The Director Compensation Project: American Airlines Group (AAL)
This post is part of an ongoing series that examines the way stock exchange independence rules relate to director compensation. We are for the most part including companies from 2017’s Fortune 500 and using information found in their 2017 proxy statements.
NASDAQ and the NYSE have similar rules with respect to director independence. NYSE Rule 303A.01 requires that each listed company’s board of directors be comprised of a majority of independent directors. A director does not qualify as “independent” if he or she has a “material relationship with the company.” NYSE Rule 303A.02(a). In addition, the director is not considered independent under NYSE Rule 303A.02(b)(ii) if the director received more than $120,000 in direct compensation, other than director’s fees, during any of the previous three years. The NYSE imposes a higher independence standard for directors serving on the company’s audit committee by requiring them to comport with Rule 10A-3 (C.F.R. §240.10A-3) (see Rule 303A.06) and requires consideration by the board of directors of certain specified factors in designating directors for the Compensation Committee. See NYSE Rule 303A.02(a)(ii).
Finally, as the Commission has noted with respect to director independence:
All compensation committee members must meet the general independence standards under NYSE’s rules in addition to the two new criteria being adopted herein. The Commission therefore expects that boards, in fulfilling their obligations, will apply this standard to each such director’s individual responsibilities as a board member, including specific committee memberships such as the compensation committee. Although personal and business relationships, related party transactions, and other matters suggested by commenters are not specified either as bright-line disqualifications or explicit factors that must be considered in evaluating a director’s independence, the Commission believes that compliance with NYSE’s rules and the provision noted above would demand consideration of such factors with respect to compensation committee members, as well as to all Independent Directors on the board.
Exchange Act Release No. 68639 (Jan. 11, 2013); see also Exchange Act Release No. 68641 (Jan. 11, 2013).
Independent directors are compensated for their service on the board. The amount of “total compensation” can be seen from examining the director compensation table from the American Airlines Group’s (NYSE: AAL) 2017 proxy statement. According to the proxy statement, the company paid the directors the following amounts:
Name
Fees Earned or Paid in Cash ($)
Stock Awards ($)
Option Awards ($)
All Other Compensation ($)
Total ($)
James F. Albaugh
130,000
150,000
0
28,808
308,808
Jeffrey D. Benjamin
130,000
150,000
0
55,568
335,568
John T. Cahill
160,000
150,000
0
52,988
362,988
Michael J. Ember
130,000
150,000
0
19,080
299,080
Matthew J. Hart
135,000
150,000
0
45,403
330,403
Alberto Ibargüen
130,000
150,000
0
25,296
305,296
Richard C. Kraemer
135,000
150,000
0
50,690
335,690
Susan D. Kronick
127,774
220,000
0
18,466
366,240
Martin H. Nesbitt
127,774
220,000
0
47,930
395,704
Denise M. O’Leary
130,000
150,000
0
61,678
341,678
Ray M. Robinson
135,000
150,000
0
21,615
306,615
Richard P. Schifter
135,000
150,000
0
32,368
317,368
Director Compensation. During fiscal year 2016, American Airlines Group held eight meetings of the Board of Directors, five meetings of the Audit Committee, eight meetings of the Compensation Committee, three meetings of the Corporate Governance and Nominating Committee, and twelve meetings of the Finance Committee. Each incumbent director attended at least 75% of the aggregate number of meetings of the Board of Directors and of the committees on which he or she served. Non-employee directors receive an annual retainer of $100,000, as well as, an additional $15,000 retainer for each committee on which they serve. The Chair of each committee receives an annual retainer of $20,000. The Lead Independent Director receives an additional annual retainer of $30,000. Non-employee directors are also entitled to complimentary personal air travel for the non-employee director and his or her immediate family on American and American Eagle, 12 round-trip or 24 one-way passes for complimentary air travel for the non-employee director’s family and friends, membership in the American Airlines Admirals Club, and AAdvantage Executive Platinum and ConciergeKey program status. Finally, non-employee directors are reimbursed for all reasonable out-of-pocket expenses incurred in connection with attendance at meetings.
Director Tenure. Ms. Kronick and Mr. Nesbitt are the shortest serving directors having joined the board in November 2015. All other directors joined in December 2013, when American Airlines Group was formed as a result of a merger between US Airways Group and AMR Corporation. Half of the directors previously held directorships with US Airways Group or AMR Corporation. All directors, except Mr. Ibargüen, hold directorships with other public organizations. Mr. Albaugh serves as a director for Harris Corporation. Mr. Benjamin serves as a director for Caesars Entertainment Corp. and A-Mark Precious Metals. Mr. Cahill serves as a director for Kraft-Heinz and Colgate-Palmolive Company. Mr. Embler serves as a director for NMI Holdings, Inc. Mr. Hart serves as a director for American Homes 4 Rent and Air Lease Corporation. Mr. Kraemer serves as a director for Knight Transportation, Inc. Ms. Kronick serves as a director for Hyatt Hotels Corporation. Mr. Nesbitt serves as a director for Norfolk Southern Corporation and Jones Lang LaSalle Incorporated. Ms. O’Leary serves as a director for Medtronic plc and Calpine Corporation. Mr. Robinson serves as a director for Aaron’s, Acuity Brands, Inc., and Fortress Transportation and Infrastructure. Mr. Schifter serves as a director for LPL Financial Holdings, Inc. and EverBank Financial Corporation.
CEO Compensation. Mr. W. Douglas Parker serves as Chairman and Chief Executive Officer of American Airlines Group. In 2016, Mr. Parker earned a total of $11,140,763. He did not earn a base salary but earned stock awards of $11,000,000, as well as other compensation totaling $140,763. Mr. J. Scott Kirby, the former president, was the second most highly compensated executive in 2016, earning a total of $9,403,369. Mr. Kirby’s employment with American Airlines Group terminated on August 29, 2017. He earned a base salary of $475,625, stock awards of $4,635,000, severance pay of $3,850,000, and other compensation totaling $442,744. Other compensation included dividends, flight privileges, company-paid life-insurance premiums, medical examinations, gross-up payments, and contributions to 401(k) plans.