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George Mannes
The Five Dumbest Things on Wall Street This Week
By George Mannes
Senior Writer
04/25/2003 07:15 AM EDT
1. Carty, an Angel?
Once again, we at the Five Dumbest Things Research Lab are marvelling over what we call a Flying Nun -- a decision so Dumb that it's impossible for us to imagine how a group of responsible humans could have made it.
Yes, just as we still can't figure out how a person could have green-lighted a television show about the aerodynamic Sister Bertrille, we're puzzled at how anyone, anywhere at American Airlines parent AMR (AMR:NYSE - news - commentary) could have concocted an executive compensation scheme as Dumb as the one that surfaced this month.
As you may recall, AMR last week persuaded employees to make a total of $1.6 billion in annual salary concessions, as part of American's last-ditch effort to avoid bankruptcy. The sacrifice was great, but times are desperate for AMR: The company lost $5.3 billion over the past two years, while cutting 27,000 employees.
So what kind of thank-you note did the rank-and-file get in return? Why, the news of how well the company is taking care of its executives. As the company disclosed for the first time last Tuesday evening, AMR decided more than a year ago to award cash bonuses to seven top executives if they stay on through 2005. And last October, the company contributed $41 million to a pension plan for 45 top executives -- a plan that protects those executives' retirement money should AMR declare bankruptcy.
AMR Chairman and CEO Donald Carty tried to do damage control this week (perhaps unsuccessfully, as his resignation Thursday night might indicate), but we at the Research Lab can't say we were impressed. Yes, he rescinded the bonus plan. But the pension plan -- the one that's protected in the increasingly likely event of a bankruptcy -- remains untouched.
Nor was his cause helped by comments he made at his apologetic Monday news conference, the one where he suggested people would love AMR's executive compensation measures because they weren't as egregious as the ones proposed by Dumber executives at other struggling air carriers. "I really believed that we were going to look very good by comparison," said Carty, according to the Associated Press.
What caught our eye at the lab was how Carty kept insisting the problem wasn't the special treatment of executives approved by AMR's board, but the timing of the compensation disclosures. "The board's actions were proper," Carty told reporters Monday. "Because I failed to fully communicate the details in advance, I inadvertently created a perception that there was something improper."
We suspect Carty was missing the point. The problem wasn't that poor timing created "a perception that there was something improper." The executive compensation revelations would have made a stink no matter what day they were revealed. The real problem was the perception that AMR executives don't give a flying Fokker about employees' welfare.
As Carty said himself on Monday, to regain trust he'll need to persuade employees that "the sacrifices they were asked for and agreed to make are indeed shared, and that we are all in this together."
Yes, timing is immaterial. When you're dining with the captain aboard the Titanic, is there any good time to be told that he's got a lifeboat and you don't? To us, it doesn't make a difference if the news comes before he sticks you with the check, or after.