AMR Execs Let Go of Retention Program

April 21, 2003 ( - Reacting to a virulent reaction from union negotiators, AMR Corp. chairman and chief executive Donald J. Carty Friday said that he and six other senior executives would give up "retention bonuses" offered to them last year by the company's board of directors.

On the other hand, AMR said it would keep in place a supplemental pension trust for its top 45 executives, which protects a portion of their retirement income in the event of a bankruptcy filing.  

Union leaders had reacted strongly to news of the special bonuses and pension plan following an AMR filing with the Securities and Exchange Commission (SEC) (see  American Airlines Moves to Protect Executive Retirement Funds ).   The company said it briefed union leaders about all executive comp programs prior to a vote on a new labor pact, but union leaders were apparently shocked by the disclosure, leading some to say that the failure to disclose the existence of the fund in bargaining by American constituted a material breach of its obligations to provide relevant information in the negotiations.  

“Obscene Gesture”

On Thursday, union leaders threatened to not sign new contracts on the pay cuts.   John Ward, president of the Association of Professional Flight Attendants, charged late Thursday that the measures were designed “to line the pockets of a few top executives,” and termed it “…the equivalent of an obscene gesture from management to employees.”

According to the filing, the world’s largest airline offered its top six executives “cash retention” bonuses of twice their base salaries if they stay through January 2005.   American said the AMR retention agreements were created a year ago in March 2002 when, “…after the events of September 11, the industry was struggling and our board of directors had serious concerns about our ability to retain our senior management in light of the potential loss of several key executives.”

The airline said the underfunded trust, a supplemental executive retirement plan (SERP), was established in 1985 and, unlike its other employees’ retirement plans, was never funded. This past October, during a cycle in which the company was contributing to employee pension plans, American made an initial contribution – the first ever, according to AMR – to the plan, which remains underfunded.   “In simple terms, the SERP is designed to provide a pension benefit for the portion of compensation above IRS limitations that executives have already earned,” Carty said in a  letter to employees .

“I have apologized to our union leaders for this and for the concern it has caused our employees,” AMR CEO and chairman Don Carty said in a  statement .   “The goal was to give senior officers an incentive to stay with the company when many were being offered more generous packages to go elsewhere.”   

On Tuesday, the Allied Pilots Association and the Transport Workers Union said their members had voted to give annual concessions of $660 million and $620 million each, while the Association of Professional Flight Attendants initially rejected by a narrow margin $340 million in concessions.   That result was overturned on Wednesday when the cutoff was extended and members were allowed to change their votes.   Now the flight attendants’ union says it will revote on the concession package.

However, after learning of the plan for a new round of voting by the union, American said it stood by the results of the earlier vote.   “American Airlines has a valid, ratified agreement with the APFA,” said a company spokesman, Bruce Hicks, according to the Associated Press, declining further comment.