CEO Robert Isom was paid $31.4 million last year. The compensation was revealed a few days before the airline announced that they missed analyst expectations for the first quarter and lost $312 million, missing analyst forecasts.
American’s results were worse than Delta’s (which made money) and United’s (which lost money because of the Boeing MAX 9 grounding). American has consistently lagged both carriers.
Unsurprisingly, $32 million reported compensation for the CEO has been controversial with employees – especially with flight attendants who are in the midst of protracted contract negotiations and are asking the government’s permission (again) to strike. The memes write themselves.
After American’s earnings call on Thursday, in prepared remarkets to the airline’s employees as a ‘State of the Airline’ event (a recording of which was reviewed by View From The Wing), Isom brought up his pay package and fumbled through an explanation. And as they say, when you’re explaining you’re losing. He came across as defensive and unsure of himself.
As the CEO it’s probably not a surprise, but I’m compensated the most… I just want to cover this real quick… [our] proxy this year basically says that I am paid a significant amount of money, but compensation that is consistent with what my peers are. I’m paid on a go-forward basis, I’m paid less than Ed Bastian at Delta by a considerable amount, and I’m paid less than Scott Kirby at United.
This past year in terms of reporting there is also one additional item in terms of reporting, but it is all due to being promoted as CEO and then serving in that role for about 18 months and not receiving additional compensation. So compensation all has to be recorded in this year, 2023, that produces a number that’s a large number… it is 90% at risk, the majority is paid out into the future, and the risk portion is if the company doesn’t do well I do not do well. If I do not do what I have set up to do and what the board and the company has asked me to, I don’t receive that compensation.
So I’m not doing anything other than telling you up front that’s what it’s about. And I just want to make clear with folks that’s not something I shy away from. It’s compensation that’s consistent with what other CEOs make.
When Isom first became CEO his message to employees was not to spend a dollar they didn’t need to.
- the Board certainly didn’t need to pay Isom $31.4 million. He wouldn’t have walked away at $25 million. He isn’t so obviously better than the next-best CEO the airline might have.
- which makes it seem as though the unsaid part of Isom’s admonition to employees was “so that there’s plenty left over for me.”
Roughly speaking it’s not clear that Isom ought to be paid similarly to Ed Bastian at Delta. American has underperformed its benchmark competitors.
And, in fact, his base pay doubled two years ago when he became CEO. It isn’t quite true for him to suggest he saw no compensation increase upon taking the role. He did have to wait, though, on a big increase because of restrictions put in place in exchange for $10 billion in taxpayer cash given to the airline during the pandemic.
Furthermore, the performance targets that have been set for him are watered down.
- When former CEO Doug Parker famously declared in 2017 that American would never lose money again, the he actually went much farther than that. It just wasn’t as pithy.
- He described American as being like an annuity that investors could expect to earn $3 billion to $7 billion per year – never less than $3 billion.
- There’s been over 20% inflation since then. Yet the top target for Isom’s bonus package requires the airline only to generate $2.5 billion.
Isom has made the Gerard Arpey mistake ratcheting up executive compensation while employees were giving back wages. American hasn’t sought a concessionary contract, but inflation has eaten up the value of flight attendant wages since their last increase in 2019 while executive compensation has grown.
There was no reason his compensation had to be done in 2023. He and the board of American chose that. It should have come after a flight attendant contract. And the amount should have come with actual performance.
Then he could have stood up proudly, instead of awkwardly, and say something like “we’re all benefiting from American’s success. I’m the CEO and I benefit a lot, but employee raises cost the company many times that. We’re all succeeding, and we’re going to keep succeeding together.”
Add the AA board to the list of brain dead AA brain trust.
How can the shareholders tolerate this. Has AA done any better under Isom than his predecessor, who was close to being shown the door.
He was right to point out 90% of that number is at risk.
Could have made his own guaranteed comp even lower in recognition but other than that if you’re going to put that much comp at risk of performance you deserve disproportionate upside if you perform.
The CEO is one person. Whether that person’s pay is $3M or $300M isn’t all that consequential to the company as a whole (at a company like AA. Of course at your average tech startup it’s a different story.)
As a general rule, we shouldn’t pay executives until they… execute what they’re responsible for. I would like to think executives are responsible for responsibility and landing contracts – and not having negotiations come perilously close to a strike. But that’s me.
GET A DEAL DONE.
Personally, I don’t think the CEO comp plan for a major airline is that big a deal. However, since others do, it might be a smart PR move to defer all of his comp until all the major union contracts have been resolved.
As a former senior executive at publicly traded companies (thank God not 5 officer so didn’t have to report my compensation) these amounts are very misleading. Only cash he got was salary and bonuses. Stock options/grants are based on performance and artificially inflate the number. Even if he didn’t exercise them they are reported. Also other items like gross up for taxes on certain benefits.
People need to worry less about what executives make and focus on their own situation
As Yogi Correctly Noted: “Deja Vu All Over Again”
Given how AA’s CEO exemplifies the meaning of “repetitive compulsion” by fine-tuning failure, exactly who are AA’s shareholders; how long ago did the individual stockholders bail out; how much stock is the CEO required to purchase each year with his own funds? Unlike UA, does AA even have any retired FAA and airline execs on its Board? When does the light go on to realize how Parker, followed by Isom, have been like Hari Kari with wings? Why have the unions waited to pull the ripcord on even wildcat strikes to secure their contract? High season summer almost here; a perfect time for FAs.
Seeing the AA I’ve known for 65 years self-immolate under failed management is like observing Amtrak perpetually stagger in false starts into failure due to a corporate management composed of ex-airline jocks and Capitol Hill staffers lacking the essence of experience in rail operations and passenger services. Unlike childhood wishes, without the requisite prior experience, it ain’t gonna happen, no matter how much it is wished for, or, a bonus received while the company struggles in a red sea of loses.
As we continue to learn, successfully running an airline also takes far more than a slide ruler, but to have an intimate knowledge of the business–and staff; to understand how the staff creates and supports the business culture–and passenger satisfaction. A competent Board understands the importance of repeat business. When will AA’s Board realize when in a hole, stop digging?
@AC Tell that to the 650+ employees who were laid off recently because of Isom and his cronies. Or the flight attendants making poverty wages. Those are the people who are not “worried” about Isom’s compensation but who are downright ANGRY as they worry about how to pay their own bills.
As a shareholder, I’m infuriated.
I purchased at a covid-travel-low, expecting AA to recover and excel.
The stock performance has been abysmal, as has their vision, leadership and service. Leadership continues to treat AA like an ATM that only does withdrawls. The stock performance in the last 5 years is -60%.
That’s why this decade+ long EP has jumped ship to BA avios loyalty.
And it’s not looking good for AA remaining in my portfolio.
As a 36 year employee with American Airlines is sickens me to see who we have running our company. The greed in which they compensate themselves while asking front line employees to essentially take a pay cut each year should not be accepted in any circumstance. We get basically a .60 cent raise every year and this guy takes home 31,000,000 dollars. I hope the government lets the Flight Attendants strike. Maybe the board will do something then.
@Zebraitis, you should have never bought American Airlines stock. Airlines go through boom and bust cycles so timing the market, which is hard, may be the only way to make a healthy profit.
@jns – sage advice, in hindsight.
Luckally, the rest of the market has been doing me well so I can afford to be cavalier and just eat the loss.
But you gotta wonder: if the S&P is up +85% over the same 5 year time, and Nasdaq return is +49%, AAL at -60% is some kind of special ed quality leadership.
@Zebraitis: I cannot but help remember the advice of how to make a small fortune in aviation. Start with a large one.
I too am seriously considering bailing from AA’s program. I have signed up for Flying Blue, have their cr. card. May do the BA status match using my Flying Blue status, which I got by matching to AA. I was most interested in Star Alliance honestly, but since Lufthansa sh*t on me from a great height and stranded me and my wife in Porto (Fixed by spending mucho bucks w/AF) that swap is in abeyance.
So nobody else works for the company except pilots and flight attendants. That deserve raises
Back before AA and US merged, AA stock was at higher level. Since the merge and US AW management took over and assumed the name of American Airlines, (kind of like Walmart taking over a Nordstrom store and leaving the name on the sign) the stock hasn’t risen and it won’t. Isom and his cronies Vasu and Brady don’t run an operation that is customer or employee friendly. They don’t care if the customer is delayed up to 23 hours as long as they don’t get the “mark” for canceling the flight. Expanding to tiny destinations is their game. Cutting back on lucrative international flying that a major US airline does shows the incompetence of the upper management at this company. Other airlines come in and operate those routes profitably while AA says they were not profitable. They clearly don’t know what they are doing. Relying on credit card sales and dog and pony shows it is apparent that Isom will drive this company into the ground leaving customers and employees in its wake. Isom only cares about his compensation and the board needs to clean house at AA.
Only reason Isom got the job is because he was next in the pecking order, not because he demonstrated any exemplary skills at running an airline. He sounds so mealy mouthed every time I hear him speak.
How can you explain the greed, the gluttony, and inequality of a $32 million compensation pay?
Maybe in your next life y’all can work your way to the top and become a CEO of a major corporation. Amusing that people think $32 million is a lot of money.
To be clear, AA has offered excellent contracts to the AA FA union numerous times that keep getting turned down. They are old and greedy. #LockThemOut
32 million is a hell
Of a lot of money.
He needs to be gone!
he is just about numbers can care less about his employees or customers !
I like how he says that’s he’s only making what other CEOs make. That’s we we want; to make what other FAs make. He can dress this pig any way he wants to. It’s still a pig.
Failure is not career limiting and not unprofitable. Any other employee with that sort of P&L performance would likely be put on a PIP or be gone.
Not sure where Ben G above got his info re: FA offered ‘great contracts numerous times ! ‘
Theres been NONE but ONE and it was 1/3 the offer SW just agreed to . New hires in NY can not afford groceries
@BenG I can’t believe you said that with, presumably, a straight face. You are either a corporate bootlicker or have been lied to by one.
Explaining executive compensation is always a losing conversation. Actual cash he walks away with is nowhere near the quoted figure, as @AC highlighted.
“People need to worry less about what executives make and focus on their own situation.”
I think employees, shareholders, and other stakeholders have every right to question if that compensation has been earned based upon the performance of the company he/she helms.
“As the CEO it’s probably not a surprise, but I’m compensated the most… I just want to cover this real quick…yada, yada, yada”.
There’s an old saying – ‘If you’re explaining, you’re losing.’
Did AA give $1.x Billion profit sharing to its employees like Delta did? Delta just announced 5% raise for all their employees. No wonder Delta employees look so much happier than AA employees in the airports.
@Ben G
Lies! AA has not offered excellent and certainly not multiple offers. AA has made only one original offer and one updated offer the flight attendants. That being when Delta recently implemented a raise for their flight attendants . Delta is just a place holder since they’re non-union. As soon as Southwest implements its new contract Delta will bump up their pay to Southwest’s or slightly higher. Then United will settle for around the same and AA flight attendants would be at the bottom very shortly. They’d be fools to take AA’s Delta offer, because not only would it leave them at the bottom of the industry in a matter of months, it also includes NO retro pay because Delta is never behind in giving raises. As far as the comment that AA flight attendants are old, you are way out of touch. AA has hired so many new people in the last 10 years that half the workforce is junior now- and broke! They are the ones crying the loudest to strike. So hiring even more junior people is not going to make the flight attendant corp less vocal. It’s going to make them more vocal. Watched any of the college protests lately? They’re not old people.
So the other airlines’ CEOs make more. That just means that they are also overpaid. $32 million is a lot of money. You mean to tell me that they can’t make ends meet on ONLY say $20 million? Remember, this is PER YEAR not just for one year. And of course there are the golden parachutes that all CEOs get when they leave even if they lose millions for the company.
@tony N and others. Yes $32 million (as explained earlier vast majority not cash but stock related to future targets) but below average for most last company CEOs. Look at packages for large tech and finance CEOs and you will see how low $32 million is by comparison. He is paid the going rate for his job just like all others are paid the rate their job is worth (if not find another one).
BTW if you really want to see large comp packages look at private equity. The head of Blackstone has made over $500 million a year multiple times.
@AC You are missing the point. Isom may be paid a comparative CEO salary, but he’s bleeping terrible at his job. When your customers aren’t happy, your employees aren’t happy and your shareholders aren’t happy that’s a massive failure. It’s no wonder that most people think he’s grossly overpaid.
@BenG please elaborate on these amazing contracts that you seem to know about. What increases or benefits were offered that we as flight attendants are not aware of.
Can I barrow a few dollars and fix my jet please…unbelievable!!!
It’s sickening that these people call themselves leaders, when in fact they are greedhors. ( yeah, I spelled whore wrong – to make it fit)
Ugh. Stinky. Wrong.
Hey Isom, wanna improve morale? Instead of doubling your pay, how about reinstating our pensions back to normal W/ COLA since AA has so much cash to give you, and while you’re at it reinstate our medical…after all that was what was promised to all of us when we signed on the dotted line on hiring day.
Sincerely the Rampers!
And to the idiot who said be the CEO instead of griping…Not everyone can be president! I say. But at the same time we don’t have to live in poverty while you live in your glass house with your rose colored glasses.
Worked for AA for 50 yrs as a F/A. Retired 2 yrs ago after realizing Isom
was never going to improve pay or working conditions for the F/As.
Standard “ retirement” gift was manufactured letter from Isom “thanking
me for my service” and a gift catalog for items that were totally worthless and geared mostly for men! What a slap in the face…
After reading that explanation from Isom, he is only surpassed by “Carmella”(sorry Mrs. Soprano) Harris’ word salad. “Artificial intelligence is…well it’s intelligence that is artificial.” DO WHAT? So “Bobby”, you got your hands caught in the cookie jar. Don’t try to bull**** your way out of this mess when everyone is standing there watching you steal the cookies! The captain of the “American Titanic” stands on the bridge and says “…so lemme explain…”
@D3kingg Amusing are those who thing $30+million is not a lot of money. Working your way up to be a CEO doesn’t entitle a person to gross over compensation when the employees who actually move the airline aren’t paid a livable wage. @BenG Do you work without being paid? So far American still requires it’s FAs to work while not being paid until the aircraft door shuts. So if you think they’ve been offered great contracts already, let’s see you work hours a day for free. Or are you just old and greedy?
32 million isn’t a lot of money? Lol. Let’s just say a Flight Attendant, something an airline can’t function without, makes 100 dollars an hour…
It will take almost 154 years of working 40 hours per week, 52 weeks a year without stopping to make 32 million dollars.