Special HotLine Update
APFA Indictment of AMR Executives – Charges Nine, Ten, and Eleven
Thursday April 14, 2011
The charges of corporate misdeeds against AMR executives are piling up, today APFA announces counts nine, ten, and eleven. These highlight the executives’ manipulation of their compensation package to line their pockets with millions in bonuses regardless of company performance. It’s pay with no regard for performance.
Tomorrow the final charges will be announced to reveal the full Indictment against AMR executives and it will be time for the 18,000 Flight Attendants who have been subjected to these abuses to vote on all 14 charges. Voting at APFA.org will begin at noon (Central) on Friday, April 15 and end at noon (Central) on Tuesday, April 19. The verdict will be issued on Wednesday, April 20 at picketing and leafleting events across the system.
Remember this indictment is the first salvo in a campaign to expose the unrestrained and undeserved corporate greed of AMR executives while the company continues to lose money and Flight Attendants continue to struggle to pay their mortgages and support their families.
Once the April 20 verdict of the Flight Attendants is announced, APFA will shift the playing field and send the indictment and verdict to AMR’s Board of Directors, its 100 top institutional investors, its principal vendors and Wall Street analysts.
Then, assuming a guilty verdict, APFA will take the ultimate step and call for the removal and replacement of the executives who have destroyed our company while padding their bank accounts.
IN THE COURT OF PUBLIC OPINION: CHARGES NINE, TEN AND ELEVEN OF THE APFA INDICTMENT ARE:
CHARGE NINE: For Manipulating the Executive Stock Plans so that the Loss of Shareholder Value Would Not Affect Their Awards
Since assuming office the Executives, along with their cohorts on the AMR Board of Directors, have concocted a series of executive incentive stock plans that generate huge financial windfalls despite American’s actual performance. In 2010, in response to the fact that over the past few years AMRís stock price had dropped by more than 50%, they nearly doubled the number of shares the Executives could receive in annual performance bonuses. The Executives thereby escaped the destruction of value they visited upon the airline’s shareholders.
CHARGE TEN: For Manipulating the Performance Share Plan so that 50% of the Executives’ Awards Are Guaranteed
The manipulation of the Executives’ incentive stock awards is not limited to increasing the pool of shares by almost 100%. Certain payouts to the Executives are derived from annual stock awards which are based on the Company’s relative stock performance compared to those of certain designated competitors. This plan, known as the “Performance Share Plan” (“PSP Plan”), provides that the AMR Board of Directors annually determines the percentage of a targeted number of shares each Executive will receive. Until last year, the stock award was tied to AMRís relative stock performance among seven carriers and could range from 175% of the targeted number of shares for achieving the best result to 0% for producing the worst results.
In 2009, the Executives and the AMR Board expanded the group of comparators to ten carriers, which would be used to determine the size of the stock awards under the PSP Plan for fiscal years 2008, 2009 and 2010. They left in place the same range of payouts, from 175% of the targeted shares for first place to 0% for tenth place.† Importantly, the plan also provided that if any competitor’s shares stopped trading for any period, that carrier would be removed from the comparator group. The allocation of shares, however, would remain the same. An eighth place finish among ten carriers would provide the Executives with 50% of the targeted number of shares, as would an eighth place finish among eight carriers, assuming the list had been reduced by two airlines. Executives could now receive a substantial portion of the targeted number of shares even if AMR was ranked last among its peers.
The adjustments to the PSP Plan in 2010 were not made in a vacuum; more than a year before, the Delta and Northwest transaction had been completed. Nonetheless, the stock plan still included Northwest as one of the ten designated competitors. Also, in early 2010 a merger of United and Continental was widely anticipated and shortly thereafter was actually announced and consummated. As a result, two airlines will have been removed from the group of ten and the compensation formula of the PSP Plan will measure AMRís stock performance against the eight remaining comparators. Thus, no matter how far AMRís stock performance has lagged behind its competitors, the minimum PSP Plan payout to Executives in April 2011 will be 50% of their targeted shares. Even though the stock performance of AMR compared to the eight carriers was the worst by a wide margin, the Executives will realize millions in stock awards, purely as a result of the comparator group shrinking.
The AMR Board purportedly created the PSP Plan so that at least a portion of the Executive’s compensation would depend on the companyís performance and therefore, be “at risk”. However, the PSP Plan now guarantees these individuals at least half of their targeted number of shares. Moreover, the amount of risk-free compensation will increase to 75% of these shares when the comparator group is reduced to seven carriers, following the merger of Southwest and AirTran.
By increasing the number of targeted shares in the PSP plan and devising this fail- proof payout arrangement, the Executives have accomplished what few in corporate America would dream possible – pay regardless of performance.
CHARGE ELEVEN: For Attempting to Conceal Executive Incompetence
American’s Executives have avoided taking responsibility for the Companyís losses. As amply demonstrated in two White Papers prepared by APFA last year, the differences in costs at American and those at other airlines are attributable to operational distinctions which are mandated by management and not determined by collective bargaining agreements. By falsely claiming for the past several years that Americanís labor costs are far higher than its competitors, the Executives have wrongfully attempted to divert attention from their own culpability for the airline’s performance.