U.S. Bankruptcy  Trustee Tracy Hope Davis is objecting to American Airlines CEO Tom Horton’s Platinum Parachute of $20 million in compensation for stepping down shortly after the US Airways / American Airlines merger is complete.

Actually, she doesn’t like the plans for severance and retention payments being made to many managers at American Airlines  and she wants it changed.  Davis points out that AA should show “the payment is part of a program that is generally applicable to all full-time employees and the amount of the payment is not greater than 10 times the amount of the mean severance pay given to non-management employees during the calendar year in which the payment is made.”

Most will assume that this won’t pose a problem for American Airlines in front of the judge and that the objections will be ruled against or a compromise found shortly.  I’m not sure this is true.

Emotions about such payments runs high these days and federal law changed how that kind of compensation might be given quite some time ago (2005 during the Bush Administration).  Personally, I find the payments being discussed fairly egregious.

I do not like seeing executives of a company receiving extraordinary compensation for having done a mediocre to poor job in managing that company.  Gerard Arpey is gone, that’s true, but the the entire executive team being compensated in this manner, including CEO Tom Horton, were all on duty when mediocrity was being executed.

American Airlines’ bankruptcy is somewhat unusual in that they executed it when the company still had a great deal of cash holdings (which is really the right time to do a bankruptcy, to be honest) but there remain some facts that should be kept in mind.  American Airlines was clearly headed towards bankrtupcy.  AA had no positive relations with any union whatsoever.  AA had been unable to reduce costs (not just labor but elsewhere too) for years.

And regardless of Tom Horton’s claims that the idea for the merger was his, it wasn’t.  Why should mediocrity be rewarded?  To get them out of the way?  I have an idea:  Let’s deliver a letter that says “I’m sorry but your services are no longer needed.”  Why should the executives be paid to leave and not make trouble when regular employees will simply  be told their services are no longer needed?

Filed under: Mergers and Bankruptcy by ajax