April 29, 2003
Looking for a Good Job?... Let's take five with Moira Gunn. This is "Five Minutes".
Between the post-9/11 security challenges, the beleaguered state of the economy and the World Health Organization travel advisories, I wouldn't be surprised if you haven't flown on any airplanes lately. Most people I know are flying less, and to be sure, there are fewer flight options and trickier fares. Contemplating the situation, it's become very clear to me that something has to give.
The free marketplace is a wonderful thing when it works: customers receive goods and services at workable prices; businesses thrive creating jobs, benefits, work satisfaction, and security. But then sometimes, it doesn't work.
If you've been watching the situation with American Airlines, you have a firsthand look at how questionable corporate behaviors can be masked in times of plenty, but when times get tough, these same corporate moves foment problems in and of themselves.
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Three major unions work with American Airlines: the Transport Workers Union, the Association of Professional Flight Attendants and the Allied Pilots Association. On the heels of substantial increases implemented during the rollicking economy of the late 90's, two of the three unions had already accepted significant cutbacks, while the third was closing in on final acceptance.
Then the bad news came out.
In a securities filing, American disclosed it had paid what it called "retention bonuses" to seven executives and contributed some $41 million to an executive pension trust fund.
Oh, yes, it would have to be called a "trust" fund, as trust became a word nobody could use with a straight face in the ensuing melee. The Board and the Chief Executive knew that they had created these precious payouts at the same time they were asking the unions for deep cuts.
In short order, all three unions balked on their agreements, and correctly so. The billion dollars American lost in the first Quarter of this year stood out in glaring red ink.
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Following the mediation of Congressman Martin Frost of Dallas, the situation has settled now, but not without fall-out: the retention bonuses were rescinded, and the Chairman and CEO of American has resigned, replaced by a new CEO and a new Chairman - two completely different people. And it all happened in a matter of hours.
While American's Board may not have acted unethically, it did act badly. Not only did they overtly approve the executive bonuses and pension contributions, they had to also know that the unions were being asked for reductions. What could they possibly have been thinking?
Well, let me make this point: the CEO of American Airlines was also the Chairman of its Board, the very person who, at a Board meeting, asks for any vote. Does the term "separation of powers" ring a bell here? When the CEO is also the Chairman of the Board, who takes him to task?
Still, the most interesting outcome of all is that future bonuses for the rank and file will rise and fall with those of the executives. And it seems to me that this is a sign of things to come throughout the free marketplace. After all, in publicly-traded corporations, everyone is an employee.
In the past, it's always been argued that you can't get qualified people to take these top jobs without extraordinary compensation. Well, I have one response: "Hogwash." Never forget - these are the only jobs in town.
I'm Moira Gunn. This is Five Minutes.
