At American Airlines investor date in September 2017 CEO Doug Parker declared that the airline would never lose money again. He argued that they would always earn in the range of $3 billion to $7 billion per year.
They barely hit that figure in 2017 (and they missed the bottom of their range in 2018. Noentheless he wanted everyone to know just how deeply he believed the prediction, and how well aligned management was towards the goal.
Parker explained that executive bonuses were determined by their ability to hit these profit figures, earning partial bonuses at $3 billion, and more at the $5 billion and $7 billion levels.
So what happened to executive bonuses when the airline failed to meet this goal for 2018? No one received bonuses, just as the CEO promised. Executives received bonuses.
Asked about this on the Thursday’s earnings call, Parker offered that,
In 2018, you’re right on a reported basis we were slightly below $3 billion on a pre-tax level but this calculation is made prior to the payments themselves of course and prior to profit sharing. So what you’ll see in the proxy is that while it was reported number below $3 billion in terms of the plan calculation it was slightly above $3 billion. So the team got 51% of their target bonus in 2018
What’s more they’re going to keep paying bonuses at lower profit levels, with executives below his direct reports now earning bonuses “split into two components now..financial plan and the operational plan 50/50 of each” and “2019 tied to $4 billion of pretax earnings.”
Parker argued that it’s necessary to pay bonuses to retain top executives. For the truly top executives you want to maintain that’s certainly true. And if you undercompensate top performers because the overall business doesn’t do well, they are likely to leave for other opportunities. That doesn’t mean of course that you want to reward all executives despite overall performance.
And you don’t stake your credibility on a compensation structure and then back away from that structure by admitting it was a bad idea.
If they leave because they are not compensated for not hitting the target then it is BETTER if they leave and maybe bring people who CAN hit targets…
Leave it to the drunk POS to twist it so he can get more pocket money for johnny walker…
What a joke
I wonder how a pilot gets bonused if he hits D0 51% of the time?
It is misleading to say “executive” bonuses. The bonus plan goes all the way down to level 5 managers.
As a result of the failure of management at Enron, business schools were criticized for failing to teach ethics. Today, given the parallels in management failure at American and Amtrak, it appears our illustrious MBA programs have also failed to implore accurate accounting. Apparently, it helps to have uninvolved, docile Boards who more than willingly accept the manure thrown against the wall to see what sticks. With such Boards it is still acceptable for management “to treat them like mushrooms–keep them in the dark and feed them sh*t.”
Where are the analysts and institutional investors to compensate for such submissive Board oversight? Parker’s tongue-twisted excuse here would make the editors of Pravda proud.
With such an immense feedbag around his neck, no wonder Parker’s AA has so many labor issues. Too bad the Reuthers and Hoffas are long gone, as a competent and strong labor leader would not tolerate this flagrant BS. When GM claimed after WWII that it was too poor to provide any raises to the workers on the line, Reuther, who led the UAW, told GM to open its books and if an audit validated GM’s claim, the union would not push for higher wages. We know what happened…
With this management approach to its business, how long can American survive just on the profitability of its mileage program and credit cards? At some point somebody is going to be curious enough to inquire “what the hell is going on with this airline,” i.e., abandonment of JFK; pathetic interior of domestic service inspired by a Soviet gulag; food under par for even
Guantanamo; inconsistent first class service (serving pre-departure drinks), etc, etc?
I used to believe United would falter and split, perhaps into the former Capitol Airlines formation. Now, the stars are in alignment against the current management team and Board at American. How many out there miss Thomas Horton, AA’s last boss before succumbing to the USAir takeover? How true that USAir stands for “You’re Still Allegheny In Reality!”
Wow! Wow! Wow!
@Rail Provocateur **NAILS IT**
(NO need for me to add anything else!)
PS: perhaps Boeing (which just as American is suffocating under the management and management strategies used at the 2nd tier airlines the current management came from (America West & US Airways) should be added to @Rail Provocateur’s list of corporations that have been poisoned by bad management above as the decision to rely on yet another “generation” of 737s, or in this case the “MAX” series, where the underlying design, engineering and even actual aircraft mechanicals date back to the dawn of the Jet age in the 1950s, for an aircraft that entered revenue service with Lufthansa in 1967 as this decision to push an ancient and obsolete aircraft even further than the current 52 years it has been in service for another 25 years or so smacks of the same business strategy that led to the failure of the company Boeing took over in 1998, McDonnell Douglas.
Yet, despite having been the failed company, Boeing’s (seemingly only in name now) decision to take a page from its failed competitor, McDonnell Douglas, which at the time it was failing offered a narrow-body line dating back to the mid-1960s vintage DC-9s with its then named MD-95s (which were rechristened as Boeing 717s before that model was canceled altogether) and its equally stale MD-11s, which was basically an update of its late 1960s designed/early 1970s vintage DC-10s.
Yeah, it’s all so sad to watch once great companies become sick under bad management as American Airlines and Boeing have.
It’s just even more appalling when management from 2nd tier companies in American Airlines’ case or failed companies for Boeing, where the poison fruit that killed McDonnell Douglas seems to be infecting Boeing so badly that one almost gets to see play out in real time now how Airbus came to dethrone the once great titans Lockheed and McDonnell Douglas to emerge as the global powerhouse it has become since it introduced its narrow-body A320 family in 1987, and where its A321neo line has pretty much slaughtered Boeing’s enfeebled 737-9/10 MAX models even before the Lion Air and Ethiopian Airlines tragedies exposed the weaknesses in the entire 737 MAX line resulting from its decision to prolong the life of a flying machine that was already nearing obsolescence when the last “Next Generation” models took the skies two decades ago.
Such are the costs of short-term strategies designed to pump up quarterly earnings and to suck tens of billions out of companies simply to fund obscenely large annual stock buybacks that then leave the companies behind as time marches on and their products become stale, substandard, or in Boeing’s case, long ago obsolete.
Of course, when one or both of these companies are on the ropes, or even tumble into bankruptcy from failed managements, it’ll be the taxpayers who are called to bail them out and clean up the messes made – while the managements and Board of Directors will fly off to the sunset knowing their fall from grace is cushioned by exceptionally generous Golden Parachutes.
To Howard Miller: Terrific Additional Analysis of the Devastation in Leadership in Airline Manufacturing!
Something horrible stinks in aviation these days.
-American cannot acquire enough Airbus 321 neo; yet, falls in line with Delta and United to savage Qatar for the audacity to “compete” against them in an underserved U.S.-Italian market.
-Although heavily subsidized by European governments and faltering, Airbus had the brains to open shop on American territory to compete head-on with Boeing.
-Lockheed had a great L-1011; the DC-10 always sucked; their was a reason the 747 was the “queen of the skies.”
-Apparently, the pressure of competition forced Boeing to leave good judgment at the door on its 737 MAX line.
-With downward trends already in evidence in lower freight rail traffic, a clear indicator of an impending economic slowdown-or worse, how deep into the pockets of the American taxpayer will Boeing, AA, DL, and UA reach into for their expected bailout? When in transportation did it become acceptable to be “too big to go b/k; lose?” Floating poorly managed companies to save their stockholders would be a mistake, just as it was when GHW Bush bailed out the S&Ls.
-When the roof falls in, we will learn the (obvious) problem had always been: a lack of transparency and accountability; a failure of Board stewardship; a fear of competition as a result of lazy, indifferent management counting their stock options.
As one former AA SVP Labor Relations once said, “You just don’t understand executive compensation.”
@RailProvocateur misses on one point. No one misses Tom Horton. NoMoToHo. ToHoMustGo.
Frankly, I would’ve loved for Tom Horton to have gotten a real chance to run legacy AA. It was unfortunate that he was undermined by APFA and pilots. I believe his vision was more in line with what had been the traditional legacy for AA customer service.
Granted, some form of change would’ve been inevitable. But, I don’t believe we’d see the level of customer service degradation funding employee wages as what has transpired.
How come nobody learned anything from Bob Crandall ?
Spend the dime – safe the nickel !!! He was really my hero- I worked as a F/A from 1992-1998 and I chose to save the Company and my co-workers- crossing the picket line November 1993. I was a resident alien- had no clue why I should bite the hand that fed me ? Asking the Union why I should strike, they answered “ because we tell you to? “ who were they to tell me what to do? Why hurting my bread feater ? I’m European – brought up to think and act independently- and so I did. What really choked me, was the reaction from the pilots. On one hand they of course knew they could loose their jobs they sympathized with us, and behind our back- gave our name and employment nr. to the Union? 3 stribes on their shoulders and no balls whatsoever- I honestly was disgusted with their actions and still today are ever soooo grateful towards the co. Mr. Crandall and the entire AA people exept people striking -for what and what did you gain?
Did you ever think about all the people working outside the A/C? I guess not. Funny enough- nobody has returned their retirement back to the company- when they “hated” AA but never left ? It’s called double standards where I come from- but all of us who “crossed” the picket line- are still friends to this day- I would do it all over again!!!
As some who (though now retired) was a senior officer of 4 different national companies I can assure you corporate bonuses are based on a number of factors (including usually around 25% discretionary). Unless this is a specific hurdle that no bonuses at all are paid if a specific EPS or EBIDTA number (for example) is hit they do get part of the bonus. It is highly unlikely AMR employer got their entire bonus given overall performance but to expect them to get nothing shows a complete ignorance of corporate bonus plans.
Multi-airline corporate officer experience here… AAG customer experience, investor returns, and front line employee compensation all lagged industry, including LCC and ULCC, yet laggard network airline executives get 51% of target “heartbeat bonuses”, just for phoning it in? No wonder many people don’t understand AAG executive compensation!