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commavia
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AA CEO Pay Now 100% Incentive-Based

Wed Apr 22, 2015 9:11 pm

Per AA SEC filing today (emphasis) mine:

On April 20, 2015, the Compensation Committee (the “Committee”) of the Board of Directors of American Airlines Group Inc. (the “Company”) adjusted the compensation program for W. Douglas Parker, the Company’s Chief Executive Officer, to provide one hundred percent (100%) of direct compensation in the form of equity incentives effective May 1, 2015, underscoring the Company’s commitment to paying for performance and further aligning Mr. Parker’s interests with those of the Company’s stockholders. As a result, the Company will no longer pay Mr. Parker a cash base salary, and he will not participate in the Company’s annual cash incentive program.

Interesting - to say the least - in light of AA's approach to performance-based compensation for rank-and-file employees, compared with the strategies of Delta and United.
 
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Stitch
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RE: AA CEO Pay Now 100% Incentive-Based

Wed Apr 22, 2015 9:32 pm

Quoting commavia (Thread starter):
Interesting - to say the least - in light of AA's approach to performance-based compensation for rank-and-file employees, compared with the strategies of Delta and United.

If AA's focus - top to bottom - is on maximizing shareholder return, what focus, if any, will they have for their customers?

In other words, can we expect AA to reduce service levels and increase service fees in order to improve overall financial performance?
 
commavia
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RE: AA CEO Pay Now 100% Incentive-Based

Wed Apr 22, 2015 9:37 pm

Quoting Stitch (Reply 1):
In other words, can we expect AA to reduce service levels and increase service fees in order to improve overall financial performance?

Ultimately, the job of CEOs of publicly-traded companies is to deliver value to shareholders, but I think that Doug Parker would argue that, at least theoretically, some balance must be found between reducing costs through reducing service levels and reducing service levels to the point that you can't competitively attract business.

Recent experience indicates - or at least seems to indicate - that AA's present management team understands this - there have been multiple examples of them arguably electing to "reduce service levels" with the aim of boosting "overall financial performance," only to back off when they realized that the cost reduction was offset/overcome but revenue reduction from dissatisfied customers.
 
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northwestEWR
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RE: AA CEO Pay Now 100% Incentive-Based

Wed Apr 22, 2015 9:48 pm

I like this approach, it will be interesting to see what happens at AA and if any of the other top executives follow in Parker's footsteps. I don't think it will negatively effect their customer service, Parker is smarter than Smisek and knows how to run a customer service business while increasing shareholder value.

Quoting Stitch (Reply 1):
If AA's focus - top to bottom - is on maximizing shareholder return, what focus, if any, will they have for their customers?

You mean like United?   
 
oflanigan
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Joined: Sat Dec 27, 2008 3:22 am

RE: AA CEO Pay Now 100% Incentive-Based

Wed Apr 22, 2015 10:21 pm

For all we know the metrics to judge W's performance is Ontime Arrivals and Bags and customer satisfaction surveys. I'm sure money is in their somewhere too. Might be the best thing for the customers of American.
 
deltal1011man
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RE: AA CEO Pay Now 100% Incentive-Based

Wed Apr 22, 2015 10:35 pm

Quoting oflanigan (Reply 4):
Ontime Arrivals and Bags

Then he wont be getting paid much......
 
gen2stew
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RE: AA CEO Pay Now 100% Incentive-Based

Thu Apr 23, 2015 1:46 am

And yet the line employees get no performance based incentive/ compensation. Hmmm
 
jetblue1965
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RE: AA CEO Pay Now 100% Incentive-Based

Thu Apr 23, 2015 1:50 am

Quoting Deltal1011man (Reply 5):

And if it's based on on time arrivals of AA Eagle, they should claw back his bonus for the past 5 years
 
oflanigan
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RE: AA CEO Pay Now 100% Incentive-Based

Thu Apr 23, 2015 2:05 am

The employees incentive is to earn a decent salary or hourly wage and do a great job while they are at it. Keeping your job is usually a great incentive. Dougie's pay is all performance based, no base salary. So as CEO his incentive is far greater to drive happy employees and good performance. Paying people a decent wage and making it a great place to work is what drive people to want to work somewhere. Parker is owning what happens good or bad, it's not like he can pay everyone $70,000 a year...oh wait.
 
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northwestEWR
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RE: AA CEO Pay Now 100% Incentive-Based

Thu Apr 23, 2015 2:22 am

Quoting oflanigan (Reply 8):
The employees incentive is to earn a decent salary or hourly wage and do a great job while they are at it. Keeping your job is usually a great incentive. Dougie's pay is all performance based, no base salary. So as CEO his incentive is far greater to drive happy employees and good performance. Paying people a decent wage and making it a great place to work is what drive people to want to work somewhere. Parker is owning what happens good or bad, it's not like he can pay everyone $70,000 a year...oh wait.

I dunno, most folks at Delta are paid competitively and profit sharing is still wildly popular. That seems to make people work even harder because their hard work is directly tied to a bonus.

If your pay stays the same regardless, you can easily become complacent and there's little incentive to go the extra mile.
 
deltal1011man
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RE: AA CEO Pay Now 100% Incentive-Based

Thu Apr 23, 2015 2:27 am

Quoting oflanigan (Reply 8):
The employees incentive is to earn a decent salary or hourly wage and do a great job while they are at it.

I'll take the base wage and profit sharing for 500 Alex  
Quoting oflanigan (Reply 8):
Keeping your job is usually a great incentive

no that is a tried incentive. No one likes having their job threatened.

Quoting oflanigan (Reply 8):
So as CEO his incentive is far greater to drive happy employees and good performance.

Not keeping up with labor relations at AA eh?
 
HPRamper
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RE: AA CEO Pay Now 100% Incentive-Based

Thu Apr 23, 2015 3:05 am

Quoting Deltal1011man (Reply 5):
Then he wont be getting paid much......

I'm no expert on recent AA, but US pre-merger had some of the better on-time and bag rates in the domestic industry. US in 2014 was a lot different than US in 2004.

Quoting Deltal1011man (Reply 10):
I'll take the base wage and profit sharing for 500 Alex

I've had jobs that offered profit sharing. At worse there was none - at best it was a pleasant surprise but not something I would ever trade more than maybe .25 in base pay for. Now if you have a higher base pay PLUS profit sharing, then that's a good deal.

Quoting Deltal1011man (Reply 10):
no that is a tried incentive. No one likes having their job threatened.

It's not about having a job threatened. It's actually saying "your job is safer if we don't pay out profit sharing" which is inherently true if we are to assume that an airline making and reinvesting money results in a healthier airline.

Quoting Deltal1011man (Reply 10):
Not keeping up with labor relations at AA eh?

Huh? Labor relations at AA are better than they have been in decades.
 
silentbob
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RE: AA CEO Pay Now 100% Incentive-Based

Thu Apr 23, 2015 6:13 am

Quoting northwestEWR (Reply 3):
I like this approach, it will be interesting to see what happens at AA and if any of the other top executives follow in Parker's footsteps. I don't think it will negatively effect their customer service, Parker is smarter than Smisek and knows how to run a customer service business while increasing shareholder value.

I disagree, too many decisions are already made based on short term stock valuations instead of the long term health of the company.
 
mika
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RE: AA CEO Pay Now 100% Incentive-Based

Thu Apr 23, 2015 6:38 am

Quoting Gen2stew (Reply 6):
And yet the line employees get no performance based incentive/ compensation. Hmmm

Would anyone holding a low-mid level income want to have a 100% performance based salary is my question. I surely would not.
 
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rangercarp
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RE: AA CEO Pay Now 100% Incentive-Based

Thu Apr 23, 2015 11:19 am

Quoting silentbob (Reply 12):
I disagree, too many decisions are already made based on short term stock valuations instead of the long term health of the company.

So true! "Shareholder value" has become synonymous with short term gain in recent years, often at the expense of what is best for the long term health of the enterprise. On the surface it looks like this could be set up as all short term based. I hope I am wrong and there are some longer term metrics tied in.
 
jetblue1965
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Joined: Wed Mar 19, 2014 1:28 pm

RE: AA CEO Pay Now 100% Incentive-Based

Thu Apr 23, 2015 12:16 pm

Quoting mika (Reply 13):

Yea, those are called entry level real estate brokers
 
phillyramp270
Posts: 312
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RE: AA CEO Pay Now 100% Incentive-Based

Thu Apr 23, 2015 12:27 pm

From Parkers own mouth... profit sharing is very expensive for the company and a poor way to pay people.. He rather give us a overall nicer wage And a industry leading CBA (whatever that means in their eyes) than to give us profit sharing

But when I read in between the lines... It wasn't him but the shareholders who really had attitudes about sharing record profits with the whole company... That's what all that is
 
max999
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RE: AA CEO Pay Now 100% Incentive-Based

Thu Apr 23, 2015 1:54 pm

Quoting commavia (Reply 2):

Ultimately, the job of CEOs of publicly-traded companies is to deliver value to shareholders, but I think that Doug Parker would argue that, at least theoretically, some balance must be found between reducing costs through reducing service levels and reducing service levels to the point that you can't competitively attract business.

Maximizing shareholder value works if you improve the product and convince more customers to buy more of what you're selling. However, the US3 have managed to merge themselves into an oligopoly that reducing choice for consumers. Having your 100% of comp based on incentives works in such a scenario...the customers will come with minimal effort from the airline. Anyways, they can always dial back the incentive based comp whenever things turn south in the industry...I don't think Doug Parker is too worried that his comp is 100% incentive based.
 
commavia
Topic Author
Posts: 11489
Joined: Mon Apr 25, 2005 2:30 am

RE: AA CEO Pay Now 100% Incentive-Based

Thu Apr 23, 2015 2:01 pm

Quoting max999 (Reply 17):
Maximizing shareholder value works if you improve the product and convince more customers to buy more of what you're selling.

Indeed - and precisely my point, per the earlier comment about this perhaps incentivizing someone to just dramatically reduce service and cost and doing nothing else. Reducing service and cost only work until that starts reducing revenue.

Quoting max999 (Reply 17):
However, the US3 have managed to merge themselves into an oligopoly that reducing choice for consumers.

Indeed - competition has been reduced. And personally, I'm glad it has, because there was too much competition previously. Nonetheless, competition remains vigorous with multiple competitors in the vast majority of city pairs, and multiple nonstop competitors in the city pairs that collectively account for the vast majority of passengers.
 
Rdh3e
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RE: AA CEO Pay Now 100% Incentive-Based

Thu Apr 23, 2015 2:10 pm

Quoting jetblue1965 (Reply 7):
And if it's based on on time arrivals of AA Eagle, they should claw back his bonus for the past 5 years

Claw back a guys bonus for 5 years who wasn't at the helm of AA for 3 or those 5? Genius!
 
dfambro
Posts: 334
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RE: AA CEO Pay Now 100% Incentive-Based

Thu Apr 23, 2015 2:11 pm

Quoting mika (Reply 13):
Would anyone holding a low-mid level income want to have a 100% performance based salary is my question. I surely would not.

This (and the $1 salary variant) is a gimmick used by some already-wealthy CEOs to ingratiate themselves with the investor classes. If Parker needed cash to, for example, pay a mortgage, they'd be paying him cash.

Even CEOs with conventional pay packages stand to generate much more personal wealth from their stock-based performance compensation than they do from cash salary & bonus, making it very hard to argue that CEOs who get conventional salary & bonus cash compensation are not already well-aligned with shareholder interests.
 
Flighty
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RE: AA CEO Pay Now 100% Incentive-Based

Thu Apr 23, 2015 2:32 pm

Quoting HPRamper (Reply 11):
I'm no expert on recent AA, but US pre-merger had some of the better on-time and bag rates in the domestic industry. US in 2014 was a lot different than US in 2004.

What!!! Oh.. pre-AA merger. Got it. Whew. My blood presssure.

Quoting Phillyramp270 (Reply 16):

But when I read in between the lines... It wasn't him but the shareholders who really had attitudes about sharing record profits with the whole company... That's what all that is

It's ignorant... airline shareholders are known as some of the dumbest people alive. How could they possibly forget what happened over the last 20 years... Unless they don't even have a clue, and never bothered to get one? Oh well, let's enjoy these good times... until the wheels of the wagon hit another rock, and they will...
 
phillyramp270
Posts: 312
Joined: Fri Sep 19, 2014 4:06 am

RE: AA CEO Pay Now 100% Incentive-Based

Thu Apr 23, 2015 2:42 pm

Quoting Flighty (Reply 21):


Corporate greed at its best!!!
 
afcjets
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RE: AA CEO Pay Now 100% Incentive-Based

Thu Apr 23, 2015 2:44 pm

Quoting max999 (Reply 17):

Maximizing shareholder value works if you improve the product and convince more customers to buy more of what you're selling. However, the US3 have managed to merge themselves into an oligopoly that reducing choice for consumers. Having your 100% of comp based on incentives works in such a scenario...the customers will come with minimal effort from the airline. Anyways, they can always dial back the incentive based comp whenever things turn south in the industry...I don't think Doug Parker is too worried that his comp is 100% incentive based.

  

With airlines reporting record profits and fewer competitors, I am sure Parker is very happy. I am curious what the details are, but it sounds like a no lose situation for him in this current environment and this could basically be nothing more than a huge pay increase for him in disguise.
 
Flighty
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RE: AA CEO Pay Now 100% Incentive-Based

Thu Apr 23, 2015 2:54 pm

Quoting afcjets (Reply 23):
With airlines reporting record profits and fewer competitors, I am sure Parker is very happy. I am curious what the details are, but it sounds like a no lose situation for him in this current environment and this could basically be nothing more than a huge pay increase for him in disguise.

Thanks to the favorable merger thus far, Doug can pay his bills even if AA falls through. He a rich man now... 100m, more, or whatever. If he wants to make this headline, good for him. It makes no material difference for him.
 
9w748capt
Posts: 1840
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RE: AA CEO Pay Now 100% Incentive-Based

Thu Apr 23, 2015 2:56 pm

Quoting commavia (Reply 18):
Indeed - and precisely my point, per the earlier comment about this perhaps incentivizing someone to just dramatically reduce service and cost and doing nothing else. Reducing service and cost only work until that starts reducing revenue.

I'm curious how committed Dougie really is to reversing their 9/1 mistakes though. Clearly they realized (as he did when they charged for water on HP/US) that they went too far. I'm curious if the 5/1 changes are mostly cosmetic or if we'll actually see (gulp!) edible food on AA again. In that case I'm sure we'll get even more "going for great" emails from LCC management touting their commitment to customer service. It is nice that they're enhancing the AC experience though - given that layovers are now shorter than they've ever been, I'm sure they anticipate record low usage of the ACs, so again they can send out fancy emails touting a product that few customers will have the chance to use.
 
bhill
Posts: 1890
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RE: AA CEO Pay Now 100% Incentive-Based

Thu Apr 23, 2015 3:03 pm

Does this include his entire compensation package? Or just his "wage?" If not his entire package....BFD...
 
slider
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RE: AA CEO Pay Now 100% Incentive-Based

Thu Apr 23, 2015 3:17 pm

Quoting northwestEWR (Reply 9):
I dunno, most folks at Delta are paid competitively and profit sharing is still wildly popular. That seems to make people work even harder because their hard work is directly tied to a bonus.

THIS. Profit sharing is a motivational tool, and one that should be applied equally among all employees. It is a huge part of human motivation, whether Parker likes to admit it or not.

Quoting Phillyramp270 (Reply 16):
From Parkers own mouth... profit sharing is very expensive for the company and a poor way to pay people.. He rather give us a overall nicer wage And a industry leading CBA (whatever that means in their eyes) than to give us profit sharing

I find this hard to fathom, because DL folks got some major profit sharing last year, equivalent of over 16% of their pay, if I'm not mistaken.

Certainly, part of this is double-speak, but I bet if you level-set similar jobs between AA and DL, you wouldn't see the differential equal to the profit sharing DL paid....it's a little disingenuous by Parker I think to say this, ESPECIALLY since any CBA at AA would then be mirrored by other carriers *generally speaking* anyhow, AND those other folks get profit sharing on top of it!
 
afcjets
Posts: 3832
Joined: Thu Jan 01, 2015 6:20 pm

RE: AA CEO Pay Now 100% Incentive-Based

Thu Apr 23, 2015 3:30 pm

Quoting Slider (Reply 27):
THIS. Profit sharing is a motivational tool, and one that should be applied equally among all employees. It is a huge part of human motivation, whether Parker likes to admit it or not.

Not only is it motivational but it makes employees accountable to each other. A flight attendant is less likely to go back to the galley and brag about how she put 3D in his place.
 
phillyramp270
Posts: 312
Joined: Fri Sep 19, 2014 4:06 am

RE: AA CEO Pay Now 100% Incentive-Based

Thu Apr 23, 2015 3:52 pm

Quoting Slider (Reply 27):

I cant post the video cause corporate security would have my ass but that's what he said in a nutshell
 
oflanigan
Posts: 196
Joined: Sat Dec 27, 2008 3:22 am

RE: AA CEO Pay Now 100% Incentive-Based

Thu Apr 23, 2015 5:28 pm

Just to be clear Profit Sharing (Bonus) is not Pay for Performance. It appears Parkers' compensation will be Performance based.

My time working for an airline saw hard workers and not so hard workers. Not a single good hard worker ever said "I'm working extra hard today so we meet that on-time goal so we get that profit sharing bonus". And no not so hard worker ever sad " I can be lazy today because we all are getting profit sharing anyway". It was a bonus that showed up and was greatly appreciated but nobody spent too much time thinking about it. You looked at your hourly rate and planned your life around that. Did it permit the company to pay everyone a lower wage striving for Profit Sharing? Of course. No ramp workers goes to work for Delta because he heard they have Profit Sharing. They show up cause they heard they make 9.50 an hour or whatever and get flight benefits.

If airline employees want pay for performance like CEO Doug Parker I think they should strive to include that in their next CBA. If its truly about rooting out bad co-workers and rewarding good employees then I welcome that effort.

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