In the Hot Seat: American Airlines CEO Explains His $32 Million Pay Package At Companywide Meeting
CEO Robert Isom was paid $31.4 million last year. The compensation was revealed a few days before the airline announced that they missed analyst expectations for the first quarter and lost $312 million, missing analyst forecasts.
American’s results were worse than Delta’s (which made money) and United’s (which lost money because of the Boeing MAX 9 grounding). American has consistently lagged both carriers.
Unsurprisingly, $32 million reported compensation for the CEO has been controversial with employees – especially with flight attendants who are in the midst of protracted contract negotiations and are asking the government’s permission (again) to strike. The memes write themselves.
After American’s earnings call on Thursday, in prepared remarkets to the airline’s employees as a ‘State of the Airline’ event (a recording of which was reviewed by View From The Wing), Isom brought up his pay package and fumbled through an explanation. And as they say, when you’re explaining you’re losing. He came across as defensive and unsure of himself.
As the CEO it’s probably not a surprise, but I’m compensated the most… I just want to cover this real quick… [our] proxy this year basically says that I am paid a significant amount of money, but compensation that is consistent with what my peers are. I’m paid on a go-forward basis, I’m paid less than Ed Bastian at Delta by a considerable amount, and I’m paid less than Scott Kirby at United.
This past year in terms of reporting there is also one additional item in terms of reporting, but it is all due to being promoted as CEO and then serving in that role for about 18 months and not receiving additional compensation. So compensation all has to be recorded in this year, 2023, that produces a number that’s a large number… it is 90% at risk, the majority is paid out into the future, and the risk portion is if the company doesn’t do well I do not do well. If I do not do what I have set up to do and what the board and the company has asked me to, I don’t receive that compensation.
So I’m not doing anything other than telling you up front that’s what it’s about. And I just want to make clear with folks that’s not something I shy away from. It’s compensation that’s consistent with what other CEOs make.
When Isom first became CEO his message to employees was not to spend a dollar they didn’t need to.
- the Board certainly didn’t need to pay Isom $31.4 million. He wouldn’t have walked away at $25 million. He isn’t so obviously better than the next-best CEO the airline might have.
- which makes it seem as though the unsaid part of Isom’s admonition to employees was “so that there’s plenty left over for me.”
Roughly speaking it’s not clear that Isom ought to be paid similarly to Ed Bastian at Delta. American has underperformed its benchmark competitors.
And, in fact, his base pay doubled two years ago when he became CEO. It isn’t quite true for him to suggest he saw no compensation increase upon taking the role. He did have to wait, though, on a big increase because of restrictions put in place in exchange for $10 billion in taxpayer cash given to the airline during the pandemic.
Furthermore, the performance targets that have been set for him are watered down.
- When former CEO Doug Parker famously declared in 2017 that American would never lose money again, the he actually went much farther than that. It just wasn’t as pithy.
- He described American as being like an annuity that investors could expect to earn $3 billion to $7 billion per year – never less than $3 billion.
- There’s been over 20% inflation since then. Yet the top target for Isom’s bonus package requires the airline only to generate $2.5 billion.
Isom has made the Gerard Arpey mistake ratcheting up executive compensation while employees were giving back wages. American hasn’t sought a concessionary contract, but inflation has eaten up the value of flight attendant wages since their last increase in 2019 while executive compensation has grown.
There was no reason his compensation had to be done in 2023. He and the board of American chose that. It should have come after a flight attendant contract. And the amount should have come with actual performance.
Then he could have stood up proudly, instead of awkwardly, and say something like “we’re all benefiting from American’s success. I’m the CEO and I benefit a lot, but employee raises cost the company many times that. We’re all succeeding, and we’re going to keep succeeding together.”
