American’s variable compensation plans demonstrate the company’s commitment that employees will share in the company’s success. Through the 2003 restructuring process, employees elected to keep more of their compensation in the form of base pay. However, American provided employees with a number of opportunities for additional compensation hinged on the airline’s recovery and overall performance.
Broad-Based Stock Program
Employees received 38 million stock options in 2003 through the Broad-Based Stock Program. These options have created more than $400 million in realized value for employees.
Annual Incentive Payments (AIP)
The AIP performance metrics are changing for 2009 and expanding to better measure outcomes that employees can directly impact on a daily basis.
The Customer Service component of the 2009 plan will align the various work groups with a relevant Customer Experience metric. The Dependability component will change to Direct D-0 performance as the measure. The total monthly award opportunity for each employee will be $100 or $1,200 annually. Awards will be earned based on monthly performance and paid quarterly. Since 2004, American has paid out almost $50 million in AIP payments to employees.
Aligning specific employee workgroups with the various segments of the customer travel experience will provide a better gauge of the total customer experience and measure results that employees can more directly impact. When these employee groups, or Customer Teams, exceed their monthly goals every eligible employee in that Customer Team earns will earn an award.
AIP also rewards employees based on the company’s financial results. The financial performance component of the AIP is separate from the Profit Sharing plan and pays out 2.5 percent of wages when American records a five percent annual pre-tax margin. If the pre-tax margin exceeds five percent, these annual awards combined with the customer service component could rise to 10 percent of eligible earnings. The higher the pre-tax margin, up to the maximum of 15 percent, the higher the payout.
Employees also participate in the company’s Profit Sharing plan that pays cash awards to eligible employees when American exceeds $500 million in pre-tax earnings. Fifteen percent of the company’s profits above $500 million go to a profit sharing fund. Funds are distributed according to the individual’s eligible wages.