American Airlines Union Plays Games With Executive Pay

DALLAS – Unions at American Airlines have picketed, worn buttons and rented billboards to protest what they consider unseemly management bonuses. Now they're using an interactive Web site game to skewer their CEO.

The Transport Workers Union, which represents mechanics, bag handlers and other ground workers at American, said Thursday it is launching a new campaign to protest stock-based compensation for several hundred management employees later this month.

Similar payments in recent years have totaled nearly $300 million. They are expected to be a small fraction of that amount this time though because the stock price of American Airlines parent AMR Corp. — which lost $2.07 billion last year — has dropped from $40 in early 2007 to less than $3 last month.

In early 2007, Chief Executive Gerard Arpey received a $6.6 million stock bonus as reward for a sharp rise in the company's share price in 2006, but last year his stock bonus fell to $1.7 million as AMR's share price tumbled. The AMR board originally set a target of $2.2 million for Arpey's 2009 stock-based incentive payment. At Wednesday's closing price, the 95,000 units would be worth $320,000 instead.

But any payments stick in the craw of rank-and-file employees who are still working for lower wages they accepted in 2003, when the company was near bankruptcy. Negotiations on a new contract are under way with help from a federal mediator.

Past union protests have failed to block the payments — which labor calls bonuses but management calls "variable compensation."

This time, TWU is taking out ads on news Web sites that feature an interactive game in which players match four U.S. corporate executives with their pay packages. Arpey has the richest deal, mostly due to stock-based compensation.

An official at American's pilots' union recently compared the bonuses to those paid out at AIG, the giant insurer that got billions in federal bailout money. AMR, however, hasn't taken any bailout funds, and Arpey has said he doesn't plan to ask.

"I'm not comparing American Airlines to AIG," said James C. Little, international president of the TWU. "Nobody could stop the AIG bonuses, but we have an opportunity for American Airlines management to say, 'Is this the right time to take bonuses?'"

Missy Latham, a spokeswoman for Fort Worth-based AMR, the nation's No. 2 airline operator, said the company takes "an extremely disciplined approach" to management pay.

"Our plans directly link pay to the company's performance and place a significant amount of management compensation at risk," which is "considered good corporate governance," Latham said. She said American tries to match executive pay with median pay for similar positions in and outside the airline industry.

For senior executives, up to 75 percent of their compensation can come from incentives, while the percentage is much lower for other management employees. The payouts are based largely on how AMR's stock performs compared with other airlines over a 3-year period.

In the last three years, AMR's stock has fallen farther than that of Continental or Southwest but not as badly as US Airways and about the same as shares of United parent UAL Corp.

Latham said the value of this year's stock awards won't be known until they vest later this month, but they are expected to be "significantly below" the targets set by the company's board in 2006.

That, she said, "demonstrates the downside of at-risk compensation."