It doesn't smell like team spirit

Ft. Worth Star Telegram

By Mitchell Schnurman

Star-Telegram Staff Writer

American Airlines figured out a better way to run an airline. Why can't it figure out a better way to pay executives?

Instead, labor and management are digging in for a bitter fight, just when North Texas' largest employer has turned a financial corner.

The flash point is a familiar one in today's corporate world: Senior executives are getting million-dollar payouts, while the rank and file are still living with less. There's a lot of righteous indignation in each camp, but what makes American's conflict so extraordinary — and so intractable — is that both sides are right.

AMR leaders have earned the extra money coming their way, thanks to a soaring stock price and a pay scheme tied to the measure. And the top five officers, even after getting more than $20 million in stock awards this month, will still be vastly underpaid — at least in the parallel universe where corporate executives work and play.

But everyday workers deserve their share of the bounty, too. They made crucial contributions to American's survival, from accepting deep pay cuts to thinking up hundreds of money-saving innovations. It's a kick in the teeth to watch executives recover all they gave up in 2003, while everyone else gets an extra pittance.

So if both sides have a legitimate argument in this debate, what's the tiebreaker? Go with the more important cause — not wrecking American's emerging culture.

For decades, American was an adversarial workplace, marked by union strikes, public sniping and deep distrust between labor and management. That began to change four years ago, when the company confronted the prospect of bankruptcy. Facing that crisis, people agreed to put the greater good ahead of their self-interest.

The idea of pulling together and working together changed the DNA at American and created an esprit de corps that made the recent success possible. The spirit isn't gone entirely, but it has deflated — and over what? Executive payments aren't worth that cost, no matter how justified they may be.

American executives and the board should have fixed this problem a year ago, when a surprising stock run triggered $95 million in payouts to about 1,000 managers. The windfall for the company's elite created a crack between labor and management and led to arbitration hearings.

Give management a mulligan on that one because almost no one saw it coming. But rather than changing the plan significantly, the company made minor tweaks and re-upped. This time, the payouts could approach $200 million, and tempers are flaring.

Unions are planning protests, including a march at American's headquarters. The pilots have quit going to meetings that are important to American's turnaround.

The company offers some valid explanations for what happened: American's stock price took off before the bottom line did; it needs a diverse pay plan to keep executives from bolting; and because of the volatility of Wall Street, stock awards tend to have sharp peaks and valleys.

Then there's the ultimate corporate defense: American executives are underpaid compared to their peers, while American's union workers have some of the best pay packages in the industry.

That may all be true, but none of it gets to what's wrong here. The problem is that American's recovery is the ultimate team effort, yet only the stars are cashing in.

Of course, all American employees are benefiting because the company avoided bankruptcy. They kept their jobs and pensions, and received a boost from a small award of stock options.

But they're not close to being made whole, not after the deep concessions of 2003 and three years of 1.5 percent raises. Yet executives are about to get a serious windfall. Chief Executive Officer Gerard Arpey is likely to get more than $7 million from one stock plan alone.

Jeff Brundage, who heads human resources at American, says there are no plans to change the program, despite the outcome.

"There's not a magic bullet," Brundage said in a phone interview. "It's a complex situation, and if one company had the answer, everyone would use that design."

At least two airlines have adjusted their pay so executives won't hit it big unless the rank and file gets some, too.

Two weeks ago, Delta adopted a program as part of its proposed exit from bankruptcy. Executives can earn well into seven figures, and they have the usual range of performance pay. But Delta says payouts won't be made, unless the broad-based profit-sharing program kicks in.

Continental has a similar threshold for restricted stock awards. That package was amended in March 2006 "to align management's performance objectives" with the profit-sharing plan for other employees, according to Continental's proxy. Again, profit targets have to be hit and trigger profit-sharing for all, before execs can get stock.

I'm not suggesting that rank-and-file employees at Delta and Continental have a better deal than their counterparts at American; they don't. And American also has a bonus program that must pay everybody at the same time, including executives.

But Delta and Continental have demonstrated some smart ways to address the issue that's vexing American.

American should establish a similar threshold, posthaste. In fact, the company should look at doing something about the payments to be made this month.

A year ago, the officers at Continental gave up their restricted stock awards as a gesture of solidarity after workers agreed to concessions. The stock would have been worth $22.7 million on March 31, 2006 — the day it was scheduled to be paid out.

American leaders have made symbolic moves in the past. Arpey turned down a pay raise when he was promoted to the top job in 2003. He also declined stock options and didn't participate in the performance pay plan that paid out a year ago.

In 2004, when asked about rejecting the incentives, Arpey said, "It just didn't feel right." It still shouldn't feel right. Arpey doesn't have to be the most underpaid CEO forever, but it's too soon to party.