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April 25, 2014

American CEO Parker explains his $20.9 million executive compensation to employees

American Airlines NASDAQ 03American Airlines chief executive Doug Parker earned about $20.9 million in executive compensation at the airline and its merger partner, US Airways in 2013, according to a filing made on Friday.

Parker, who was CEO of US Airways for most of last year, earned $5.5 million at US Airways and another $15.5 million at American, most of which was a restricted stock grant. HIs compensation while leading US Airways was about the same as it was in 2012.

"Going forward, I have told you that I don’t believe I should be paid the same as my peers at Delta and United until you are. And as we announced in January, our Board has set my 2014 target compensation at levels approximately 20 percent lower than the target compensation of those two CEOs," Parker said in a letter to employees.

In 2013, Parker's salary at US Airways was $550,000 and he will earn $700,000 in salary this year at American.

Parker's compensation at American in 2013 included a $15.4 million restricted grant he was given when the merger closed on December 9 where the stock cannot be sold immediately.

Half of the shares will vest on December 16, 2015 and if the carrier has received its single operating certificate from the Federal Aviation Administration, another 25 percent will vest on that date. If they have not received their certificate by that 25 percent will vest on the certificate date or December 9, 2016, whichever comes first. The remaining 25 percent will vest when the board determines that $1 billion in merger synergies have been achieved for fiscal year 2015 and fiscal year 2016.

Several executives at the former US Airways were also given stock grants with the same restrictions as Parker’s grants. The stock was awarded in return for the executives waiving contract terms that would have allowed them to resign from American and receive large severance packages that could have been worth more than the stock award.

According to the filing, former American chief executive Tom Horton received over $19 million in executive compensation in 2013, which included $11.9 million in a cash severance payment. Horton will step down as non-executive chairman at American prior to the carrier's first shareholder meeting on June 4 in New York.

Keep reading for the full letter from Parker to employees.

-Andrea Ahles

Dear Fellow Team Members,

Today we filed a series of documents with the Securities and Exchange Commission (SEC), which are available on aa.com and the SEC’s website. Included in those filings are the required annual disclosures about my compensation. In keeping with the spirit of transparency about how I am paid and how our results affect that pay, and as I have done for many years previously at US Airways, I want to walk you through what was included in today’s filings regarding my 2013 compensation.  

First, like our earnings reports, the merger makes it difficult to understand this year’s compensation report. For example, my SEC-reported compensation for 2013 includes the significant equity grant of approximately $14 million that I disclosed to you at the time of the merger, so my total compensation is listed at $17.7 million. This grant was definitely compensation that should be reported but as you’ll recall, it was a one-time grant at the time of the merger from the Board of Directors. At the same time, we eliminated contractual rights that would have allowed me to terminate my employment at any time over the next two years and receive even more than the value of the stock grants. So, including them doesn’t accurately reflect my regular annual compensation at American. Furthermore, simply subtracting those grants from the total doesn’t portray an accurate picture either because certain items, like my salary, are only included for the period I worked at American in 2013 – which was less than a month.

So, to better represent my regular annual compensation, our filing includes a separate table that excludes the special merger equity grant but includes all of the compensation I was awarded at both American and US Airways in 2013. As detailed in that table, my total regular compensation was $5.5 million in 2013 and was comprised of the following components:

Base Salary: My base salary for 2013 remained, as it was since I became CEO of America West in 2001, at $550,000. In early 2014, my American base salary was set at $700,000, as I’ve previously shared. This is well below the $850,000 average base salary of my peers at Delta and United. My salary is the only part of my total compensation that is fixed; the rest is at-risk pay, meaning it only pays out if the company performs and meets certain goals.

Annual Incentive Program: My 2013 incentive pay was driven 100 percent by our financial performance, and 2013 was a record-setting year for US Airways. As a result, I achieved the maximum payout for my annual incentive payment, which was twice my salary, or $1.1 million.

Long-Term Incentive: The cash long-term incentive program was part of my US Airways compensation and will not be part of my ongoing American compensation program. It paid if US Airways stock outperformed the stocks of its peers over a three-year period. US Airways’ total shareholder return between 2011 and 2013 was 117.3 percent – among the very best in the industry. As a result, my 2013 long-term incentive pay also achieved the maximum payout of $1.1 million.

Stock Awards: The largest component of my 2013 compensation was a stock grant of $2.7 million of US Airways equity, the same as it was in 2012 and 2011. This stock grant was converted to American shares and is only available to me over the next three years as it vests. I received no cash with respect to these grants and the value I receive in the future from these stock awards depends entirely on the success of our company. 

When you add that up, my total reported compensation for 2013 was $5.5 million in value – approximately half of which was in cash. This is unchanged versus the $5.5 million reported for my compensation at US Airways in 2012 and I suspect is well below the regular 2013 compensation that will be reported by my peers at United and Delta. Going forward, I have told you that I don’t believe I should be paid the same as my peers at Delta and United until you are. And as we announced in January, our Board has set my 2014 target compensation at levels approximately 20 percent lower than the target compensation of those two CEOs.

But even if my compensation is lower than my peers, it is still a significant financial commitment by American Airlines. And that level of commitment brings significant responsibility – responsibility to our customers, our shareholders and most importantly, responsibility to all of you. I take that responsibility very seriously and will continue to do so as we integrate our two airlines and restore American as the greatest airline in the world.

Thank you so much for your support. As always, please let me know if you have questions or comments.

Doug

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