Fascinating: Doug Parker’s Compensation, Stock Sales

Filed Under: American

Controversial (and I’d argue excessive) executive compensation at publicly traded US companies is nothing new. Specific to the airline industry, Epsilon Theory has a fascinating look at the compensation of Doug Parker, who is American Airlines’ CEO. The story is titled “Sacrifice for Thee, Vast Wealth for Me,” and ouch it stings.

This comes at a time when American Airlines plans to lay off tens of thousands of employees if taxpayers aren’t willing to give the airline billions more dollars.

I’m writing about this not because his compensation is that out of line for the industry, but rather because it’s just a fascinating look at how much money he has made, and how well timed his stock sales have been.

Parker has had an incredible career

Let’s start on a positive note. We have to give Parker credit for the fact that he has been in the airline industry his entire career, and he was an airline CEO through two mergers.

First he was CEO of America West, then he became CEO of US Airways (when the two airlines merged), and then he became CEO of American Airlines (when the two airlines merged). He has gone from being CEO of a fairly small airline based in Phoenix, to CEO of the world’s largest airline.

I also have to say that to me, Parker comes across as a decent guy. I’m not talking about the job he has done running the airline, but to me he has consistently come across as one of the most humble and down to earth US airline CEOs. That’s just my perspective, and I’ll acknowledge I could be completely wrong.

Wow: Parker’s compensation over the years

While we know that airline CEOs regularly make eight figures a year (largely in the form of stock options), there are some things that make Parker’s compensation especially interesting, including how well timed his stock sales have been.

How has Parker done since American and US Airways merged in 2013?

  • Between 2014 and 2019, Parker got more than $150 million in cash through the sale of 3.6 million shares of American Airlines stock
  • In addition to that, Parker has received over $100 million in cash salary, cash bonuses, deferred compensation, and stock options
  • In addition to that Parker still owns about $50 million in American Airlines stock

Compensation is one thing, but what’s perhaps even more interesting is the timing of how Parker has sold shares:

  • In 2015-2016, Parker sold anywhere from $4 million to $11 million in stocks per month
  • In a brief period in 2018, Parker sold 437,000 shares of American Airlines stock, at a time when American’s stock briefly went over $50; in this case he sold more than twice as much stock as he had ever sold before
  • During the same period from 2014 to 2019 where Parker pocketed $200 million, the company had negative free cash flown of $3.2 billion, took on an additional $14 billion in debt, and bought back $13 billion of its stocks
  • During that six year period (arguably the best ever period for the airline industry), American stock was up a total of 13% (not per year, but over the six years), significantly underperforming competitors, and the market on the whole

Parker was smart to sell his American Airlines stocks when they hit $50+. But keep in mind that when the stock was in the high $40s, Parker said that the “stock is so undervalued it defies logic.” Yet that number was also when he sold the most stocks he had ever sold…

It’s important to note that a company’s CEO can’t just sell stocks overnight, but rather has to give some advance notice. It’s normal to set up regular intervals by which stocks are sold.

As Epsilon Theory (rather harshly) concludes:

“Doug Parker is not an entrepreneur. Doug Parker is not a founder. Doug Parker has never built a goddam thing in his life. Doug Parker is not on your ‘team.’

Doug Parker is a financial analyst. Doug Parker is a manager. Doug Parker is a risk taker with other people’s money and other people’s lives.

And for that, Doug Parker is a centimillionaire many times over.”

Ouch…

Bottom line

I’m not covering this because I think Doug Parker’s situation is that out of the ordinary for US airline executives. I also think he seems like a genuinely nice guy, so this isn’t intended to be an attack on him.

However, as many American employees are facing imminent layoffs, I think this look at Parker’s situation is interesting. It’s not so much about how much he has been compensated, but rather the disconnect between what he has claimed about the company’s stock, and when he sold his shares (with a notice period, of course).

He sold the most shares ever shortly after American’s stock hit a five year high, at a time that he still proclaimed that American’s stock was so undervalued that it “defied logic.”

So yeah, since 2014 he has made about a quarter billion dollars, between stock sales and cash compensation, all while running an airline that has otherwise underperformed the industry.

Where does one sign up for this gig?!?

(Tip of the hat to Gregg)

Comments
  1. Sorry for my ignorance, but why is he allowed to trade stocks in a company he controls? Surely that is not allowed? Happy to hear an explanation!

  2. @Gene He was making this while 8 years of Obama… so what is your porint?

    @Dennis @IV exactly exactly.. isn’t this insider’s trading?

  3. One thing that has led American to have the poor position it is in today was all of the stock buybacks.

    Isn’t it convenient that this guy was pushing the company to buyback stock so he could sell it for a profit? Add to this all of his crazy comments that the stock is so undervalued and that it will never lose money again.

    What makes this better than any other pump and dump scheme?

  4. @Dennis The way this usually works is that you have to declare a plan to sell stock (either all at once or incrementally over a given time horizon) and wait 60 days (a “cooling off period”) before implementing it. This system is what allows high level employees who basically always have access to material non-public information to sell stock in their companies.

    Disclaimer: I forget the name of the applicable statute, I am not a lawyer, etc. etc.

  5. Some of that sounds suspiciously like insider trading. Selling shares in a company you manage implies knowledge of where share value is, and where it is likely to go. Of course, I don’t know if he had the shares in a trust or under the control of an independent manager of his portfolio, both of which would put any trading at arm’s length from him.

  6. Amazing you discovered thus site after I posted it.

    Thanks for the non HT again.

    Gregg? Lol

  7. SEC Rule 10b5-1 allows a company insider to set up a predetermined plan to sell company stock. It requires that the plan be established in good faith at a time when that person was unaware of material non‐public information.

  8. @ TravelBloggerBuzz — This might come as a shock, but a) more than one person on the internet can share a story b) I haven’t visited your site in months, because I have better things to do (like literally anything, or even nothing). But I’m grateful that you’re still a reader! 🙂

  9. Kind of a lazy post. Parker can’t just wake up one day and sell a bunch of his stock. He has to plan to sell it some period in advance. And this should all be filed with the SEC in public, so before writing a post about it you could see when he actually made the decision to sell it

  10. I’m fairly certain Parker set up a regular distribution of funds. Very common amongst senior executives. They set out, in advance, a regular, periodic sales of stock so that they cannot “game” it with inside information. I also know, through the 10-K’s, that Parker is paid solely in stock. He has not taken a salary while at AA. That being said, his compensation has been in the tens of millions per year. And if his sales were from options then the numbers above are not “net”. Meaning you have an option to buy at $40 and if you sell at $50, your net is only $10, not $50. I think this is a lot of misinformation in this post.

  11. You can think stock is undervalued (which by technical analysis and book value he was correct about) but also realize market sentiment and know that its a good time to sell high. There’s plenty of stocks in that boat and the airline industry isn’t trusted or valued highly on a P/E basis

  12. @ Albert Strong — To be clear, it’s not just that he thought it was undervalued, but he also made a bet that the stock would hit $60 by November 2018. It’s one thing to say that it’s undervalued but that the market can’t appreciate it, and it’s another to suggest that the stock will hit a certain number down the road.

  13. @endre – At the very least it reinforces that trump and republicans are liars and lying (nothing new here) that Pres. Obama was a socialist, destroying America’s God given greed…

  14. I’m all for people getting theirs but this is sad considering the state of AA and it’s employees. Obviously the board approves his comp and his stock sales, but wow. Didn’t realize he made quite this much.

  15. I don’t really pay attention when insiders sell company stock………..I DO pay attention whenever they buy.

    As a wise man once said: “There’s 50 reasons to sell a stock, but there’s only 1 reason to buy.”

    My company allows me to buy company stock at a 15% discount through our ESS; I sell all of it immediately, pocket the proceeds and use them to purchase VTWSX.

  16. No one (founder, CEO, C suite) should be compensated like this. The income disparity is atrocious. No one could spend that much money if they wanted to.

    Money like that should be spread across the company. Improving their position and paying others a fair share.

    I’m not sure how he sleeps at night knowing they’re a month away from laying off thousands. I’ll agree to disagree he’s not a nice man. Anyone that can turn their head to this is selfish and greedy and at their core, not a nice person.

    Should he make a good salary? Absolutely. But no one should make this much. There’s no point.

    Robert Reich has a good documentary on Netflix about income disparity if anyone is interested.

  17. @Endre, I’m not a fan of Obama, but how did you figure??? The blog post is regarding the six years “Between 2014 and 2019”, Where did you come up with “He was making this while 8 years of Obama” Did you even read the article?

    2014-2016 Obama
    2017-2019 Trump

    The point is the playing field is tweaked to benefit the rich and powerful, our oligarchs (some call them businessmen) regardless of who is in office – both parties are bourgeois capitalist parties!

  18. Often they have to sell stocks to pay tax. A large part of their compensation are stocks and/or stock options. You can’t pay IRS with stocks and/or stock options.

  19. I’m trying to understand your linkage between Parker’s stock sales timing and the COVID-19 crisis which may result in 19,000 employees being furloughed in October. Regardless of anything Parker did or could have done previously to 2020, AA would still be in the position it faces today in the middle of this unprecedented catastrophe. What does Parker’s previous claim about AA stock being undervalued (which I agreed with at the time) have to do with his market timing? What would you expect AA CEO Parker to say about AA stock prices? If he said the stock price was overvalued, the price would tank.

    And Epsilon Theory’s conclusions are ridiculous. Parker has “risked” other people’s lives? And who or what the H€ll is Epsilon Theory?

  20. @Mike Baker: I’m glad to see someone here has the knowledge of how this works. I would wager, without any actual knowledge on the matter, that his regular (monthly) sales of stock was because his options vest monthly and so he exercised each monthly vest and then sold it in compliance with SEC rules around notice periods.

    It’s completely possible that the reason he sold the most shares ever in 2018 at the $50/share mark is because he may have had some sort of incentive in his option plan that provided more options when it hit $50/share.

  21. Isn’t his salary technically $0 as CEO of AA? I guess the tradeoff of that is getting paid by stock and he certainly took advantage of it as much as he could to be a multimillionaire.

  22. Well, “Gregg” sure does 🙂 Is he “Alan H.”?

    Can’t wait for your next credit card “review”!

    Be careful in Turkey, highest risk of an “accident” happening with Greece that there has EVER been!

  23. @eaci (and others), thank you for explaining that rule. Still think it’s wrong. He shouldn’t have any involvement in it.
    I also own stocks in the company I work for, but I certainly don’t control the company, and definitely don’t have insider knowledge!

  24. @ TravelBloggerBuzz — Says the guy who (last I checked) has affiliate and donation links in every single blog post? Hmmm…

  25. @ben, you are extra sassy today! I like it!

    Doug is incentivized by having high stock prices because 1. His compensation relies on it, 2. At the end of the day, he works for shareholders and that’s what shareholders want. This kind of structure incentivize Doug to run AA better as profitable company means higher stock prices! Since he wasn’t particularly good at running AA, other option is stock buy back which apparently he’s very good at!

    Typically public traded company CEO will have some kind of schedule to sell their stocks. Gone are the days when CEOs hold on to their company stocks forever…. dotcom days have taught future CEOs well. No matter how well your company is doing, it’s stupid for anyone not to diversify his/her portfolio. I think that’s what Doug is doing here. I’m sure his financial advisor(s) have set it up in such a way that he sells his stocks on a predetermined schedule throughout the year.

  26. You give me that kind of money and just wait and see how nice I’ll be. This is just disgusting. Maybe those DWI’s of Dougie are the result of his moth-eaten conscience driving him to drink.

  27. “I’m writing about this not because his compensation is that out of line for the industry …”

    Still doesn’t make it right that he gets paid an amount a lot of people would regard as obscene.

  28. As a devil advocate, his comp is very stock based so while he is not likely every struggling on personal cashflow, he would be selling off vested shares some time after they were awarded versus a salary paid out at the time. Also given a large portion of his comp being in $AAL while also being a current exec in American he would be extremely diversified if not selling.

  29. Executive are paid in stocks so that they act in the interest of the company. If you own a large part of the company (shareholders) would you do silly stuff and run your company to the ground? All employees should be paid in stock, that way they put company best interests first. Meanwhile, i know many people who could care less if the company they’re working for is doing well or not. They just come to work, do bare minimum work and leave.

  30. @Jkjkjk. only some of comp should. Many cases of corporations, although more 90s/00s, where employees were encouraged to buy stock or take stock comp, companies went Enron and people lost their jobs and a sizable amount of their retirement. Skin in the game, but diversification.

  31. I think one context to consider Parker’s compensation is that his stock sales and salary amounts to the compensation of 1,000 senior pilots for one year. Or 200 pilots for the 5 year period.

    How can ANY airline CEO be worth the work of 200 pilots or 800 flight attendants?

    Executive compensation is completely out of hand. And regardless of which party wins, don’t hold your breath waiting for change.

  32. These numbers defy logic…. all I had to do was underperform to make a quarter billion dollars…. My Mom will be so dissapointed.

  33. AA has gone way downhill under his aegis. Customer Service has become a nightmare, and, just maybe, if the carrier was less focused on M&A and more focused on their passengers, they might be a much better operation.

  34. Go on Ben, call a spade a spade. Nice guy? Really? You sheath your sword because, like most Americans, you admire Parker for making money hand over fist by fair means or foul. The dollar is everything. You will probably never make 1% of Parker’s wealth but his robbery of his firm is ok because, hey, you might use those tactics yourself — morality and other people be damned.

  35. Like most of them, it looks like they work mostly for their bank account more than anything else. Making big money is not what I have problem with. However they invest more of their energy to create a better environment for travelers, being more creative and proactive to revolution the industry instead of cutting, cutting and cutting in services.

  36. Ben,

    You are showing a true ignorance of corporate compensation. Airline CEOs as a rule are no where near the top. First of all every CEO (IMHO) is worth whatever their board is willing to pay them. I’m a former CIO (2 national companies), CTO and partner in a national consulting firm so I have a good bit of experience.

    The compensation may seem excessive, especially during tough times, but the people that can really run these companies is a limited group. The same people that complain about CEO comp are the ones that think it isn’t right teachers and police don’t make as much as PTO athletes. It is all about supply and demand.

    BTW when I was CTO of a fortune 100 company in the late 1990s our CEO made over $110 million one year. Sounds excessive but his base was one $3 million. The rest was stock options he was granted when he took over a very difficult situation due to Federal intervention in the company practices (he wasn’t involved). He had done a great job, the stock was high and his options were about to expire. Seemed like a lot (it was) but he deliver tremendous shareholder value and his only alternative was to not take the money since the options were expiring. There is usually a story behind the massive CEO salary figures you here and base salary is typically only a small component of their compensation.

  37. So, this seems like a great straw man argument.
    You have a CEO of the largest XYZ, in this case the largest airline in the world. He has a minimal salary of $0 but gets stock options equal to 12 million in the last reporting year.
    Last reporting year Mary Berra of GM made 21.6 million, Fords CEO made 17M and Fiat Chrysler a measly 12.46.
    Ok lets look further to the financial sector. David M. Zaslav of entertainment network Discovery, Inc. Zaslav was paid $129.4 million, these are 2018 numbers the most recent dislcosures. Second was a German gas company exec Stephen F. Angel of Munich-based industrial gas company Linde, who was paid $66.1 million. Third was surprise surprise The Walt Disney Company CEO Robert Iger who was paid $65.6 million, making him the third highest paid S&P 500 CEO last year (2018).
    Seems that Doug’s salary is not out of line.

    Even by Warren Buffet standards his $100,000 base and other compensation is more than the CEO of AA base salary.

    What can we conclude? The apparent issue is the writers think that he should have been able to predict a pandemic? Perhaps he should give all his money to the employees, or everyone makes 35k a year and then a 10k raise every year so everyone makes exactly the same for the same tenure.

    Here is a concept, he is in charge, and thus he has the responsibility. He reports to the stock holders, and its his name and face in the front of every AA magazine. He is the one person whom is ultimately responsible for all actions that are taken, good bad or otherwise, and when the stock holders come calling he is the one that must answer. That is why he earns what he earns. Those of you who want to defecate on the idea that earning a great deal of money is bad, remember in the wonderful communist utopias, and socialist heavens, the guys (there are very few Female dictators but look out North Korea is coming) the people at the top Putin, Xi, the Castro brothers, they have all teh money. Look at especially Mr. Chavez in Venezuela was alleged to have taken 22 Billion in state funds.

    He runs the largest airline in the world, he has earned what he has, go get a similar job, and then you can earn it as well.

  38. @upstarter, pilots do repetitive cognitive work. Probably most advanced repetitive work except in the case of emergency. Execs or CEO need innovative way to make money and keep company afloat. Of course they need to be compensated more. Is 1000 pilots doing innovative way to increase sales? Or cost savings? Or process improvements? I’m sure some pilot go into mgmt are and paid handsomely as well.

  39. Who cares how much and how he earned his money, there is not a damn thing anybody can do about it. Why not better focus on how he and Isom destroyed a once a First Class Airlines American Airlines. Customer service, well what customer service is the worse among the three big ones, it is so bad that long time loyal customers are leaving and going to Delta and even United. Now that he’s made so much money and ruined a once a great airline, he should get the hell out and clean house, get rid of all the USAir incompetent management and bring new blood that will restore the once great American Airlines.

  40. @Shawn – you asked how does he sleep at night? Easy… in between the finest silk sheets that cost more than the average AA flight attendant’s annual salary!!

  41. The law of the jungleonly the strongest will survive! And each one has to live and endure the consequences of his choices. This is a typical news that can bring the spirits of a person down and the morale of a company to the ground.
    Let’s pray that we don’t end up like others did in the past…in oblivion.

  42. Gene,

    Since you went there, the answer to who Parker votes for is whatever Democrat is running. Both he and his wife are outspoken woke Democrats and contributors.

    Of course, they raised their own personal family hermetically sealed in a white bubble, unless you count Dallas Mavericks season tickets as minority outreach. They might even want to invite some of the Mavs to join their country club except for the fact that they chose to join one of the most racist and anti-semitic clubs in the country, the Dallas Country Club. Sorry Mavs, no way.

    Great people.

  43. I don’t understand any of the financial jargon, but what I do know is that they/he shouldn’t get another dime of bailout money. Because regardless of getting it, AA will still terminate more employees. Yes, terminate! Not all of their employees are union, therefore not all could be called back. Like my husband who was let go from his job in HR in July, after 13 years with the company. As a matter of fact, he’s reapplied for other jobs posted and didn’t get them. Am I mad, YES! Because as someone said in another post, he (nobody) needs that much to survive. Nor did they need that new multi million dollar headquarters facility to do their jobs. Does he care about what’s going to happen to people/families like my husbands/ours once September 30 comes?! That’s when all salaries and benefits stop being paid to terminated employees per the bailout agreement. NO! He really doesn’t care about anyone in that company but himself (and maybe a few of his higher end sidekicks)! If he did, he would’ve done better for his employees!

  44. @cg
    Sorry for the loss of your husband’s job. But it is what it is. It’s business. Nothing personal. What would’ve done better for employees entail? Can you elaborate what a ceo is supposed to do when he needs to answer to his boss?

  45. I had the pleasure of working a flight (back in us airways days) worth Doug and his entire family going to BNA for Christmas with grandma. The entire family was the perfect example of how nonrevs should act. There was one fc seat that they let one of the kids take, the rest, including Doug, sat in the very last row. He was very nice and chatted with us a lot during the flight. I know this has nothing to do with compensation, but just want to put in my experience. Much better than when the old united ceo would take the ord-abq flights. He was a dick.

  46. I worked for a startup that went public and was nearly included in the restricted stock sale group (I had access to backend data). The CEO scheduled stock sales and was then restricted to that calendar…and then our stock dropped. He lost a ton of money, just as Parker won the gamble in this case.

Leave a Reply

If you'd like to participate in the discussion, please adhere to our commenting guidelines. Your email address will not be published. Required fields are marked *