey could choose to accept the money in the future. He could not, however, retroactively take the cash he's giving up now, Frizzell said.
"He's leaving money on the table every month," he said.
Some investors have criticized AMR for its stingy executive pay, low compared to other companies of its size. At the company's annual shareholders meeting earlier this year, some critics said the compensation was responsible for a "brain drain" of management talent that has left the airline during the last few years.
But union leaders applauded Arpey's decision Wednesday, noting that raises for top management could be devastating to employee morale.
"I call it good leadership," said Denny Breslin, an American pilot who is spokesman for the Allied Pilots Association. "He obviously understands that taking a raise right now would send the wrong message to the employees, and I commend him for that," Breslin said.
Liz Geiss, spokeswoman for the Association of Professional Flight Attendants, said Arpey is "leading by example."
"After all, the employees provided concession through 2008," she said. "It's only fair that he make the same sacrifices."
An uproar over executive compensation brought down Arpey's predecessor, Don Carty, last year. Just after approving $1.6 billion in concessions, employees learned that top executives were eligible for hefty bonuses and a bankruptcy-proof special pension plan worth millions. Carty resigned in the furor that followed.
Arpey declined to take a raise when he took the chief executive position, and now makes far less than Carty did. Carty's annual base pay was $811,000.
Arpey was, however, awarded stock options as part of an executive performance package.
According to documents filed Wednesday with the Securities and Exchange Commission, Arpey was granted 172,000 shares in options, although he won't be eligible to receive the shares until 2007.
Currently, they have no value. The options have a strike price of $8.88 per share, according to the SEC filing.
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Just a note: The continued pressure the Unions put on the leaders at AA has had an affect. I also believe AA could do more. I noticed new faces in Management recently.
Could AA do more? I believe they can. Going after union workers is not the answer anymore. Restructuring management positions and stremlining some of their functions will reduce costs. I also believe with the technology today we do not need supervisors.