This article from NYTimes.com has been sent to you by psa188@xxxxxxxxx /-------------------- advertisement -----------------------\ Explore more of Starbucks at Starbucks.com. http://www.starbucks.com/default.asp?ci=1015 \----------------------------------------------------------/ Airline Chief Faces Problems April 23, 2003 By EDWARD WONG Donald J. Carty's failure to tell embittered unions at American Airlines in a timely manner about compensation packages for senior executives will result in continuing hostility toward him, possibly jeopardizing his ability to revamp the ailing company even if it avoids bankruptcy, workers and industry experts say. Experts on executive pay and corporate governance are also asking why the board of AMR, the parent of American, did not exercise better judgment over both the doling out of the compensation and the timing of its disclosure. These critics say they feel uneasy that some board members sit with each other - as well as with Mr. Carty, the chief executive of AMR - on several other boards. For example, Michael Miles, chairman of AMR's compensation committee, sits with Mr. Carty, chairman of AMR's board, on the boards of Dell Computer and Sears, Roebuck. Such cozy situations, they say, can lead to board members becoming too friendly with each other and with the executives over whom they are supposed to govern. "It certainly doesn't help," said Graef Crystal, an expert on executive pay. "The more contacts the director has with a C.E.O., the more they are friends." Bruce Hicks, a spokesman for the company, said that AMR's board "has long been praised for its leadership and its independence as outside directors." Mr. Miles, a partner at Forstmann Little & Company, did not return calls yesterday seeking comment. The board is scheduled to meet this morning to review the company's first-quarter earnings before the numbers are released. There are no signs right now that a majority of the directors are calling for Mr. Carty or other senior executives to step down. Leaders at the Allied Pilots Association and the Association of Professional Flight Attendants held separate meetings yesterday to discuss issues over voting again on their shares of $1.62 billion in annual concessions. Both voted last week to approve significant wage and benefit cuts, and the flight attendants narrowly did so only after their voting period was extended by a day to allow members to change votes. The Transport Workers Union has also said it will have its members vote again on their share of cuts. Last night, the board of the pilots' union told John Darrah, the union president, not to sign off on the concessions, said Sam Mayer, a member of the union's board. He added that the board had not decided whether to have members vote again. The flight attendants' union also said last night that it would proceed with a new vote "expeditiously." It added that it was looking at legal options to keep American from carrying out the cost cuts before the end of the voting. American has said the labor concessions are needed to avoid a filing for bankruptcy protection. Mr. Hicks said yesterday that the airline would carry out the cuts. "We believe we have valid, ratified agreements," he said. But the well has been poisoned, and no amount of damage control can help Mr. Carty regain the confidence of his work force, some employees are saying. They remain angry that Mr. Carty failed to tell them about two benefits the company agreed to give to executives last year even as it was trying to cut costs. Last March, the company agreed to give retention bonuses equal to up to twice base salary to seven executives if they stayed until January 2005, and it made a $41 million pretax payment last October to a trust fund set up to protect the pensions of 45 executives in the event of bankruptcy. The company did not disclose the benefits until it made a securities filing on the night of April 15, after two unions had just voted to take concessions and a third was almost finished with its voting. Furthermore, the company backed union leaders into a politically precarious corner after Mr. Hicks told The Wall Street Journal that union leaders had been informed of the benefits during negotiations, but had not talked to union members about them. American later retracted that statement and said last Friday that it would not give the bonuses, though it would keep in place its payment to the executive pension trust. Too little, too late, many workers and industry experts say. "I think it's going to be extremely difficult for union negotiators, as well as rank and file, to trust what the company says," said Stephen Baumert, a flight attendant based in Miami who writes an electronic newsletter for nearly 600 employees. "It will make it hard for union officials to cooperate with the company in any way without raising the ire of their members." Raymond L. Neidl, an analyst at Blaylock & Partners, said if the unions voted again, the concessions would be "overwhelmingly turned down." Looking ahead, "Mr. Carty has the job of his life ahead of him," Mr. Neidl said, "not only to win back the confidence of the union leaders, who were embarrassed by this, but also of the rank and file." Robert L. Crandall, the former chief executive of AMR, said last week on CNBC that he would return to the company if asked. He left American in 1998 after 13 years, partly because of intense animosity that had welled up between him and the unions. Mr. Crandall did not return calls seeking comment. The board of AMR is starting to come under sharp criticism for what some corporate governance experts say is a lack of oversight over Mr. Carty's decisions. "The inability to say no to a C.E.O. on a preposterous compensation scheme shows a lack of an independent spirit," said Nell Minow, a founder of the Corporate Library, a corporate governance research group. Brian Foley, an executive pay expert, said he was "frankly a little disappointed with the board." That several members of AMR's board also share seats on other boards "makes for some additional congeniality," he added. But he and Ms. Minow said there was no evidence that there were direct conflicts of interest at work. Mr. Foley added that American executives could have partly avoided the situation if they had reported the executive bonus payments in AMR's proxy filing in April 2002, because the payments had been determined the previous month. "They've really taken the minimalist approach to disclosure," he said. "Wait as long as you can, then disclose as little as you can disclose." It was not illegal for American to delay the disclosure. When asked why the airline did not mention the bonuses in its proxy filing last April, Mr. Hicks said, "I just don't know the answer." http://www.nytimes.com/2003/04/23/business/23AIR.html?ex=1052105009&ei=1&en=1aa1e84ac8851b0f HOW TO ADVERTISE --------------------------------- For information on advertising in e-mail newsletters or other creative advertising opportunities with The New York Times on the Web, please contact onlinesales@xxxxxxxxxxx or visit our online media kit at http://www.nytimes.com/adinfo For general information about NYTimes.com, write to help@xxxxxxxxxxxx Copyright 2003 The New York Times Company