Stock-based compensation awards at AMR: Let's talk timing - Runway Girl Blog - http://www.flightglobal.com/blogs/runway-girl/2008/05/amr-and-executive-compensation.html

From
a public relations standpoint, the timing couldn't be worse. AMR Corp's
board of directors boosted the stock-based compensation of its five
most senior executives just one day before the company announced major
capacity cuts, job losses, potential facility closures and that
controversial $15 charge for the first checked bag.

A 22 May filing to the US Securities & Exchange Commission (SEC) details the combination of stock appreciation rights, deferred share awards and performance shares earmarked for chief executive Gerard
Arpey; CFO Thomas Horton; EVP-marketing Dan Garton; EVP-operations
Robert Reding and SVP & general counsel Gary Kennedy.

The
at-risk awards were agreed on Tuesday, May 20th. Strike price on the
shares options were based on AMR's closing price for that day. On
Wednesday, management revealed its capacity-reduction plan, citing record high fuel prices, growing economic concerns and a difficult competitive environment.

Sure,
the filing is procedural. "Every year our [board] compensation
committee has to approve the stock awards for that particular year,"
notes an AMR spokesman. And yes, with AMR's share price worth over three times less than in 2007, the actual value of the compensation appears slightly lower than what was awarded last year.

But
all of that must be cold comfort to the thousands of workers at
American Airlines and American Eagle Airlines, who now face the very
real possibility of losing their jobs.

The Allied Pilots Association (APA), which represents American's pilots, is already making known its discontent. It says: "To
illustrate the magnitude of this stock-based compensation, Arpey is
slated to receive stock appreciation rights for 286,000 shares, 116,000
shares under the deferred share award agreement, 58,000 career
performance shares, and 230,000 shares under the performance share
plan.

"The
number of shares awarded to Mr. Arpey under the performance share plan
is more than triple the number he received for 2007, with the other
four senior executives also receiving much larger numbers of
performance shares. Also, Mr. Arpey could ultimately collect up to 175%
of the 230,000 performance shares and 58,000 career performance shares
he is eligible to receive, depending upon how AMR stock performs."

That
final sentence is important, of course. Everything depends on AMR's
stock performance. Nonetheless, even seasoned veterans are crying foul.
"While senior management announces a
large fleet reduction and capacity cut, they've quietly feathered their
own nest...several millions more in executive compensation while the
line employees are dreading cutbacks and furloughs," says an
American pilot, who does not represent the union.

AMR
points out, however, that Arpey's total compensation in recent years
has been more than 50% below the median for CEOs at comparable
companies. And it makes several other points in an email to me. They
are that:

n      Gerard's
cash compensation in 2007 included $656,500 in salary and zero in
short-term incentive awards (which we consider a cash bonus and which
hasn't been paid since 2001 for the 2000 performance).

n      While
it is the board's intent to bring Gerard's compensation closer to
median, in light of the current financial condition of the industry and
the company, the Board decided to keep Gerard's 2007 salary at the same
level that he had in 2006, except for the 1.5% increase in base salary
that all AA employees.

n      At
risk compensation is an important element of our compensation program,
which generally represents more than 75% of the proxy officers' total
compensation.

n      At
risk means that it is not guaranteed. The April 16 vesting of the
2005/07 performance share plan is a good example of what we mean by at
risk.

n      At
an $8.92 share price, individual proxy officer PSP (performance share
plan) amounts were 73% to 75% lower than in 2007 and 52% to 56% lower
than in 2006.

n      Gerard's
PSP distribution in April was valued at $1.67 million, 75% lower than
his 2007 distribution. (received $6.6 million in 2007; $00 in 2006,
$130,061 in 2005 and 151,020 in 2004).

n      Some
people might forget that Gerard's PSP payout was ZERO for 2006 because
he declined stock awards when he was promoted to CEO in 2003. He
received less than $300,000 combined in this category in when his
performance share grants vested in 2005 and 2004. Again, this is what
we mean by at risk.

n      According
to one of our compensation consultants, Hewitt Associates, use of
performance shares at Fortune 200 companies has grown from 37% in 2005,
to 46% in 2006 and 54% in 2007.

n      In
fact, performance shares are becoming a bigger part of the mix of
long-term incentive compensation for corporate officers. According to
Hewitt, among large US companies, Performance Plans represented 17% of long-term incentive compensation in 2005, 34% in 2006 and 42% in 2007.