AMR CEO's compensation rises 11 percent to $5.2M

AP News
Posted: Apr 21, 2011 9:01 PM
AMR CEO's compensation rises 11 percent to $5.2M

The CEO of the company that runs American Airlines received compensation valued at more than $5.2 million last year, an 11 percent increase over 2009, according to an Associated Press analysis of a regulatory filing on Thursday.

The boost in AMR Corp. CEO Gerard Arpey's compensation was almost entirely due to higher values on stock grants and options at the time they were granted.

The increase came during a year in which AMR lost $471 million and was the only major U.S. airline company to lose money.

AMR's stock rose less than 1 percent in 2010 while shares of its four biggest U.S. rivals gained between 11 and 107 percent and the Arca Airlines Index climbed 39 percent.

After struggling during 2010, a good year for the industry, AMR has continued losing money this year as airlines face the difficult challenge of rising fuel prices. This week, AMR reported a $436 million loss for the first quarter.

On conference calls and in notes to investors, some analysts have criticized AMR management for being too passive and lacking new ideas.

Arpey, who has been CEO since 2003 and chairman since 2004, has bet the company's future on closer ties to British Airways and Japan Airlines to boost international revenue, and on focusing U.S. service at five of the biggest cities, including New York and Los Angeles. He is moving to revitalize an aging fleet by replacing gas-guzzling MD-80 aircraft.

The company narrowly avoided bankruptcy shortly after Arpey took over _ a major point of pride with AMR managers _ and was the world's largest airline until 2008. It has since been eclipsed by Delta and United Continental.

In 2010, Arpey, 52, received a salary of $669,646, unchanged from 2009, no bonus and $467 in incentive pay.

Most of his compensation was stock-based: He got stock awards valued at $3.3 million and options valued at $1.2 million when they were granted last May. That was a combined increase of $515,000 over the value of similar compensation in 2009.

Arpey received $94,660 in other compensation including $56,440 for security and a $33,000 personal allowance.

The board of AMR, which also owns the American Eagle regional airline, said Arpey's compensation was below that of most leaders of similarly sized companies ranging from retailers to defense contractors.

AMR also announced in its filing that the annual shareholder meeting will be May 18 at a hotel in Los Angeles. The company used to hold the meeting in its hometown of Fort Worth, and employee unions used the occasion to form picket lines and protest against stock-based compensation to several hundred top managers including the CEO.

The unions are seeking raises while the company says its labor costs are already too high. Negotiations have dragged on for three years with no settlements in sight.

The AP formula calculates an executive's total compensation during the last fiscal year by adding salary, bonuses, perks, above-market interest the company pays on deferred compensation and the estimated value of stock and stock options awarded during the year. The AP formula does not count changes in the present value of pension benefits. That makes the AP total slightly different in most cases from the total reported by companies to the Securities and Exchange Commission.

The value that a company assigned to an executive's stock and option awards for 2010 was the present value of what the company expected the awards to be worth to the executive over time. Companies use one of several formulas to calculate that value. However, the number is just an estimate, and what an executive ultimately receives will depend on the performance of the company's stock in the years after the awards are granted. Most stock compensation programs require an executive to wait a specified amount of time to receive shares or exercise options.