=20 ---------------------------------------------------------------------- This article was sent to you by someone who found it on SF Gate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2003/04/25/f= inancial1424EDT0159.DTL ---------------------------------------------------------------------- Friday, April 25, 2003 (AP) ALL BUSINESS: American's CEO misjudged basis for executive perks RACHEL BECK, AP Business Writer (04-25) 11:24 PDT NEW YORK (AP) -- Who cares what executives at other companies are making when your busine= ss is at bankruptcy's doorstep? That's what American Airlines chief executive Donald Carty forgot when he pushed for the carrier's top managers to get bonuses and special pension protections while employees were agreeing to leaner wages and benefits. He says he didn't think the perks were such a big deal, given that they were smaller than industry standards. But they sure were, especially at times like these when every cent counts. Carty's misjudgment was severe and ultimately led to his resignation late Thursday, but his reasoning wasn't exceptional. In fact, it is symptomatic of a much bigger problem plaguing corporate America today. Executive compensation has spun so severely out of control in recent yea= rs largely because everyone wants to be in the same ballpark as the competition. So when one company ups the ante, that suddenly becomes the standard everyone follows. This problem doesn't just affect executives. In the airline industry, workers have demanded parity with their competitors for decades, which has inflated labor costs beyond control. But there is more going on at American than just overcompensation. Here = is an airline nearing collapse. After its profits soared in the late 1990s, business began to soften in 2000 due to the decline in the economy. Then came the 2001 terrorist attacks, which suddenly raised travelers' nervousness about flying. The recent war in Iraq and the fast-spreading SARS virus have only added to an already terrible situation. With debts mounting and costs exceeding revenues, the company's executiv= es have said that the Fort Worth, Texas-based carrier is getting dangerously close to filing for bankruptcy. To avoid that, American has asked for reductions of $1.8 billion in annu= al labor costs. And as of last week, the three major unions -- representing pilots, ground workers and flight attendants -- had all agreed to significant pay cuts. That is, until the union membership learned of the behind-the-scenes maneuvering by top executives. In a filing with securities regulators last week, it was revealed that t= he board of AMR Corp., American's parent, had approved bonuses amounting to twice the base salaries for seven executives if they stayed at the company through January 2005. It also agreed to $41 million in payments to a pension trust for 45 executives. Both the bonuses and pension payments would be protected even in bankruptcy. So while the company's rank-and-file workers were being asked to have their paychecks cut by as much as 23 percent a year, the top managers were still cashing in. The furor that erupted over this caused American to drop the bonuses, though the pension funding will continue. But the unions remained angry over the perks and threatened to rescind t= he concessions. Now, they've agreed to a sweetened labor deal that includes potential bonuses for workers and shortens the length of concessions by eight months, to five years, with limited renegotiations possible even sooner. In a news conference Monday, Carty defended the executive payments as necessary to keep senior management and said he thought the retention plan would win praise as more modest than plans at other airlines. "I really believed that we were going to look very good by comparison," = he said. "I should have been a lot smarter." No kidding. That's like somebody saying he was wrong but pleading for mercy because he wasn't as wrong as someone else. Carty and his executive team were supposed to be skimping on every dime = to save their airline, and that wasn't going to happen by just giving themselves a little less than the inflated amount earned by their competitors. Sure, American was pushed to the brink of bankruptcy by factors beyond i= ts control. But it neared going over the edge out of its own doing. Rachel Beck is the national business columnist for The Associated Press. Write to her at rbeck(at)ap.org =20 ---------------------------------------------------------------------- Copyright 2003 AP