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Holly Hegeman’s follow-up on award to Arpey – April 2007

From:  PlaneBusiness, April 2007

 A few weeks ago, Holly Hegeman wrote an article in "PlaneBusiness" giving Gerard Arpey the "Ron Allen Award" for worst CEO of the year. She's written a follow up article here.

Holly Hegeman is an industry journalist who writes an online column titled "PlaneBusiness." The following column deals with AMR managment and more specifically the upcoming PUP bonuses.

PlaneBusiness Ron Allen Award: Follow-Up   

This week United Airlines employees are up in arms, and rightfully so, over the disclosure of the airline's management team's excessive 2006 compensation outlined in the airline's proxy statement. But while all this is ratcheting around the industry, I am still digging out from under the biggest reader response we have ever received here at PlaneBusiness Banter.
 
That response is in reference to our recent column that awarded our 2007  PlaneBusiness Ron Allen Airline Management Award to American Airlines CEO Gerard Arpey.
 
At last count, I have now received far in excess of 1000 emails and/or phone calls dealing with the column.
 
Interestingly, many outside the industry, and even some inside the industry, are quick to paint the situations at United and American with the same broad brush — just a matter of unions versus management, against the backdrop of management compensation.
 
But as we said when we presented the Ron Allen Award to Gerard, the problem at American is not as simple as that. It is a problem that goes back a long time. And it is actually fundamentally a management "attitude" problem, one that the airline has thrown millions of dollars at, in an attempt to "fix" it. But it is apparently an attitude so deep-seated in the management "culture" thinking at American, that there may not be a management consultant on the planet that is going to be successful in making management understand how this attitude is perceived by employees.
 
In one of the e-mails I received this week someone mentioned how the airline needs a "white knight." Someone who not only understands the importance of transforming the deep-seated American Airlines management mindset, but knows how to do so. A culture king or queen, as we sometimes describe them.
 
In other companies this could be the head of the airline's corporate communications function. With some airlines, it starts at the top with the CEO. But Roger Frizzell is clearly not this type of person. And neither, apparently, is Gerard Arpey.
 
Jeff Brundage, the airline's SVP of Human Resources? He's in a position where he could be that person. Jeff is a smart guy. But he's not been able to fill the role either.
 
Instead, the airline went outside in its quest for the "white knight", to a consulting firm, in an effort to "change the employee/management culture problem."

There's only one problem with this type of move.
 
A move like this is never successful unless a member of top management is 100% behind it, and not only talks the talk, but genuinely believes that there is a problem, and believes in the proposed solution. This person then becomes that internal "white knight." The one who continues to work at the very difficult task of changing a company's culture.
 
The shift in culture at Continental Airlines is the perfect example of how a legacy airline was able to cast off its negative past, and adopt a more employee-centric management attitude.
 
But if a sincere "buy-in" of management to the change does not happen, no matter how it is attempted, then any positive changes that do occur will be mere temporary window-dressing, and will die on the vine when management inevitably reverts back to its ingrained way of thinking.
 
And that is exactly what many, including myself, think has happened at American Airlines.
 
Another frequently mentioned item in many of your emails concerned Gerard's perceived "insular" way of managing.
 
There's no question that Gerard's not very comfortable when he's not on familiar turf. That is why he inherently distrusts members of the media. And no, he's not a very outgoing, gregarious sort of person. As I wrote in the column, his personality is more suited to the role of a financial manager, than that of a motivational big-picture CEO.
 
And yes, this is a negative. Because I think the argument could be made that in a time of stress and change, employees of an airline want to see a dynamic effective CEO who is able to create an emotional impact on connection with his employees. They want, to put it simply, a leader.
 
And no, they don't have to be a Herb Kelleher Klone.
 
I think that Gerry Grinstein just did this with his employees at Delta. And look how he did it. Gerard and Company could learn a lot by looking at what Gerry just did and why he did it.
 
Leadership comes in different flavors.
 
The "insular" rap also refers to the fact that Gerard and top management at American do not seem to be willing to listen to those with opposing viewpoints.

One subscriber wrote us last week to tell us that when asked about our column, American Communications VP Roger Frizzell made the comment that what I had written was not important. That I was not a "credible" journalist.
 
Bingo. No concern apparently with whether anything I said was, or was not, on the mark. Just go straight for the character assassination. If that is how he feels he should respond, then I think that says it all.
 
And it's that attitude that employees are too well aware of.
 
And you know what? It's ultimately Gerard who signs off on that attitude. He's the CEO. It starts at the top. Roger would not have said that unless that attitude was shared by top management.
 
As I said, Gerard does have another option. He could have in his employ a "court jester," someone to act as that cohesive cultural touch point. But I fear he doesn't even understand what that person should be, or the importance of that type of input.
 
Gerard's public persona only adds to the perception by employees that he's "unreachable," insular, not friendly, not sociable, and not a man willing to get out there and mingle with the masses.
 
As a result, this then leads into the perception that management at the airline sees itself separated from the rest of the employees, hidden away up there on the sixth floor.
 
Case in point — the "incentive" plan that is now once again about to pay out millions to the top execs. As I mentioned in my original column, instead of being defensive about the payments that his management team "earned" under this program last year, Gerard should have simply agreed that there was a problem with an airline that was still losing money paying out bonuses.
 
He should have then explained that the program was being changed — so that it was not tied to stock performance. But to earnings performance. He could have made this happen very easily. And then the incentive "bonus" would become a meaningful bonus plan — based on real company performance.
 
With that simple move, Gerard would have made himself a hero. He would have proved that 1) he was listening 2) he understood why many of his employees were upset and 3) he was motivated to "do the right thing."
 
But no. We didn't see that happen. And we still haven't seen it happen. And I guess we're not going to see it happen.
 
Which leads me to only one conclusion: Gerard thinks the current "incentive" scheme, based on the airline's stock price, is just fine. That it's okay to pay out millions in bonuses even when the airline has not fully recovered financially.
 
Maybe that is why he refused to speak to the New York Times this week when they did a story on the bonus payments. Funny, he had no problem speaking to them when the airline set up a story with the Times last year. But I guess this is different.
 
And again, it pretty much falls into line with what we've been discussing.
 

Here is just a small sampling of the hundreds and hundreds of emails we received over the last two weeks.

       Holly you wrote:

       "Gerard, the financial guy, obviously forgot about a very important part of any CEO's job — the part about being a leader. There were no pay raises for management between May 1, 2000 and April 30, 2003."
 
       You write the first sentence as if Arpey has EVER been a leader.
 
       After he took over in 2003, it was fully nine months before he went on the road to different bases to talk about the airline and its challenges.
 
       In the meantime, I think there were two letters from the CEO stuffed in mailboxes.
 
       He IS a bean counter, and like bean counters everywhere, he thinks that if there's no place on the balance sheet for something it doesn't exist, hence morale is unimportant. In fact, he has said publicly on more than one occasion that personal morale is each employee's own job, not his.
 
       Second, speaking about the pilots, not only had we not had any raises since August 2000, we were well behind the industry in pay when we took our 23% pay cuts – not to mention the myriad displacements which caused further monetary damage.
 
       The frustrating thing to us as employees, and specifically pilots, is we know how much better this airline would be if we had someone at the helm who actually understood people. I've been here since 1991 and we never have.
 
      It would be one thing if Arpey had Herb Kelleher reincarnate as president, so he could delegate the morale building to someone.
 
       But the problem is that these executives breed similar types of executives, and now the morale problem is so endemic that the VP's don't even realize there is a problem – and worse, they don't care.
 
       Sure, the planes still go, usually, and the operation runs pretty smoothly as long as there are no problems. But if there is a problem, things grind to a halt not because there's a lack of people, but because there's a lack of people who give a flying fig enough to get the problem fixed in a timely manner.
 
       People are fed up on the property, and things are going to get way worse operationally before they get better.       

       And Arpey won't even understand why.  
       _________________________
 
 
       Dear Holly Hegeman,
 
       I am a Flight attendant at American Airlines.
 
 
       A friend sent me a copy of your PlaneBusiness Ron Allen Airline Management Award column.

       While as a whole, you have it right, and I could not agree with you more on the bulk of the column, I do have a few things I would like to add and/or correct.
 
       First of all you state: "While some might look at these numbers and say, "that doesn't look that bad," when you compare it to the 17.5% cut that the union members took, there's more to the equation."
 
       Sorry, But to which Union members are you referring to?
 
       As a Flight attendant union member my pay cut-bottom line-was more like 31%.
 
       Sure, my salary was cut only by 15.6%, but so was my incentive pay. Extra pay for working the graveyard shifts, working in the Galley, pay for special qualifications (language, purser position), supplemental pay for reserve months, holiday pay and more, were either entirely cut or severely reduced. My contributions to medical and retiree benefits doubled, crew meals removed entirely (no food when locked in a plane for over 8 hours!), accrued vacation eliminated, and future accrual cut, and more.
 
       Again bottom line, 30+% pay cut. (pay stubs available on request as proof!)
 
       Pilots, while their initial pay cut was around 25%, that was later reduced to around 20%, and they too, suffered other cuts, though not as much as the flight attendants.
 
       Middle management has seen their vacation accrual restored.
 
       Now I'd like to add a few facts…
 
       From the 2005 Proxy statement of AMR , filed with the SEC.
 
       G. Arpey took a 3% pay cut in 2004 followed by a 1.5% raise in 2005 and a 23% raise in 2006.
 
       His right hand man, Dan Garton, took a 2.8% pay cut in 2004 followed by a 5.5% raise in 2005.
 
       This does NOT include their share of $101 million in performance bonuses received.
 
       The next 3 VP.'s listed (James Beer, Gary Kennedy, Robert Reding ) took no pay cuts or even reduced their raises.
 
       Kind of puts a different spin on the corporate Public Relations mantra of "pull together ,win together" and "SHARED Sacrifice", doesn't it?
        ___________________
 
       Holly – masterful job of capturing the "opportunity lost" at American Airlines. I was truly amazed by your insight and depth of understanding. In my unique position, believe me, I know. I continue to shake my head in disbelief of what I have observed over the past 16 months.
        ____________________
 
       Thank You for saying what so many of the employees are trying to make public. As always it sounds better from an outsider to discuss the problems with AMR management than for employees to do so. I could go on and point out more obvious blunders but the point is already well made.
        _____________________
 
       Dear Ms. Hegeman; Thanks for expressing our thoughts precisely. You nailed it!!!
 
       If only management had an inkling of a clue of what their greed has cost in terms of trust and cooperative employee sacrifice. Mr. Arpey seems as inept as Bozo Carty when it comes to understanding "shared sacrifice" and "shared" rewards.
 
       _____________________
 
       Holly,
 
       As always, you are spot on in your assessment of why Arpey deserved the Ron Allen award this year. I am always quick to point out to anyone who asks that my issue with executive compensation in the airline industry isn't the money itself. Anybody deserves what they can negotiate for themselves (I know if I could get a million a year for the Dispatchers I'd take it without thinking twice). The issue is a failure of leadership.
 
       You accurately point out that the idea of shared sacrifice comes to a grinding halt when the highest levels of management enrich themselves in the face of significant sacrifice on the part of the employees. That says it all. Nobody is actually interested in running airlines anymore. If they were, they wouldn't do this. You can't run a good airline with a demoralized workforce and these bonus packages demoralize employees about as quickly as anything could. I can tell you that on a daily basis these executive compensation issues take center stage with my constituency.
 
       At our recurrent training last fall, Pete McDonald came down to speak to the group. Fairly early on in the session he was asked how he could justify his pay and bonuses when the employees had just taken such significant cuts. His answer basically was, "because I deserve it". He instantly pissed off every employee in the room and effectively negated his ability to lead. Even if these guys made some symbolic gesture like donating some of these proceeds to one of the foundations established in the wake of 9/11, that would be something, but they take this money and they are arrogant about it while they do so. Maybe your award will wake some people up, but I doubt it.
        ___________________________
 
       Holly,
 
       Don't you feel like you are going through deja vu all over again? Is this same attitude of management at AMR not what you saw when you had the chance to get close to top management there many moons ago?
 
       It just seems to me that it's gone back full circle. I wanted to think that things were going to improve — but this is like retrovision. With way too much pixilated noise.
      Your piece was excellent — this company is rudderless emotionally. There is a vacuum on the sixth floor — and it's not a Dyson.

       Take care.
       ___________________________
 
       Ms. Hegeman,
 
       The problem is simple. If management wants the employees to engage in "shared sacrifice," then the management of the airline cannot exclude themselves from that same mantra.
 
       If they do — their credibility as leaders is lost.
 
       Case closed.
        ____________________________

        Holly,
 
       Thanks so much for mentioning us management denizens in your Ron Allen column. It was so good to see someone talk about the problems without resorting to the union versus management crap. It's bigger than that, as you point out. It's management versus employees.
 
 
       You're right. People are leaving. And for those of us who haven't left, our workloads have exploded. You were right too when you talked about the airline simply not replacing people who do leave.
 
 
       Net is that my days here are numbered. I've stayed because my husband went back to school to get his law degree. But he's out and working now, so come May, I'm gone. It will be a sad, sad day. But on the other hand, I won't miss the stress and the frustration levels that seem to get worse. I can't wait for the public announcement about the next round of "bonus" payments. I'll just keep thinking, "I'm outta here….I'm going to be leaving."
 
       Your analysis was excellent — this place needs some new blood. New thinking. And not someone who is here only because they are at the other end of a consulting check.
        _____________________________
 
       Holly,
 
       Back when Ralph Hunter and Gerard Arpey held hands together and ran through the fields of flowers I envisioned one of the two scenarios below. Remember this is just my guess that I held at the very beginning of this love fest.
 
       (1) A long, long time ago as the dinner table was being cleared after the big Christmas meal Gerard and his dad retired to the library where cigars and brandy were served. As dear ole dad settles into his favorite chair he tells his son, "Boy you are going some place in this airline business. Bob Crandall and Don Carty are grooming you for bigger and better things. Son let me tell you about my past. While I'm not proud of what I've done I was a good soldier. Frank Lorenzo gave me my marching orders and I carried them out to the best of my ability. By being a good soldier Frank paid me very well. We lived in a nice house, your mom got a new car every year, you kids went to the finest schools and we had some wonderful vacations together. Son if you do get the chance to run an airline don't follow in my foot steps."
 
       (2) As young Gerard Arpey was working his way up the corporate ladder at AMR he said to himself, "One day I'm going to run an airline and if I ever do get to run an airline I'm not going to treat the employees the lousy way Frank and Dad, Bob Crandall and Don Carty have. Just look down the highway at Love Field with Herb. They love him. They absolutely love him and here at AMR they hate Bob and Don. Someday if I ever have a shot at running an airline I'm going to run it just like Herb."
 
       What happened to young naive Gerard Arpey you say?
  
       My guess is he didn't have the seasoning to say NO to the 900 – 1000 +/- executives that make up the PUP. Oh sure Arpey had to keep what I call his stallions happy. Those are the five or so executives who can really make or break a company just by pulling up stakes. Those stallions have to be kept happy by some sort of incentive package but the rest of the bums we are ten deep on and when one falls there is someone there to keep the flag from falling.
  
       Flight Ops is a classic example. Captain Fury's favorite target is Mark Hettermann and he could be replaced over night with someone in the Flight Ops management ranks who could do a better job then him. And there are others, all with the same story, scattered throughout AMR. As you know.
 
       None of these Bozos deserve the millions of dollars they are raking in for doing a mediocre job. If Bob Crandall was running the show, you know what he would have done. He would have told them no — no incentive payouts, but I'll take care of you later. Let me get my three big unions under contract and then I'll turn on the faucet like the good old days.
 
       But here we have another scenario playing out. I think the middle managers got to Gerard and told him he was screwing them. These are the guys and girls not that long ago he was sharing the water cooler with, exchanging stories of kids growing up, these were his friends — but the rest of the employees are just numbers on the ledger page.
 
       For a brief moment in airline history he had something going. He really did. All the planets had aligned in his favor. His Utopia Airlines was going to become a reality and Ralph Hunter was his portal to nirvana but alas, the Dark Side dragged him back.
 
       Instead of Utopia Airlines, we're now faced with Neverland.
        ____________________________
 
       Holly,
 
       Overland Group? Union busters. Hired guns? What management does when it doesn't know how to do it themselves.
       And so it goes.
         ____________________________

       Many of the emails are long. The vast majority are thoughtful.
 
       It seems the biggest mistake I made in the column was getting into the particulars of the amount of salary cuts employees had been asked to give up. Many emails sought to give more color and detail as to just how much they were asked to give up — depending upon their position. Many argued with my numbers, giving me different ones that are more specific to their particular situation.
 
       The odd thing? I did not receive one negative email. Seriously. The only one that I would classify as remotely negative came from an American pilot, who objected to APA President Ralph Hunter using our column in one of his missives to the troops.
 
       And that was it.
 
       So this PlaneBusiness Ron Allen Award set two new records. No negative emails or conflicting opinions voiced by readers, and a record-setting number of comments.
 
       Given our 10 years of doing this, I think that says a lot. And it's not a positive for American Airlines.
 
       Thanks again to all who have written in to comment. Hopefully I'll finally finish responding to all of you in the next week.

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Contract & Scheduling Desk
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Chat APFA

After-Hours Live Chat
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APFA Events

4Q23 EC Meeting

February 22 @ 9:00 am - 5:00 pm

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APFA Headquarters
1004 West Euless Boulevard
Euless, Texas 76040

M-F: 9:00AM - 5:00PM (CT)
Phone: (817) 540-0108

Call APFA

Contract & Scheduling Desk
M-F: 7:00AM - 7:00PM (CT)
Phone: (817) 540-0108

Chat APFA

After-Hours Live Chat
M-F: 3:00PM - 11:00 PM (CT)
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APFA Events

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