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AA Cuts Executive Cash Payout: Union Pressure Reduces the Bonus Package to an 80 Percent Stock Award.

Posted on: Saturday, 1 April 2006, 12:00 CST

By D.R. Stewart, Tulsa World, Okla.

Apr. 1--In a move to appease its unions, the board of directors of AMR Corp., the parent company of American Airlines, has agreed to amend a management compensation plan from an all-cash to a 80 percent stock award.

The changes agreed to by the board provide for a combination of stock and cash distributions for compensation granted under the 2003-2005 performance share plan, which awards managers for meeting performance objectives. The board also voted Friday to make similar changes to the 2004-2006 plan.

Jeff Brundage, American's senior vice president of human resources, said the revised plans were necessary following management-labor discussions of compensation issues in recent weeks.

"The AMR board of directors has come to a decision intended to provide a fair balance between structuring market-competitive levels of management compensation with issues expressed by our union leaders and employees," Brundage said in a written statement.

"The objective of the AMR board in making this change is to . . . resolve the grievances brought by American's unions and to support management, the unions and all employees in their efforts to work collaboratively to restore the company to financial health and avoid the confrontational path taken by other airlines," he said.

Ralph Hunter, president of the Allied Pilots Association, which represents more than 13,000 pilots at American, said the board's compensation amendments will preserve cash and good will.

"This change to the form of the award payments will result in the retention of tens of millions of dollars that would have been paid out under the previously disputed plan," Hunter said in a written statement. "That means American Airlines is that much stronger than it otherwise would have been absent the leadership shown by APA," the Association of Professional Flight Attendants and the Transport Workers Union.

The management compensation dispute came to light in January after the company announced it intended to pay managers $100 million in bonuses despite mounting losses and salary and benefit cuts by workers.

The pay dispute also threatened to derail a 3-year-old effort by CEO Gerard Arpey to forge closer ties between management and labor.

At a time when most of the traditional network carriers are in or emerging from bankruptcy with poisoned labor-management relations, Arpey has persuaded executives and labor unions to work together to cut costs and increase efficiency.

The pilots association's Hunter said he hopes the compromise reached on the management compensation issue will carry forward.

"APA and management will no doubt continue to have our differences," Hunter said. "To a significant degree, that is the nature of our respective roles. How we resolve those differences will determine how effective we are in maintaining a constructive working relationship, which I believe is critical to the future of our airline.

"In this particular instance, it appears that we have achieved the best possible outcome over a highly contentious issue."

In their meetings with AMR executives, representative of the pilots, flight attendants and mechanics said the management compensation program violates a 2003 agreement establishing annual incentives that were to align management compensation with pay for line employees.

The unions have filed a grievance about the management pay issue with a neutral arbitrator, who has not issued a ruling on the matter.

In 2003, faced with an impending bankruptcy filing by AMR, the unions agreed to $1.8 billion in pay and benefit cuts over five years.

From cash reserves of $1 billion three years ago, AMR improved its cash and short-term investments to $4.3 billion on Dec. 31.

American spokesman Tim Smith said the company expected to have $4.5 billion in cash and short-term investments at the close of business Friday, the end of the first quarter.

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D.R. Stewart 581-8451 don.stewart@tulsaworld.com

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Copyright (c) 2006, Tulsa World, Okla.

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NYSE:AMR,

Source: Tulsa World

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