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.”
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)