American Airlines CEO Ends Contract, Taking `At Will' Statusby
Being only worker with guarantees `didn't seem right,' he says
Parker last year switched his compensation to all stock
American Airlines Group Inc. Chief Executive Officer Doug Parker ended his contract with the world’s biggest carrier, switching his employment status to “at will” to match that of the company’s 100,000 workers.
The move, effective Thursday, was disclosed by American in a U.S. regulatory filing Friday and in a letter from Parker to employees. It means he isn’t guaranteed a set level of compensation and benefits, nor is he protected from a change in control at the company or covered by severance provisions, according to the filing. The change occurred at Parker’s request.
Parker last month dropped his opposition to a profit-sharing program for workers, saying the issue was hampering efforts to unite employees in improving operations. The change in his employment status followed by about a year his decision to be paid only in stock, saying his compensation instead should be based entirely on American’s results.
“To be crystal clear, just because I don’t have a contract doesn’t mean I intend to leave American soon,” Parker, 54, said in the letter. “Rather, it is just another way of demonstrating how much I enjoy what I do, my excitement about our future.”
Employment agreements are common for chief executives and it is particularly unusual for Parker to surrender protections from a firing, such as cash payments and accelerated stock awards, said Kevin Kuschel, managing partner at Longnecker & Associates, an executive-compensation consulting firm.
“To voluntarily terminate an agreement in the middle of the agreement period, I’d say that’s pretty rare,” he said in an interview. Surrendering employment guarantees better aligns Parker with his employees, just as taking compensation only in stock united him with investors, Kuschel said.
“It didn’t seem right to me that I should be the only person at American with an employment contract,” Parker wrote. The employment agreement provided protection “against a number of things I don’t think I should be protected against,” including being fired or repercussions from unhappy shareholders gaining control of the board.
“We hope other managers see this as a commitment to a culture change that includes ongoing positive surprises for our employees,” said Dennis Tajer, a spokesman for the Allied Pilots Association. “Mr. Parker has called for a culture change and so has APA.”
Parker, who took over as chief executive when American merged with US Airways in December 2013, gave up the cash portion of his compensation last May. At the time, he joined just four other chief executives at companies in the Standard & Poor’s 500 Index who earned $1 or less in cash a year.
He told employees when he made the switch that it reflected his confidence in growth opportunities at American. While the airline reported record profit for 2015, the shares have tumbled 27 percent since the CEO gave up his cash pay.
Parker had $11.4 million in total compensation last year, including $231,538 in cash and stock awards valued at $10.3 million, according to American’s regulatory filing.