With all the comparisons AA uses comparing themselves to SWA on every aspect, except of course pay for its AMTs, why not just merge the two? It seems to make sense. However, this would require AA to trim all the bogus managerial positions it has. All this "fat-catting" in management over the years would be exposed by the merger. The way I see it, AA will spend as much money possible to see how they can still keep their over-paid management jobs, yet push to get the employees to be more productive. I wish TWA would've purchased AA. Then you would've really seen AA'rs bellyache over seniority issues.
http://www.atwonline.com/magazine/article....?articleID=1545
Just Compensation
By J.A. Donoghue
Air Transport World, March 2006
Judging one's worth on the job market is never an easy task, but rarely has that process been more in the spotlight than today. This is an emotional issue at every level, yet all are asked to set emotion aside and focus on larger concerns. Ultimately emotions cannot be ignored, for unless the outcome of these compensation calculations is carefully proportioned and falls within an acceptable range as viewed from below, the seeds of disaster will be planted. Labor/management distrust and even hatred have accompanied some airlines' extinction and may have played a key role in their demise.
The most visible airline employees are its managers, fewest in number and highest paid. Their pay and the criteria for calculating their bonuses say a lot about a company and its culture.
Let's establish a benchmark. To the annoyance of many, let's look at the corporate officer pay of Southwest Airlines, the most continually successful carrier in the US. For the year ending July 15, 2006, CEO Gary Kelly will get $411,714 and President Colleen C. Barrett $368,752. Bonuses for a few top officers in recent years have ranged between $184,000 and $316,000, most on the lower side of that range.
Some stock warrants, not many, are granted each year at a value close to the current stock selling price. Given LUV's fairly stable share price, the warrants will not be worth much for quite awhile. Southwest's corporate directors and officers combined own around 8.6 million shares, 1.1% of the total outstanding. Take away co-founder and Chairman Herb Kelleher's 5.5 million shares and your percentage gets tiny. Except for Kelleher, no officer has accumulated stock options valued at more than $2 million, and beyond Barrett, Kelly and departed CEO and Vice Chairman James F. Parker, the highest option value is less than $600,000.
In setting bonuses, the Compensation Committee says it "considered the performance of each individual, his or her level of responsibility within the Company, the Company's profitability, the longevity in office of each officer, and each officer's performance as a team member." Interestingly, Southwest's stock price does not enter into this calculation. Bringing in profits and being a good team member do.
On the other hand, we have American Airlines, a well-managed legacy carrier with a good labor/management relationship despite the episode in April 2003 when AMR Chairman and CEO Don Carty decided to seek employment elsewhere after a generous management bonus plan was revealed immediately after a desperation labor giveback was negotiated. Yet now we see that with the notable exception of Chairman and CEO Gerard Arpey who did not participate in the program the management team of a company that lost $861 million last year is set to pull in cash bonuses totaling around $80 million due to real good stock price performance, especially in relation to five competitors,
three of which were in bankruptcy.
That says it all. The most successful airline values profits and teamwork. A money-losing airline is afflicted by the now-rampant disease that values stock price over all else. It doesn't matter that the bonus would be spread over 1,000 managers. What matters are the measures that are valued in corporate goal-setting and how the full package appears to the employees.
Valuable corporate officers must be paid at levels that keep them from wandering off. Management churn is a very bad thing, and one real measure of a person's fair compensation is what others would offer. But the total compensation package must be constructed with an emotion-damping balance in mind, and that has not been done in many cases such as United Airlines managers seeking 15% of the company's new stock. It was three years of hard work, but in a company where most employees have lost much of their retirement savings, 15% generated a certain stink.
Pilots are a group that comes in for a lot of attention and criticism for high pay and carefully constructed work rules. United pilots, after shoving through an employee stock ownership plan, strong-armed their way to a ruinous pay contract that was copied at Delta and helped bring both carriers down. Now, their stock value wiped out, employees at United, along with labor groups across the legacy landscape, are forced to redefine what they consider "fair" compensation.
With so much pain being suffered by the rank-and-file, it is important that top management's pay be structured with sensitivity to that pain and, importantly, with regard to measures that will sustain the company, not simply please short-term shareholders.
