American Airlines chief executive Doug Parker explained to workers that he will no longer receive a cash salary and instead will be paid only with company stock.
“I believe this is the right way for my compensation to be set – at risk, based entirely on the results achieved, and in the same currency that our shareholders receive,” Parker told employees in a letter sent out on Wednesday afternoon.
The announcement was made as part of the company’s annual proxy that was filed with the Securities and Exchange Commission. Parker added that he is also making less than the chief executives at rival Delta Air Lines and United Airlines.
“As I communicated when we merged, I don’t believe I should be paid the same as my peers at Delta and United until our team is, so my 2014 target compensation was set more than 20% below the target levels of my peers,” Parker said, adding that there are still several contracts that need to be negotiated this year for American mechanics, ground crew and customer service representatives.
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A Message from Doug Parker
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. In keeping with the spirit of transparency about how I am paid, I want to walk you through what was included in those filings regarding my 2014 compensation. I also want to tell you about an important shift in how I will be paid going forward.
For 2014, my compensation was comprised of the following primary components:
Base Salary: My base salary for 2014 remained where it was set when we merged at $700,000. This is below the 2013 average base salary of $850,000 for my peers at Delta and United. My salary is the only part of my 2014 compensation that was fixed (guaranteed); the rest was at-risk pay, meaning it only pays if the company achieves its goals.
Annual Incentive Program: My 2014 incentive pay was driven by our performance versus the goals set for the first year of our merger. American performed exceptionally well on all metrics in 2014 and as a result, I achieved the maximum payout, which was four times my salary, or $2.8 million.
Long-Term Incentive: The cash long-term incentive program was part of my former US Airways compensation, and is not part of my pay program at American. When we merged there were two cycles in progress; one that ended Dec. 2014 and one that will end Dec. 2015. This program pays if US Airways stock outperforms the stocks of its peers over a three-year period. US Airways’ total shareholder return between 2012 and 2014 was over 1000 percent – better than any company in the S&P 500. As a result, my 2012-2014 long-term incentive pay achieved the maximum payout of $1.4 million.
Stock Awards: The largest component of my 2014 compensation was a stock grant of $7 million of American Airlines equity. I received no cash with respect to these grants as they are earned over a three year period. The value I receive in the future from this stock depends entirely on the company’s success.
When you add this up– and include some other compensation (primarily the cost of relocating my family to Dallas) -- my total 2014 compensation was $12.3 million, approximately 40% of which was in cash. This is a reduction from my 2013 compensation which included a significant one-time merger equity grant. I also suspect my 2014 compensation will be below the amounts reported by my peers at United and Delta. As I communicated when we merged, I don’t believe I should be paid the same as my peers at Delta and United until our team is, so my 2014 target compensation was set more than 20% below the target levels of my peers.
2015 and Beyond Compensation: Going forward, I have asked our Board to restructure my compensation such that I will no longer receive a base salary or an annual bonus. Instead, all of my primary compensation will be paid in AAL stock. This stock will have to be earned over time, and will also have to be earned by performance. I believe this is the right way for my compensation to be set – at risk, based entirely on the results achieved, and in the same currency that our shareholders receive.
This shift in structure will be effective immediately and will remain in place as long as I am CEO. In short, the value of my total target compensation doesn’t change, but I will receive it entirely in at-risk stock awards. What also does not change is that the target amount will remain approximately 20% below my peers at Delta and United until all of our team members have joint contracts that compensate as well or better than those airlines. We made very good progress on that front in 2014 with many of our team members, but we still have work to do on some contracts in 2015.
But even if my compensation is lower than my peers, and even if it is paid entirely in stock instead of cash, it is still a substantial financial investment and commitment by American Airlines. That level of investment carries with it 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.