American Airlines Moves to Protect Executive Retirement Funds

April 17, 2003 ( - AMR Corp, the parent company of American Airlines, established two new executive perks last year in an order to protect retirement income in the event of bankruptcy and provide an additional incentive for the top brass to stay on.

Forth Worth, Texas-based AMR defended its two new compensation programs, a supplemental pension trust for its top 45 executives and “cash retention” bonuses, saying that. due to the primary pension funds’ risk of claim in the event of a bankruptcy filing, the supplemental fund was a necessary protection of executive retirement incomes. Plus, the airline added, the executives’ supplemental program is similar to a trust American’s pilots have for supplemental pension benefits, according to a Wall Street Journal report

The other program will pay six top executives twice their base salaries and a seventh executive 1.5 times base salary for staying with the company. Half of each retention bonus will be paid January 30, 2004, and the remaining half on January 31, 2005. Therefore, taking Chairman and Chief Executive Donald Carty as an example, with a base salary of $811,000 a year, he stands to earn a retention bonus of more than $1.6 million.

As part of cost-cutting agreements from unions, Carty offered to take a 33% cut in that base salary and forgo any bonus this year, for the third consecutive year. He also said he asked AMR’s board to defer his 2004 retention bonus to 2005, and cancel other elements of his compensation.

The company said it briefed union leaders before the voting on all aspects of executive compensation, including the supplemental pension funding and the retention bonus program. Further, the airline company pointed out that the packages are similar to ones at other airlines, namely Delta. However, those packages recently drew fire from Congress and unions as US House of Representatives and Senate committees passed relief packages in the $3-billion range that require freezing executives’ pay at 2002 levels as a condition for the aid (SeeSenate Airline Aid Bill May Also Seek Executive Pay Cap) and led to Delta CEO Leo Mullin agreeing to forgo some compensation.

Other criticisms of excessive executive compensation have come from US Airways’president David Siegel.Siegel’s finger pointing was part of an overall comment about a Congressional proposal to provide airline financing on the contingency airlines freeze executive pay. In his comments, Siegel said this plan only serves to reward those who are already overpaid (See US Airways President Says Peers Make Too Much ).