EXCHANGE --- The Captain Class: The Airline
CEO Who Canceled His Salary --- With his pay
entirely in stock, Doug Parker wanted to change
American Airlines' culture
Walker, Sam . Wall Street Journal , Eastern edition; New York, N.Y. [New York, N.Y]18 May 2019: B.6.
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Roughly three months ago, Doug Parker, the chief executive of American Airlines, wrote his company a personal
check for $10,000.
For a 57-year-old airline industry titan who earned almost $12 million on paper last year, the dollar figure wasn't too
significant. The remarkable thing about this payment is why he made it.
Four years ago, during a boom in executive compensation, Mr. Parker stunned many CEOs (not to mention their
accountants) by asking American's board to start compensating him exclusively in stock. Since then, he's been
leading the world's largest airline without a salary, a bonus, or even a matching 401(k) contribution.
This unusual plan, unique among airline CEOs, effectively erases Mr. Parker from the company's payroll. Since
American can't deduct the cost of his health insurance, he's on the hook for it. Hence, the $10,000 check.
Many CEOs can rightfully say that a majority of their pay is tied to the company's performance, although that's
hardly a perfect science. Only a few, however, have dared to join Mr. Parker in the 100% stock club. One of the
reasons Mr. Parker favors this approach is the same one that makes it frightening: It subjects him to the same
risks as American's shareholders.
Given the level at which top executives are paid, he says, it's only fitting that their interests should be aligned with
investors. "I don't know why all CEOs don't do the same. It seems really logical."
Mr. Parker, who took over at American in 2013 after its merger with US Airways, said he also hoped this symbolic
gesture would signal to American's employees that he was a different breed of airline executive. "Nothing about
this is some earnings-maximization policy of mine," he says.
The shares Mr. Parker receives are not options: They're granted at the current market price and may decline in
value before they vest. In addition, the value of the shares he gets and how soon they vest depends in large part on
how well American performs over time, relative to rival airlines.
Put simply, Mr. Parker isn't likely to outearn his industry peers unless American has a series of bang-up years.
When this arrangement began, the airline industry was still emerging from a brutal stretch of bankruptcies,
mergers and historic labor strife. Few investors saw major carriers as healthy, viable businesses worth
accumulating stock in. When Mr. Parker first broached his unorthodox plan, a few friends on the board pulled him
aside to ask him what he was thinking.
To Mr. Parker, this lingering prejudice against airlines was American's biggest problem. "It was time to get out of
survival mentality," he says. Choosing stock over ready cash and short-term incentives would signal that he was
bullish about the long term. His message at the time: "We're good. This business has been transformed. It's time to
worry about building."
For the record, nobody -- including Mr. Parker -- interpreted this plan as a vow of poverty. If American's share price
booms, he stands to earn more than he'd get from a traditional pay package. Besides, he admits, the reason he's in
a position to ditch his salary is that he's already benefited from years of generous compensation. Over the last
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three years, the airline stock-appreciation rights he'd earned before 2015 have helped him pocket more than $50
million. "I've been extremely fortunate," he says.
Mr. Parker also knew that no compensation formula could eliminate the perception among many longtime airline
employees that executives like him care only about lining their pockets. He was right about that.
"He can put whatever kind of Boy Scout explanation he wants on the way he gets paid," says John Samuelsen,
international president of the Transport Workers Union, which has been in protracted negotiations with American.
"It doesn't matter to the average worker -- all we know is that he's rich and we're not."
While it may not be especially brave, there's a fair argument to be made that Mr. Parker is doing something
commendable.
In 2015, when he retooled his own compensation, many of American's workers were underpaid by industry
standards. Mr. Parker set out to rectify that by offering workers mid-contract pay raises. He also decided that until
his employees achieved pay parity, he would ask the board to set his annual income targets about 20% below what
his peers at United and Delta were expected to make. "I'm doing this because it feels better," he says.
In another unorthodox move, he asked the board in 2016 to tear up his employment contract, making him the rare
CEO who serves as an at-will employee without any special protections.
So far, Mr. Parker's experiment hasn't broken any compensation records. He's earned about $11.7 million a year on
average. Median pay for the CEOs of the biggest U.S. companies in 2018 was $12.4 million. Although American
has turned a profit in five straight years, its stock has skidded to about $32 from last year's high of $59. The
unvested shares Mr. Parker earned in 2018 have lost nearly half their value. "I'm not complaining," he says. "I feel
the stock will rebound."
In his quest to improve American's culture, Mr. Parker hosts monthly town halls and meets informally with
employees aboard planes. When the pricey seats are full, he flies in coach. Mr. Parker recently posed with a
mortified flight attendant who accidentally spilled a tray of drinks on him. "I want people to know they work for a
company that cares about them," he says.
His effort to change the culture has seen its own share of ups and downs. The airline finished next-to-last in 2018
in The Wall Street Journal's annual study of on-time performance. And despite posting an above-average rating in
J.D. Power's 2015 study of airline customer satisfaction, American has fallen below the average in each of the past
three years.
Mr. Parker says he has seen some progress. Workers rarely complain to him about the indifference of
management, as they used to. They tend to lobby him for better tools to do their jobs. The company's first
employee survey in 2017 found that two-thirds said they were proud to work at American.
In the meantime, there's another group Mr. Parker hopes to lead -- fellow chief executives. For years, he says, CEOs
have fought to be paid the same as their peers, only to see their rivals receive counterhikes the next year. "That
doesn't seem right, frankly," he says. By opting out of this perpetual loop, "I like thinking that I'm not facilitating
that."
Even if he never outearns his airline counterparts, Mr. Parker's approach to compensation does afford him one
unique luxury. He gets to imagine how they must feel defending their own pay. "They have to talk about how their
compensation is higher than mine," he says.
--Mr. Walker, a former reporter and editor at The Wall Street Journal, is the author of "The Captain Class: A New
Theory of Leadership" (Random House).
Credit: By Sam Walker
DETAILS
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Subject:
Executive compensation; Investments; Wages &salaries; Airline industry; Employees;
Workers
Location:
United States--US
People:
Parker, Doug Samuelsen, John Parker, W Douglas
Company / organization:
Name: J D Power &Associates; NAICS: 541910; Name: Random House Inc; NAICS:
511130; Name: Wall Street Journal; NAICS: 511110, 519130; Name: American
Airlines Inc; NAICS: 481111
Publication title:
Wall Street Journal, Eastern edition; New York, N.Y.
First page:
B.6
Publication year:
2019
Publication date:
May 18, 2019
Publisher:
Dow Jones &Company Inc
Place of publication:
New York, N.Y.
Country of publication:
United States, New York, N.Y.
Publication subject:
Business And Economics--Banking And Finance
ISSN:
00999660
Source type:
Newspapers
Language of publication:
English
Document type:
Opinions, Commentary
ProQuest document ID:
2226672311
Document URL:
http://login.ezproxy1.lib.asu.edu/login?url=https://search.proquest.com/docview/22
26672311?accountid=4485
Copyright:
Copyright 2019 Dow Jones &Company, Inc. All Rights Reserved.
Last updated:
2020-01-07
Database:
ABI/INFORM Collection,The Wall Street Journal,Global Newsstream
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MGT 380 Final Exam Questions for summer 2019
Name: [Put your name here]
The Final Exam is comprised of two equally weighted sets of questions based on the article
from The Wall Street Journal, “EXCHANGE - - - The Captain Class: The Airline CEO Who Canceled
His Salary…” May 18, 2019.Your answers should explicitly identify course concepts and use
course terminology.
Question 1: Look at Doug Parker’s role as CEO of American Airlines and chapter 14 (Leadership)
in your textbook. How did Doug Parker’s actions, as described in the article (first cutting his pay
to 20% below industry average, and then eliminating his salary altogether and relying solely on
stock for compensation, flying coach…) have an impact on his Five Sources of Power (as
described in chapter 14)?
[put your answer to Question 1 here. Your answer should have a separate paragraph for each of
the Five Sources of Power]
Question 2: As a Leader, Doug Parker is trying to influence the employees at American Airlines
to do something[s]. From the Nine Common Influence Tactics listed in chapter 14, choose three
of these influence techniques to explain what he might be trying to do with the American
employees, and how successful you think he might be in his endeavors.
[put your answer to Question 2 here. Your answer should have a separate paragraph for each
one of the three influence tactics you choose to analyze]
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