New chief executive Doug Parker told employees that his compensation will be determined by the board of directors in January and said he would request his total compensation be at least 15 percent below the CEOs at Delta Air Lines and United Airlines.
“I won’t be paid as much as my peers at Delta and United until you are,” Parker said.
On Monday, Parker was given 626,637 shares of restricted stock that based on the closing price are worth $15.4 million. However, the stock cannot be sold immediately.
Fifty percent 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 given on Monday.
President Scott Kirby received 447,598 shares worth approximately $11 million while chief operating officer Robert Isom received 313,318 shares worth $7.7 million. Chief financial officer Derek Kerr and executive vice presidents Steve Johnson and Elise Eberwein all received 268,559 shares worth $6.6 million.
Keep reading for a letter sent to employees from Parker about compensation.
Fellow Team Members,
As we begin our new future, I wanted to give you my thoughts about a sensitive subject at American Airlines: executive compensation. Later today the Company will make filings with the SEC, which will include compensation information for me and some of our other officers. I’d like to describe that information and, more importantly, discuss how I anticipate I will be compensated at American.
First, I want to acknowledge that market rates for executive compensation seem very high compared to the market rates for professions like pilots, mechanics, agents, teachers, etc. But I also know that if organizations don’t provide opportunities for managers to earn something close to market, they will not be able to attract and retain quality leadership. We want and need great leadership at American – that is in all of our best interest.
The new Board of Directors plans to establish my compensation at its meeting in January and I think you can expect the following:
I won’t be paid as much as my peers at Delta and United until you are
As happy as we are that our combined airline can pay more than either airline could independently, in many cases our compensation and benefits are lower than Delta and United. I hope to see that change over the next few years as we restore American to be the greatest airline in the world. But in the meantime, I will request my target total compensation be set at least 15 percent below my peers at Delta and United.
My pay will be heavily tied to performance.
Organizations need to provide the opportunity for managers to earn something close to market, but that should be an opportunity, not an entitlement. I should be held accountable for American's performance and my pay should reflect that accountability. To that end, I will ask that my target compensation be 80-90 percent performance-based pay - pay that could be worthless if we don't perform (stock grants, annual incentive pay, etc...).
I will always be open with you about how I am compensated.
Immediately after the Board sets my new compensation in January, I will share the details with you. And each year I will let you know what and how I was paid. You shouldn't have to guess about my compensation or be surprised to learn what I made.
Consistent with the commitment to openness, I wanted you to know I was granted a stock award today by our new Board that has the potential to be very valuable: 627,000 shares, which at today’s stock price would be worth approximately $14 million. Concurrent with this grant, and other grants to Scott, Robert, Elise, Derek and Steve, the Board eliminated contractual rights that would have allowed me to terminate my employment at any time over the next two years, and the others to terminate during the next 90 days, and receive severance packages worth even more than the stock grants. We, of course, have no desire to do anything but work at American with you as we restore our airline to greatness, but our Board did not want our new team to have any incentive to leave.
Each of us will receive the shares only if we are still here at the end of 2015, and half of the stock grant will be earned only if the Company meets key merger integration milestones. And, of course, the shares will retain that value only if the Company continues to perform well. I am excited that the team is in place and can’t wait to get started.
But, irrespective of how transparent I am about my compensation, or if it is less than other CEOs, or if it is tied to performance, my compensation is still a significant expense to our Company. With that comes high expectations, and with those expectations comes responsibility. The new leadership team and I understand and accept that responsibility – to our shareholders, to our customers and to each one of you.
I am extremely grateful for the confidence you have placed in me and intend to earn it every day. Thank you for your support and please let me know if you have any questions or comments.