American Drops Bonuses, Retains Special Pension Plan

aviationweek.aviationnow .com ^ | april-22-2003 | By Adrian Schofield

[green team 1999]

American Drops Bonuses, Retains Special Pension Plan

By Adrian Schofield

American dropped retention bonuses for top executives on Friday in the face of union criticism, but will leave protections in place for executive pensions.

CEO Don Carty apologized to employees for American's failure to "communicate effectively" about the retention bonus plan, created a year earlier to make sure key executives stayed with the airline in the wake of the Sept. 11 attacks, but stopped short of saying the plan itself was wrong.

American won't reverse funding of the Supplemental Executive Retirement Plan (SERP), however, contending it represents a benefit already earned, "in some cases over a period of 17 years."

The timing could not have been worse for American as details about the trust set up to protect the SERP emerged on Thursday, a day after unions had voted to accept hefty concession packages. The trust would partly fund executive pensions in the event of bankruptcy, as well as retention bonuses of twice some executives' salaries if they stay until 2005.

American claimed the SERP has been "misconstrued," and said it is "conservative, responsible and well below what other U.S. companies have provided their senior executives." Executives can only access the funds on retirement.

The company created the plan in 1985, American told employees, but didn't fund it until October 2002. The pension trust's partial funding of the SERP benefit is similar to protections set up for employee pensions. The airline said the SERP is only 60% funded, "lower than all other [American] employee pension plans."

American executives decided to fund the SERP "in an attempt to avoid the loss of additional senior management," American said. "By doing so, it provided senior management and their families with partial security for their pension, just like other employees."

Leaders of all three of American's unions blasted the SERP, and claimed they and their members knew nothing of the plan's details until a Securities and Exchange Commission filing last week. Association of Professional Flight Attendants (APFA) President John Ward called the pension trust an "outrage" considering the givebacks American won from the rank-and-file (DAILY, April 18).

Transport Workers Union (TWU) Air Transportation Director Jim Little told employees American's failure to disclose the fund's existence during bargaining was "a material breach of [its] obligations to provide relevant information" before the union voted on concessions. TWU is weighing its legal options, and Little said the union would reconsider whether it would sign off on the agreement.

In a separate letter to Carty, Little urged him 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."

The Allied Pilots Association (APA) was equally scathing. APA President John Darrah said, "Unfortunately, it appears that management is not off to a very promising start at making the most of the reprieve the unionized employees have provided through our collective sacrifices."

for information and discusion only,not for profit etc,etc.

[Archangelsk]

Earned huh? Let me ask any AA employees out there. Has Carty ever heard the words "cleared for takeoff" and been able to do something about it?

The only talent this guy has is the fact that he still has his hair, the putz.

[Rodney King]

That's funny, I think it is the pension that is the most outrageous. Retention bonuses are common during bankruptcy (no matter how unpalatable). Whereas using money to fund the pension of certain employees and not others is not standard.

[dandelion]

Mayhaps he should have called the executive pension plan "Supplemental Executive Retirement FUND" instead -

SERF

It might have reflected the true top-down view of the company better...

[Ruth A.]

And how many years have some of the AA workers put into their own retirement which will suddenly vanish?

[Leisler]

He works for the owners, not the hired help.

[Archangelsk]

He works for the owners, not the hired help.

This is probably the best reason for taking a company private. A company that isn't beholden to "shareholders" can be innovative and produce spectacular results. One of the best examples of this kind of organization is SAS which has a 3% attrition rate among employees (the average attrition rate for the U.S. is 20%). They've posted profits for the past 26 years and their CEO, Jim Goodnight, is a visionary.

[Leisler]

So like, IBM, MicroSoft, GM, United Technoligies don't innovate and produce spectalular results? Furthermore, no disrespct to SAS, but they are a pipsweak company. A boutique, a cult. I don't think one example makes the rule.

[upchuck]

This is a modified version of a rant I posted earlier today on another thread about this situation:

The people who run the various airlines are just plain stupid. I don't care if they got a MBA/PhD/yadayada from some Ivy League school. They're STUPID!

Here we are, almost two years past 911 and these idiots are still waiting for the business community to start flying again. Memo to the airline industry CEOs: Ain't gonna happen. Blame it on the internet. WebEx, Netmeeting, Remote Access... no way are you gonna compete with this.

It's simple: either the airlines make MAJOR changes to their business model or a bunch of them are going to be belly up in the next year or so.

Oh, and while I'm ranting, memo to the US guvament: Puh-leeze recognize what is really causing the problem and quit throwing my tax dollars at this black hole!!! Billions and billions won't change the basic (and forever) problem of too much supply, too little demand. It will only allow incompetent idiots like the assholes at American Airlines to rip us off even more!

Memo to Linda Dasshole: kindly go jump in the lake. You are, no doubt, part of this problem. PS - Please take Tiny Timmy with you.

[Archangelsk]

If you can call a company that does over a billion in sales "pipsqueak" more power to you. Personally, I've never understood the awe people have for corporations that under no condition benefit them directly. The old saw of Gates, Gerschner et. al. entering a bar and "elevating" the net worth of all the sots in there holds true here too.

I'd like to see Ellison, Gates, Jobs, etc. take their companies private and see what happens (that'll happen about the time that swine are cleared for takeoff).

[Leisler]

How do you know it did a billion, if it is private?
Name me one world class player company that is private?
There's just not enough money in a few peoples hands to supply the capital requirements for private company to go large and thus undertake huge enterprises. For instance, just a new model of cars for a major would design out over a billion. A billion doesn't buy one B2 bomber, or pay the day to day expenses for Army Division for a year. Sorry, a billion aint what it used to be.
Lastly, I don’t get my opinions from lame 60 Minutes.

[Archangelsk]

Neither do I, I knew about SAS when I worked at IBM. To answer your question, UPS was a big time player before they stupidly went public. Now I trust Fedex more.

[Leisler]

IBM, great story. They were on top. They were the top. Then people were getting ready to put them in the box. It was shocking, really. Now, a world class company, in product and service.

As for UPS, still great, I use their UPS Ground alot. FedEx for overnight. Post Office for paying bills.