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April 21, 2011

 

 

Dear Stockholder,

 

 

You are cordially invited to attend our annual meeting of stockholders on Wednesday, May 18, 2011, at 8:00 a.m. Pacific time. The meeting will be held at the Hyatt Regency Century Plaza Hotel, 2025 Avenue of the Stars, in Los Angeles, California.

 

 

Details of the meeting are explained in the attached Notice of the Meeting and Proxy Statement, and additional information about us is included in the enclosed 2010 Annual Report to Stockholders.

 

 

We urge you to read the Proxy Statement carefully, and to vote in accordance with the Board of Director’s recommendations by telephone or Internet, or by completing and returning the enclosed proxy card or voting instruction form.

 

 

On behalf of the entire board, we look forward to seeing you at the annual meeting.

 

Sincerely,

 

 

Gerard J. Arpey

Chairman
and Chief Executive Officer

 

 

 

 

2011 ANNUAL MEETING OF STOCKHOLDERS
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
TABLE OF CONTENTS

 

 

P.O. Box 619616, MD 5675, Dallas/Fort Worth International Airport, TX 75261-9616

 

OFFICIAL NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

 

By Order of the Board of Directors,

 

Kenneth W. Wimberly

Corporate Secretary

April 21, 2011

 

P.O. Box 619616, MD 5675, Dallas/Fort Worth International Airport, TX 75261-9616

 

PROXY STATEMENT

 

Annual Meeting of Stockholders
Wednesday, May 18, 2011

 

We are mailing this proxy statement and the form of proxy to stockholders on or around April 21, 2011 in connection with a solicitation of proxies by the Board of Directors of AMR Corporation (the “Company,” “we” or “us”) for use at the annual meeting of stockholders to be held at the Hyatt Regency Century Plaza Hotel, 2025 Avenue of the Stars, Los Angeles, California 90067, on Wednesday, May 18, 2011, at 8:00 a.m. Pacific time. This proxy statement also includes information regarding our wholly-owned and principal subsidiary, American Airlines, Inc. The physical address of our principal executive offices is AMR Corporation, 4333 Amon Carter Boulevard, MD 5675, Fort Worth, Texas 76155. Our mailing address is shown above.

 

INTERNET AVAILABILITY AND ELECTRONIC DELIVERY OF PROXY DOCUMENTS

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Stockholder Meeting to be held on Wednesday, May 18, 2011. Our official Notice of Annual Meeting of Stockholders, Proxy Statement and 2010 Annual Report to Stockholders are available on our website located at www.aa.com/investorrelations.  

 

As an alternative to receiving printed copies of these materials in future years, you can elect to receive and access future annual meeting materials electronically. If your shares are registered directly in your name with our stock registrar and transfer agent, American Stock Transfer & Trust Company, LLC, you can make this election by going to its website (www.amstock.com) and clicking (1) Shareholder Services; (2) Account Access and General Information; (3) Account Access; and (4) Receive Company Mailing via E-Mail, or by following the instructions provided when voting by Internet.

 

If you hold your shares in a brokerage account or through some other third party in street name, please refer to the information provided by your bank, broker or nominee for instructions on how to elect to receive and view future annual meeting materials electronically.

 

ABOUT THE ANNUAL MEETING

 

What is the purpose of the annual meeting?

 

The purpose of the annual meeting is to allow you to vote on the matters described in this proxy statement. These matters include: (a) the election of directors, (b) the ratification of the Audit Committee’s selection of our independent auditors for 2011, (c) holding an advisory vote on executive compensation, (d) holding an advisory vote on the frequency of the advisory vote on executive compensation and (e) the consideration of one stockholder proposal. In addition, management will report on our performance during 2010.

 

Where is the annual meeting?

 

The annual meeting will be held at the Hyatt Regency Century Plaza Hotel, 2025 Avenue of the Stars, Los Angeles, California 90067, on Wednesday, May 18, 2011, at 8:00 a.m. Pacific time.

Who can attend the annual meeting?

 

Stockholders of record as of the close of business on March 21, 2011, or their duly appointed proxies, can attend the annual meeting. Admission to the annual meeting will be on a first-come, first-served basis. Registration will begin at 7:15 a.m. Pacific time on Wednesday, May 18, 2011.

 

What are the requirements to attend the annual meeting?

 

All stockholders must check-in at the registration desk. At check-in, you must provide (a) an admission ticket or other proof of ownership of our stock as of March 21, 2011 that is acceptable to us and (b) valid government-issued picture identification.

 

You can find your admission ticket on your proxy card or with your voting instruction form. A copy of a statement from your broker showing your stock ownership is an acceptable form of proof of ownership. A driver’s license or passport is an acceptable form of government-issued picture identification. If you fail to provide the required admission ticket or proof of ownership and valid government-issued picture identification, you will not be admitted to the annual meeting.

 

For the safety of all persons attending the meeting, all meeting attendees must comply with our security measures. We may require a search of your bags. In addition, we may require a metal detector and/or hand wand search of all persons attending the meeting. You may not use cameras or other recording devices at the annual meeting. If you fail to meet our security requirements, you will not be admitted to the annual meeting.

 

What is the quorum for the annual meeting?

 

The presence, in person or by proxy, of the holders of at least one-third of the issued and outstanding shares entitled to vote at the annual meeting constitutes a quorum for the annual meeting. We will count abstentions and broker non-votes as present for determining whether a quorum exists. If we do not have a quorum at the annual meeting, the holders of shares entitled to vote at the annual meeting who are present in person or by proxy may adjourn the meeting until a quorum exists. Any business that could have been conducted at the original meeting may be conducted at any adjourned and reconvened meeting at which a quorum exists.

 

What is “householding” and how does it affect me?

 

For stockholders who share an address and do not participate in electronic delivery of proxy materials, we are sending only one Proxy Statement and Annual Report to that address. This practice, known as “householding,” is designed to reduce our printing and postage costs. Stockholders who participate in householding will continue to receive separate proxy cards or voting instruction forms. If a stockholder of record residing at that address would like to receive a separate Proxy Statement and Annual Report, he or she may contact Investor Relations, AMR Corporation, P.O. Box 619616, MD 5675, Dallas/Fort Worth International Airport, Texas 75261-9616 or email investor.relations@aa.com. Eligible stockholders of record receiving multiple copies can request householding by contacting us in the same manner. Stockholders who own shares through a bank, broker or other nominee can request householding by contacting the nominee.

 

What is the difference between a stockholder of record and a street name holder?

 

If your shares are registered directly in your name with our stock transfer agent, American Stock Transfer & Trust Company, LLC, you are considered the stockholder of record of those shares. If you are a stockholder of record, we have sent the proxy statement, annual report and proxy card directly to you. If you hold your shares in a stock brokerage account, or your shares are held by a bank or other nominee, you are considered the beneficial owner of these shares, and your shares are held in street name. The proxy statement, annual report and proxy card have been forwarded to you by your broker, bank or nominee, the stockholder of record of those shares. As the beneficial owner, you have the

right to direct your broker, bank or nominee how to vote your shares by using the voting instructions included in the mailing or by following their instructions for voting by telephone or the Internet.

 

Who is entitled to vote at the annual meeting?

 

Only stockholders of record at the close of business on March 21, 2011 are entitled to vote their shares of common stock at the annual meeting. If you were a stockholder of record on March 21, 2011, you will be entitled to vote all of the shares that you held on that date at the annual meeting (or any postponements or adjournments of the meeting). If your shares are held in street name, you may vote your shares in person at the annual meeting only if you obtain a legal proxy that is acceptable to us from the broker or nominee that held your shares on March 21, 2011. On March 21, 2011, we had 333,455,931 shares of common stock outstanding. Each stockholder of record on March 21, 2011 will be entitled to one vote in person or by proxy for each share held.

 

If you are an employee/participant holding shares of our common stock as an investment option under the $uper $aver 401(k) Plan, you will receive one proxy card for all the shares that you own through the $uper $aver 401(k) Plan. The proxy card will serve as your voting instructions for the investment manager of the $uper $aver 401(k) Plan (Evercore Trust Company, N.A.). The number of shares you are eligible to vote is based on your unit balance in the $uper $aver 401(k) Plan on March 21, 2011. To allow sufficient time for the investment manager to vote your $uper $aver 401(k) Plan shares, the investment manager must receive your voting instructions by 11:59 p.m. Eastern time on May 16, 2011. If the investment manager does not receive your instructions by May 16, 2011, it will vote your $uper $aver 401(k) Plan shares in the same proportion as shares for which instructions were received from other employee/participants in the $uper $aver 401(k) Plan. As of March 21, 2011, the $uper $aver 401(k) Plan held a total of 418,788 shares of our common stock on behalf of employees/participants.

 

Do my unexercised stock options allow me to vote at or attend the annual meeting?

 

Holding unexercised stock options or stock appreciation rights does not entitle you to vote at or attend the annual meeting. You must own shares of our common stock at the close of business on March 21, 2011 to vote at or attend the annual meeting.

 

How do I vote before the annual meeting?

 

Stockholders of record on March 21, 2011 may vote before the annual meeting as explained in the instructions on the proxy card or voting instruction form. In summary, you may vote before the annual meeting by any one of the following methods:

 

 

When will Internet and telephone voting facilities close?

 

For stockholders of record, the Internet and telephone voting facilities will close at 11:59 p.m. Eastern time on May 17, 2011. If your shares are held in street name, please refer to the information provided by your bank, broker or nominee for information on when voting will end.

 

Can I change my vote after I have voted?

 

If you are a stockholder of record, you may change your vote or revoke your proxy at any time before the annual meeting begins. To change your vote, you must file a notice of revocation and a properly executed, later-dated proxy with our Corporate Secretary that is acceptable to us. Whether you are a stockholder of record or hold your shares in street name, you may also change your vote or revoke your proxy by voting your shares at the annual meeting.

 

How are votes counted?

 

For the election of directors (proposal 1), you may either vote “FOR” all or less than all of the nominated directors or your vote may be “WITHHELD” from one or more of them. Stockholders elect the nominated directors by a plurality of the votes cast at the annual meeting. This means that the stockholders will elect the eleven persons receiving the highest number of “FOR” votes at the annual meeting. See “Corporate Governance — Majority Voting” for further details regarding the election of directors.

 

For proposals 2, 3 and 5, a majority of the votes cast at the annual meeting is required for approval. For these proposals, you may vote “FOR,” “AGAINST” or “ABSTAIN.” If you “ABSTAIN,” it will not have an effect on the approval of these proposals.

 

For proposal 4, a majority of the votes cast at the annual meeting is required for approval. For this proposal, you may vote for every “1 YEAR,” “2 YEARS,” or “3 YEARS,” or you may vote “ABSTAIN.” If you “ABSTAIN,” it will not have an effect on the approval of this proposal. If none of the alternatives for proposal 4 receives a majority vote, we will consider the alternative that receives highest number of votes cast by the stockholders to be the frequency that has been selected by the stockholders.

 

If you are a stockholder of record, you may vote your shares in person at the annual meeting, through the mail, by telephone or over the Internet. Each of these voting methods is described on the proxy card (see also “How do I vote before the annual meeting?” for more information). If you sign your proxy card and provide no voting instructions, the proxies will vote your shares “FOR” proposals 1 (as to all nominated directors), 2 and 3; every “1 YEAR” for proposal 4; and “AGAINST” proposal 5. On any additional matters that properly come before the annual meeting, the vote will be determined by our proxies, Gerard J. Arpey, Armando M. Codina and Ann M. Korologos. Each proxy has full power to act without the others and has full power of substitution to vote in their discretion.

 

If you hold your shares in street name, follow the instructions on the voting instruction form you received from your broker (see also “How do I vote before the annual meeting?” for more information). On any additional matters that properly come before the annual meeting, the vote will be determined in the discretion of our proxies, as described above.

 

Please note that proposals 1, 3, 4 and 5 are non-discretionary items under the voting procedures of the New York Stock Exchange (“NYSE”). As a result, NYSE-member brokers cannot vote your shares on these proposals without your voting instructions (known as a “broker non-vote”). If you do not submit voting instructions on proposals 1, 3, 4 and 5, we cannot count your shares on these proposals. Broker non-votes will have no effect on the approval of proposals 1, 3, 4 and 5. Proposal 2, the ratification of the appointment of our independent auditors, is a discretionary item under the voting

procedures of the NYSE. NYSE-member brokers can vote your shares on proposal 2 even if you do not provide them with voting instructions.

 

What are the recommendations of the Board of Directors?

 

The recommendations of the Board of Directors are included with the description of each item in this proxy statement. In summary, the Board of Directors recommends a vote:

 

 

What happens if additional matters are presented at the annual meeting?

 

Other than the five proposals described in this proxy statement, we are not aware of any other business to be presented at the annual meeting. If you sign and return the proxy card or the voting instruction form, our proxies will be able to vote your shares on any additional matters presented at the annual meeting. If for any reason any director nominee cannot stand for election at the annual meeting, our proxies may vote your shares for a substitute nominee chosen by the Board.

 

Who will bear the cost of soliciting proxies for the annual meeting?

 

We will pay the cost of this solicitation. In addition to using regular mail, we may use our directors, officers, employees or agents to solicit proxies in person or by telephone, facsimile, e-mail or other means of electronic communication. We will also request brokers or nominees that hold common stock in their names to forward proxy materials to their beneficial owners at our expense. To aid in the solicitation of proxies, we have retained Phoenix Advisory Partners, a firm of professional proxy solicitors, at an estimated fee of $16,500, plus reimbursement of reasonable out-of-pocket expenses.

 

When and where can I find the voting results of the annual meeting?

 

We intend to post the official voting results of the annual meeting at the Investor Relations section of our website (www.aa.com/investorrelations) as soon as possible. In addition, the preliminary results or the official results (if then available) will be published in a current report on Form 8-K within four business days of the annual meeting.

 

PROPOSAL 1—ELECTION OF DIRECTORS

 

The Board of Directors proposes that stockholders elect the following eleven director candidates to serve until the next annual meeting. Each of the nominees currently serves as a director of the Company and American Airlines, Inc., our wholly-owned subsidiary, and has indicated that he or she will serve if elected. Each has also furnished the following information about his or her principal occupation or employment and other directorships. A plurality of the votes cast is necessary for the election of each director.

 

David L. Boren is also a director of the Company and American Airlines, but he has determined to retire from both boards effective May 17, 2011.

 

The Board believes that each nominee meets the requirements of our Director Nominating Policies and Nominating/Corporate Governance Committee Charter, which are described in “Board

Committees — Director Nominees.” We have included a brief description of some of the specific experience, qualifications, attributes and skills that led the Board to the conclusion that each nominee should be elected to serve on our Board. In addition, the Board believes that all of the nominees have good judgment, integrity, and a dedication to the Company and our business, as well as intelligence, wisdom and inquisitiveness. The nominees work well together, challenge each other and management when appropriate, and collaborate to come up with innovative ideas and solutions.

 

Unless you indicate otherwise, all proxy cards and voting instruction forms will be voted for the election of the nominees listed below. If any nominee is not available for election because of unforeseen circumstances, the proxies designated by the Board may vote for the election of a substitute nominee selected by the Board. Although we will attempt to provide advance notice of any substitute nominee, we may be unable to do so.

 

 

Gerard J. Arpey (Age 52)
First elected a director in 2003

 

Mr. Arpey began his career at American Airlines in 1982, and he has held several leadership roles at the Company and American since then. Mr. Arpey currently serves as Chairman and Chief Executive Officer of the Company and American. Mr. Arpey was elected Chairman of the Company and American Airlines, Inc. in May 2004. He had been President and Chief Executive Officer of the Company and American since April 2003 when he was first elected to our Board of Directors. Prior to that, he served as President and Chief Operating Officer of the Company and American starting in 2002, Executive Vice President - Operations from 2000 to 2002, and Senior Vice President - Finance and Planning and Chief Financial Officer from 1995 to 2000. He therefore brings to the Board extensive and unique Company and industry experience. Since he is responsible for, and familiar with, our day-to-day operations and implementation of our strategy, his insights into our performance and the airline industry are critical to Board discussions and our success.

 

 

John W. Bachmann (Age 72)
First elected a director in 2001

 

Mr. Bachmann began his career at Edward Jones, one of the world’s largest retail brokerage firms, in 1959. He has served in many capacities at the firm, including as its Managing Partner from 1980 to 2003. He has been Senior Partner at Edward Jones since January 2004. With his long history at Edward Jones and as its leader for many years, Mr. Bachmann has extensive financial, capital markets, strategic and executive leadership experience. He is also Senior Council Board Member of the United States Chamber of Commerce. He previously served as a director of the Monsanto Company and the National Association of Securities Dealers. His experience as a director and member of board committees of these and other companies provides important insights into corporate governance and board functions. He is a resident of St. Louis, Missouri, one of our important markets. His background and experience make him an effective member of the Board and its Audit and Diversity committees, and a strong Chairman of the Audit Committee.

 

 

Armando M. Codina (Age 64)
First elected a director in 1995

 

Since January 1, 2011, Mr. Codina has been the Chairman and Chief Executive Officer of Codina Partners, LLC, a real estate investment and development firm based in Coral Gables, Florida. Mr. Codina formed Codina Partners in 2009 and through this entity and its affiliates is engaged in multiple real estate development and investment activities. Previously, he led the growth of Codina Group, a large South Florida-based commercial real estate firm, for 26 years as its founder, Chairman and Chief Executive Officer. In 2006, Codina Group merged with Florida East Coast Industries (“FECI”) and became FECI’s full-service real estate business, Flagler Development Group. He served as Flagler’s Chairman, Chief Executive Officer and President until September 2008, and as its Chairman until December 2010. Prior to founding Codina Group, he served as President of Professional Automated Services, Inc., which provided data processing services to physicians. Mr. Codina’s extensive experience in commercial real estate and business provides significant insight into the real estate, business, strategic and other issues we face. He is also a director of The Home Depot, Inc., and he previously served as a director of Bell South Corporation, General Motors Corporation, Merrill Lynch & Co., Inc. and Florida East Coast Industries, Inc. His experience as a director and member of board committees of these and other companies provides important insights into corporate governance and board functions. His deep roots in Florida also provide important perspective of one of our largest and most important markets. His background and experience make him an effective member of the Board and its Nominating/Corporate Governance Committee, and a strong Lead Director.

 

 

Alberto Ibargüen (Age 67)
First elected a director in 2008

 

Mr. Ibargüen has served as President and Chief Executive Officer of the John S. and James L. Knight Foundation since July 2005. In this role, he has led the foundation’s support of journalism and civic advancement in 26 U.S. communities. Previously, Mr. Ibargüen served as Chairman of Miami Herald Publishing Co. from 1998 to 2005, a Knight Ridder subsidiary, and as publisher of The Miami Herald and of El Nuevo Herald. He therefore brings extensive media, philanthropic, strategic and executive leadership experience to the Board. He is a director of PepsiCo, Inc., AOL Inc. and the World Wide Web Foundation (based in Switzerland). He previously served as a director of NCL Corporation Ltd. and on the Advisory Committee of the Public Company Accounting Oversight Board. He is also a former Chairman of the Board of the Public Broadcasting Service and the Newseum in Washington, D.C. His experience as a director and member of board committees of these and other companies provides important insights into corporate governance and board functions. He is a resident of Miami, Florida, one of our largest and most important markets. His background and experience make him an effective member of the Board and its Audit and Diversity committees.

 

 

Ann M. Korologos (Age 69)
First elected a director in 1990

 

Mrs. Korologos held several important posts in the U.S. government, including U.S. Secretary of Labor from 1987 to 1989, and Under Secretary of the Department of Interior and Assistant Secretary of the Treasury before that. She most recently served as Chairman of the Board of Trustees of RAND Corporation, an international public policy research organization, from April 2004 to April 2009. From September 1989 until May 1990, Mrs. Korologos served as Chairman of the President’s Commission on Aviation Security and Terrorism. She has served as Chairman Emeritus of The Aspen Institute since August 2004, where she has served on its Board of Trustees since 1989. She also was Senior Advisor for Benedetto, Gartland & Company from 1996 to 2005. With her leadership roles in political, financial and other fields, Mrs. Korologos brings to our Board extensive public policy, financial, strategic and executive leadership experience. Mrs. Korologos is also a director of Harman International Industries, Incorporated, Host Hotels & Resorts, Inc. (formerly, Host Marriott Corporation), Vulcan Materials Company and Kellogg Company. She previously served as a director of Microsoft Corporation. Her experience as a director and member of board committees of these and other companies provides important insights into corporate governance and board functions. She is also a resident of Washington, D.C., one of our important markets. Her background and experience make her an effective member of the Board and its Diversity Committee.

 

 

Michael A. Miles (Age 71)
First elected a director in 2000

 

Since 1995, Mr. Miles has been a Special Limited Partner and a member of the Advisory Board of Forstmann Little & Co., a New York-based private equity firm. Previously, he was Chairman and Chief Executive Officer of Philip Morris Companies Inc. from 1991 until his retirement in 1994, and he served as Chairman and Chief Executive Officer of Kraft Foods, Inc. before that. With roles at these and other companies, he brings extensive business, financial, strategic and executive leadership experience to the Board. Mr. Miles is also a director of Time Warner Inc., and he previously served as a director of Citadel Broadcasting Corporation, Dell Inc. and Morgan Stanley. His experience as a director and member of board committees of these and other companies provides important insights into corporate governance and board functions. He also resides in the Chicago area, one our largest and most important markets. His background and experience make him an effective member of the Board and its Compensation Committee and a strong Chairman of that committee.

 

 

Philip J. Purcell (Age 67)
First elected a director in 2000

 

Mr. Purcell became President and Chief Operating Officer of Dean Witter in 1982. He was Chairman and Chief Executive Officer of Dean Witter Discover & Co. from 1986 until it acquired Morgan Stanley in 1997. He then served as Chairman and CEO of Morgan Stanley until he retired in July 2005. Mr. Purcell has been the President of private equity firm Continental Investors, LLC since January 2006. With his leadership roles at major financial services companies and a private equity firm, Mr. Purcell has extensive financial, capital markets, strategic and executive leadership experience. He also previously served as a director of the New York Stock Exchange, including as its Vice Chairman during 1995 and 1996. His experience as a chairman and director of these and other companies provides important insights into corporate governance and board functions. He also resides in the Chicago area, one our largest and most important markets. His background and experience make him an effective member of the Board and its Compensation and Nominating/Corporate Governance committees.

 

 

Ray M. Robinson (Age 63)
First elected a director in 2005

 

Mr. Robinson started his career at AT&T in 1968, and prior to his retirement in 2003, he held several executive positions, including President of the Southern Region, its largest region, President and CEO of AT&T Tridom, Vice President of Operations for AT&T Business Customer Care, Senior Vice President of AT&T Outbound Services and Vice President of AT&T Public Relations. Since 2003, Mr. Robinson has served as Chairman of Citizens Trust Bank of Atlanta, Georgia, the largest African American-owned bank in the southeast U.S. and the nation’s second largest. With his numerous executive leadership positions, Mr. Robinson has extensive technology, banking, communications, strategic and executive leadership experience. Mr. Robinson is also a director of Aaron’s, Inc., Acuity Brands, Inc., Avnet, Inc. and RailAmerica Inc., and he previously served as a director of ChoicePoint. His experience as a director and member of board committees of these and other companies provides important insights into corporate governance and board functions. He resides in the Atlanta, Georgia area, an important business center, where he has been Vice Chairman of the East Lake Community Foundation since November 2003. His background and experience make him an effective member of the Board and its Audit and Nominating/Corporate Governance committees.

 

 

Dr. Judith Rodin (Age 66)
First elected a director in 1997

 

Dr. Rodin has served as President of The Rockefeller Foundation since March 2005. The foundation, founded in 1913, supports efforts to combat global social, economic, health and environmental challenges. From 1994 to 2004, Dr. Rodin led the University of Pennsylvania through a period of significant growth as its President. Before that, at Yale University, she chaired the Department of Psychology, served as Dean of the Graduate School of Arts and Sciences and Provost, and she was a faculty member for 22 years. As the leader of important philanthropic and higher learning institutions, Dr. Rodin has extensive educational, philanthropic, strategic and executive leadership experience. Dr. Rodin is also a director of Citigroup Inc. and Comcast Corporation. Her experience as a director and member of board committees of these and other companies provides important insights into corporate governance and board functions. She is a resident of New York City, one of our most important markets. Her background and experience make her an effective member of the Board and its Compensation Committee.

 

 

Matthew K. Rose (Age 52)
First elected a director in 2004

 

Mr. Rose has been Chairman and Chief Executive Officer of BNSF Railway, one of the largest freight rail systems in North America, since 2000. He has also served as the Chairman and Chief Executive Officer of its parent, Burlington Northern Santa Fe, LLC (a subsidiary of Berkshire Hathaway Inc.) or its predecessors since 2002. He served as its President until November 2010. Before serving as its chairman, Mr. Rose held several leadership positions there and at its predecessors, including President and Chief Executive Officer from 2000 to 2002, President and Chief Operating Officer from 1999 to 2000, and Senior Vice President and Chief Operations Officer from 1997 to 1999. As the Chairman and CEO of a major transportation company, Mr. Rose brings to the Board extensive business, financial, strategic and executive leadership experience in the transportation industry. He is also a director of AT&T Inc., and he previously served as a director of Centex Corporation. His experience as a director and member of board committees of these and other companies provides important insights into corporate governance and board functions. He lives in the Dallas-Fort Worth area, where our headquarters and principal hub are located. His background and experience make him an effective member of the Board and its Compensation Committee.

 

 

Roger T. Staubach (Age 69)
First elected a director in 2001

 

Mr. Staubach founded The Staubach Company, a large commercial real estate firm until its merger with Jones Lang LaSalle Incorporated in July 2008. He has served as a director and as Executive Chairman, Americas, of Jones Lang LaSalle Incorporated since the merger. Prior to that, he served as Executive Chairman of The Staubach Company from July 2007 to July 2008, and Chairman and Chief Executive Officer from 1982 to June 2007. A graduate of the United States Naval Academy in 1965, Mr. Staubach served four years as an officer in the U.S. Navy, and he played professional football from 1969 to 1979 with the Dallas Cowboys. Through his service as chairman and/or CEO of two large commercial real estate firms, Mr. Staubach has extensive real estate, business, strategic and executive leadership experience. Mr. Staubach is also a director of Cinemark Holdings, Inc., and he previously served as a director of McLeod USA Incorporated. His experience as a director of these and other companies provides important insights into corporate governance and board functions. He lives in the Dallas-Fort Worth area, where our headquarters and principal hub are located. His background and experience make him an effective member of the Board and the Diversity Committee and a strong Chairman of that committee.

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ALL NOMINEES LISTED ABOVE.

 

CORPORATE GOVERNANCE

 

Majority Voting

 

Under the Board of Directors Governance Policies, any nominee for director who receives a greater number of votes “WITHHELD” than votes “FOR” in an uncontested election will be required to promptly tender his or her resignation to the Nominating/Corporate Governance Committee. After taking into account our best interests and the best interests of the stockholders, the committee will recommend to a special committee of independent directors whether to accept the resignation or to take some other action. Nominees receiving a majority of withheld votes will not be eligible to sit on this special committee. The special committee will have 90 days from the date of the election to consider the Nominating/Corporate Governance Committee’s recommendation and determine whether to accept the resignation or take some other action. We will publicly disclose the special committee’s decision. This is a summary of the director resignation procedure. The entire procedure is in Section 18 of the Board’s Governance Policies, which are available on the Investor Relations section of our website located at www.aa.com/investorrelations by clicking on the “Corporate Governance” link.

 

Number of Board of Directors Meetings; Attendance at Board of Directors, Committee and Annual Meetings

 

There were 16 board meetings in 2010. All of the directors attended at least 75% of the meetings of the Board and committees on which they served. We encourage each director to attend the annual meeting. Last year, twelve of our directors attended the annual meeting. One of our directors was unable to attend for medical reasons.

 

Self-Assessment

 

The Board and its standing committees conduct a self-assessment of their effectiveness each year.

Standards of Business Conduct for Employees and Directors

 

We have adopted written Standards of Business Conduct that apply to all our employees. We designed the Standards of Business Conduct to help employees resolve ethical issues in an increasingly complex business environment. The standards apply to all our employees, including the Chief Executive Officer, President, Chief Financial Officer, General Counsel and Chief Compliance Officer, Controller, Treasurer, Corporate Secretary and General Auditor. They cover several topics, including conflicts of interest, full, fair, accurate, timely and understandable disclosure in Securities and Exchange Commission (“SEC”) filings, confidentiality of information and accountability for adherence to the Standards of Business Conduct, as well as prompt internal reporting of violations and compliance with laws and regulations. A copy of the Standards of Business Conduct is available on the Investor Relations section of our website located at www.aa.com/investorrelations by clicking on the “Corporate Governance” link.

 

The Board of Directors has adopted a Code of Ethics and Conflicts of Interest Policy for the Board. It is designed to help the directors recognize and resolve ethical issues and to identify and avoid conflicts of interest. A copy of the Code of Ethics and Conflicts of Interest Policy is available on the Investor Relations section of our website located at www.aa.com/investorrelations by clicking on the “Corporate Governance” link. We may post amendments or waivers of the provisions of the Standards of Business Conduct and the Code of Ethics and Conflicts of Interest Policy for any director or executive officer on this website.

 

Executive Sessions

 

Our non-employee directors meet in executive sessions (without the presence of any management employee, including our Chief Executive Officer) each year. In 2010, the non-employee directors held three executive sessions. The Lead Director chairs the executive sessions. Executive sessions may be scheduled by the Lead Director, the Chairman of the Nominating/Corporate Governance Committee, or at the request of the Board. See “Corporate Governance – Board Leadership Structure” below for more details.

 

Board Leadership Structure

 

The Board believes it is in the best interests of the stockholders and the Company that the Board have the flexibility to select the best director to serve as Chairman at any given time, regardless of whether that director is an independent director or the Chief Executive Officer. The Board’s Governance Policies therefore allow the Board to determine whether to separate or combine the roles of the Chairman and Chief Executive Officer at any time. Using this flexibility, in April 2003, the Board separated the roles of Chairman and Chief Executive Officer when Mr. Arpey became the Chief Executive Officer and President. In May 2004, the Board asked Mr. Arpey to also serve as Chairman, at which time the Board appointed an independent director to serve as Lead Director.

 

The Board strongly believes that the most effective Board leadership structure at this time is for Mr. Arpey to serve both as Chairman of the Board and Chief Executive Officer. Mr. Arpey is responsible for both the day-to-day operations of the Company and the execution of its strategies. Since these topics are an integral part of our Board discussions, Mr. Arpey is the director best qualified to chair those discussions. His vast knowledge of the Company and the airline industry are critical to Board discussions and our success. The Board believes that he is an effective leader of the Company and the Board and that combining the roles has served the Company well. No single leadership model is right for all companies, and the Board recognizes that depending upon the circumstances, other leadership structures, such as a separate independent Chairman, might be appropriate. The Board therefore periodically reviews its leadership structure.

 

Since the Board combined the roles of Chairman and Chief Executive Officer in 2004, the Board has also appointed strong independent directors to serve as Lead Director. Mr. Codina has served as our Lead Director since 2007. The Lead Director has frequent contact with Mr. Arpey and the other members of our senior management throughout the year. As provided in the Board’s Governance

Policies, the responsibilities of the Lead Director are determined by the independent directors from time to time. Those responsibilities currently include:

 

 

Evaluation of the Chief Executive Officer

 

Each year, the Chairman of the Nominating/Corporate Governance Committee leads the independent directors in an executive session to assess the Chief Executive Officer’s performance. The results of this review are discussed with the Chief Executive Officer.

 

Continuing Education

 

Our directors attend seminars, conferences and other director education programs periodically. We reimburse the directors for the costs associated with these seminars and conferences, including related travel expenses. We also conduct a comprehensive orientation process for new directors. In addition, directors receive continuing education through educational sessions at meetings and mailings between meetings.

 

Director Access to Management and Independent Advisers

 

Independent directors have direct access to members of management. In accordance with NYSE listing standards, the Audit Committee, Compensation Committee and Nominating/Corporate Governance Committee each have the authority to retain independent advisers at our expense. The independent directors and the Diversity Committee can also retain independent advisers at our expense.

 

Risk Oversight

 

We have an enterprise risk management program. Under this program, we regularly assess our risks and the risk management measures undertaken by our primary operating groups. The leader of each operating group is responsible for incorporating risk assessment and management into that organization’s business processes, and our senior management team frequently reviews their efforts.

 

While the responsibility for our risk assessment and management lies with our senior management team, the Board also provides oversight of our risk management function in several ways, depending upon the type of risk. For example, our strategic, financial and operations risks are frequently reviewed by the full Board. The Board’s standing committees also consider the risks within their area of responsibility. The Audit Committee reviews our risk assessment and management policies and oversees risks relating to accounting matters, financial reporting, legal and regulatory compliance, ethics, safety and other matters. In fulfilling these responsibilities, the committee regularly discusses these matters with our Chief Financial Officer, General Counsel and Chief Compliance Officer, General Auditor, and other members of our management. The Nominating/Corporate Governance Committee reviews risks related to director and officer succession planning and our corporate governance programs and policies. The committee also receives regular reports from our Chief Executive Officer, General Counsel and Chief Compliance Officer, and Corporate Secretary to help monitor these risks. The Diversity Committee reviews risks related to our diversity policies and practices in several areas, and meets frequently with members of management to

support this role, including our Senior Vice President of Human Resources and our Vice President of Diversity and Leadership Strategies. As described further below, the Compensation Committee oversees risks relating to our compensation programs. The reports prepared for the committee meetings are sent to all of the directors, and each committee chair gives a report to the full Board after each committee meeting. We believe that this division of risk oversight ensures that oversight of each type of risk falls to the particular directors most qualified to oversee it. It also promotes Board efficiency as the committees select the most important risk-related issues for full Board consideration.

 

We also assessed whether our employee compensation policies and practices create risks that are reasonably likely to have a material adverse impact on us. In doing so, we considered that our executive compensation programs are designed with what we believe is an appropriate focus on both our short-term and long-term performance. We also considered risk mitigation elements of these programs. For example, our incentive plans are tied to broad measures of Company performance that cannot be directly influenced by individual employees, such as pre-tax earnings and shareholder return. Also, our short term incentive awards are capped, and our long-term awards vest over periods of three to five years. We have also adopted a recoupment policy (described in “Compensation Discussion and Analysis – Recoupment Policy”) and stock ownership guidelines (described in “Compensation Discussion and Analysis – Stock Ownership Guidelines”). The results of that assessment were that our employee compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company. With the assistance of its consultants and our Chief Executive Officer and Senior Vice President of Human Resources, we discussed the assessment’s findings with the Compensation Committee.

 

Contacting the Board of Directors

 

The Board has adopted procedures for written communications between the directors and employees, stockholders and other interested third parties. These procedures are available on the Investor Relations section of our website located at www.aa.com/investorrelations by clicking on the “Corporate Governance” link. To contact the Board, a standing committee of the Board, or a director, please write to the following address:

 

AMR Corporation

The Board of Directors

P.O. Box 619616, MD 5675

Dallas/Fort Worth International Airport, Texas 75261-9616

 

Under those procedures, our General Counsel and Chief Compliance Officer or Corporate Secretary review the communications with the directors, a standing committee, or an officer, in each case depending on the facts and circumstances outlined in the communication. For example, we review letters concerning a stockholder nominee with the Nominating/Corporate Governance Committee. We review complaints regarding accounting or internal accounting controls with the Audit Committee and the General Auditor. The Nominating/Corporate Governance Committee also reviews with senior management the nature of the communications and our responses to them.

BOARD COMMITTEES

 

The Board of Directors has standing Audit, Compensation, Diversity and Nominating/Corporate Governance committees. All members of the Audit Committee are independent under SEC and NYSE rules and the Board’s Governance Policies. All members of the Compensation, Diversity and Nominating/Corporate Governance committees are also independent under NYSE rules and the Board’s Governance Policies. No member of the Audit, Compensation, Diversity or Nominating/Corporate Governance committees is a current or former employee or officer of the Company or any of its affiliates. The committees on which the directors (other than Mr. Arpey) serve as of April 21, 2011 are shown in the chart below.

 

 

Each committee has a charter that details its responsibilities. The charters are available on the Investor Relations section of our website located at www.aa.com/investorrelations by clicking on the “Corporate Governance” link.

 

Nominating/Corporate Governance Committee Matters

 

The functions of the committee include:

 

 

 

Director Nominees

 

As noted above, the committee is responsible for recommending nominees for election to the Board. To fulfill this role, the committee annually reviews the size of the Board and its composition to determine if any additional skills, qualifications or areas of expertise are needed. Each candidate should have (a) unquestioned integrity; (b) a well established record in business, finance, government relations, academics or the sciences; and (c) the ability to devote substantial time to the Board and at least one of the Board’s standing committees.

 

When assessing a candidate’s qualifications (including a self-nominee or a candidate nominated by a stockholder), the committee considers, among other things:

 

 

Under our Director Nominating Policies, the committee also considers a nominee’s contribution to the diversity of the Board. In doing so, the committee considers diversity in the broadest sense, taking into account race, gender, geographic residence and professional background. This focus on diversity has produced a Board with two Hispanic members, one African American member, and two female members. In addition, our Board members reside in diverse locations and have diverse professional backgrounds, including banking and financial services, education, real estate, media, government, philanthropic, public policy, investment banking, private equity and transportation. The committee also reviews with the Board the effectiveness of our Director Nominating Policies and its assessment of the skills and characteristics appropriate for outside Board members. The goal of this assessment is to determine if the needs of the Board, including diversity, are being met by the current members of the Board. The committee from time to time engages a search firm to help identify suitable candidates for director positions.

 

The committee will consider stockholder nominees for election to the Board at an annual meeting or if a vacancy exists on the Board. In 2010, there were no stockholder nominees for election to the Board. See “Other Information” for further details regarding submitting nominations for director positions.

 

Director Independence; Board of Directors Governance Policies

 

The Board has approved the Board’s Governance Policies, which govern many of the Board’s procedures and protocols. The policies are available on the Investor Relations section of our website located at www.aa.com/investorrelations by clicking on the “Corporate Governance” link.

 

Among other things, the Board’s Governance Policies establish the standards for director independence. In general, the policies provide that a director is independent if the director has no

direct or indirect material relationship with us. A relationship is material if it would interfere with the director’s independent judgment. The policies include guidelines to assist the committee in determining whether a relationship is material. In general, the guidelines provide that a director is not independent if:

 

 

This is a summary of the Board’s independence guidelines. A complete list of the guidelines are in the Board’s Governance Policies. The committee has determined, and the Board has agreed, that Mr. Bachmann, Mr. Boren, Mr. Codina, Mr. Ibargüen, Mrs. Korologos, Mr. Miles, Mr. Purcell, Mr. Robinson, Dr. Rodin, Mr. Rose and Mr. Staubach are independent under the Board’s Governance Policies. The committee also determined that Rajat K. Gupta, who resigned from the Board in March 2011, was independent under the Board’s Governance Policies during his term. In making these determinations, the Board considered information provided by the directors, information from our records, and advice from counsel. Because Mr. Arpey is one of our employees, he is not considered independent.

 

Transactions with Related Persons

 

The Board has adopted a written policy for the review, approval or ratification of related party transactions. Under our policy, a related party transaction is defined as a transaction or series of related transactions with the Company totaling $120,000 or more and in which any of our executive officers, directors, director nominees, persons owning five percent or more of our outstanding stock, or any of their immediate family members has a direct or indirect material interest. Certain interests and transactions are by their nature not material and are not subject to the policy. The committee considers related party transactions under the policy with the assistance of our General Counsel and Chief Compliance Officer or Corporate Secretary. In doing so, the committee considers: (a) the size of the transaction, including the amount of compensation payable to or receivable by the related party; (b) the nature of the related party’s interest; and (c) whether the transaction may involve a conflict of interest, among other factors.

 

Audit Committee Matters

 

The functions of the committee include:

 

 

 

 

 

At its meetings in 2010, the committee reviewed the quality and integrity of our financial statements, our compliance with legal and regulatory requirements, periodic filings on Form 10-K and Form 10-Q, and the qualifications and independence of Ernst & Young. The committee also reviewed the performance of our internal audit function, the status of the internal control audit required by Section 404 of the Sarbanes-Oxley Act of 2002, the performance of our independent auditors, and other significant financial matters.

 

Each committee member is considered independent under the rules and regulations of the SEC and NYSE, and the Board’s Governance Policies, and has been determined to be financially literate. The Board has concluded that Mr. Bachmann qualifies as an audit committee financial expert under SEC rules and regulations and has the financial management expertise required by NYSE listing standards. Other committee members may also meet these qualifications.

 

Audit Committee Report

 

At its meetings in 2010, the committee reviewed and discussed our audited consolidated financial statements with management, our General Auditor and Ernst & Young. No members of management were present during several of the committee’s discussions with Ernst & Young. The committee also met privately with our General Auditor several times in 2010.

 

The committee has also discussed with Ernst & Young the matters required to be discussed by Statement on Auditing Standards No. 61, as amended (Communication with Audit Committees). The committee has received and reviewed the written disclosures and the letter from Ernst & Young required by the applicable requirements of the Public Company Accounting Oversight Board. The committee discussed with Ernst & Young its independence.

 

In reliance upon the reviews and discussions noted above, the committee recommended to the Board of Directors that our audited consolidated financial statements be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010. Subject to stockholder approval at

the 2011 annual meeting, the committee has also selected Ernst & Young as our independent auditors for 2011 (see proposal 2).

 

Audit Committee of AMR Corporation:

 

John W. Bachmann, Chairman

Alberto Ibargüen

Ray M. Robinson

 

Independent Auditor’s Fees

 

The aggregate fees we paid to Ernst & Young for audit services in connection with the consolidated financial statements, reports for fiscal years 2009 and 2010, and for other services during fiscal years 2009 and 2010 were:

 

 

“Audit Fees” are fees for (a) the audit of our consolidated financial statements; (b) the audit of internal control over financial reporting; (c) the review of the interim condensed consolidated financial statements included in quarterly reports; (d) services that are normally provided by Ernst & Young in connection with statutory and regulatory filings or engagements and attest services, except those not required by statute or regulation; and (e) consultations concerning financial accounting and reporting standards.

 

“Audit-Related Fees” are fees for assurance and other services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under Audit Fees. These services include (a) employee benefit plan audits; (b) auditing work on proposed transactions; (c) attest services that are not required by statute or regulation; and (d) consultations concerning financial accounting and reporting standards that do not impact the annual audit.

 

“Tax Fees” are tax compliance/preparation and other tax services. Tax compliance/preparation consists of fees for professional services related to (a) federal, state and international tax compliance; (b) assistance with tax audits and appeals; (c) expatriate tax services; and (d) assistance related to the impact of mergers, acquisitions and divestitures on tax return preparation. Other tax services consist of fees for other miscellaneous tax consulting and planning.

 

There were no fees for other services not included above.

 

In selecting Ernst & Young as our independent auditors for the fiscal year ending December 31, 2011, the committee considered whether services other than audit and audit-related services provided by Ernst & Young are compatible with the firm’s independence.

 

The committee pre-approves all audit and permissible non-audit services provided by Ernst & Young, including audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year, and any pre-approval is detailed as to the particular service or category of services and includes an anticipated budget. In addition, the committee may also pre-approve particular services on a case-by-case basis. The committee has delegated pre-approval authority to its chairman. Under this delegation, the chairman must report any pre-approval decision

by him to the committee. The committee pre-approved all such audit, audit-related and permissible non-audit services in 2009 and 2010 in accordance with these procedures.

 

Diversity Committee Matters

 

The functions of the committee include:

 

 

 

 

Compensation Committee Matters

 

Functions

 

The functions of the committee include:

 

 

Processes and Procedures

 

The committee acts on behalf of the Board and approves the compensation of all of our officers, including the named executive officers. This responsibility includes establishing and implementing our executive compensation objectives, such as linking each named executive officer’s compensation to our short-term and long-term strategic, financial and operational goals. The committee approves incentive awards for our officers, including performance shares, deferred shares and stock appreciation rights. The committee also determines the performance measures for the performance-based awards for our officers, and where the performance measures are subjective, the committee determines whether we met them. The committee approves employment and change in control agreements with our officers. While the committee is responsible for the administration of our executive compensation program, the committee delegates authority for the day-to-day administration of the program to our Senior Vice President of Human Resources and our Human Resources department.

 

The committee meets regularly throughout the year to review general compensation issues and to monitor the compensation of our officers. In 2010, the committee engaged Hewitt Associates and, following its separation from Hewitt, Meridian Compensation Partners, to help the committee fulfill

these responsibilities. The firms provided compensation benchmarking services, as well as assistance with our incentive plan design, performance metrics analysis, peer group selection, and other executive compensation advice. At the committee’s direction, the compensation consultants also assisted Mr. Arpey and our Senior Vice President of Human Resources in preparing their compensation recommendations for our named executive officers. Neither Hewitt nor Meridian provided any additional services to the Company in 2010 unrelated to the services they provided the committee.

 

For executives other than the Chief Executive Officer, the committee makes compensation decisions with, and frequently based upon the recommendations of, the Chief Executive Officer and our Senior Vice President of Human Resources. The committee also reviews and considers comparative market data provided by its consultants. The committee makes all determinations related to the Chief Executive Officer’s compensation with the assistance, when appropriate, of our Lead Director and the committee’s consultants.

 

The Nominating/Corporate Governance Committee is responsible for determining compensation for the Board of Directors. See “Director Compensation” for further details regarding the Nominating/Corporate Governance Committee’s role in this determination.

 

The “Compensation Discussion and Analysis” below provides further details regarding our compensation objectives and programs, including information regarding the Compensation Committee’s annual compensation review, the types of compensation awards it uses, and the manner in which it determines the size and terms of compensation awards.

 

Compensation Committee Interlocks and Insider Participation

 

Mr. Boren, Mr. Miles, Mr. Purcell, Dr. Rodin and Mr. Rose were the members of the Compensation Committee during 2010. None of the members of the committee was during 2010 or at any other time one of our officers or employees. No executive officer of the Company served or serves on the compensation committee or board of any company that employed or employs any member of our Compensation Committee or Board.

 

COMPENSATION DISCUSSION AND ANALYSIS

 

This section provides an overview and analysis of the material elements and objectives of our executive compensation program.

 

Our named executive officers in 2010 were:

 

Gerard J. Arpey, Chairman and Chief Executive Officer of AMR Corporation and American Airlines

 

Isabella D. Goren, Senior Vice President and Chief Financial Officer of AMR Corporation and American Airlines

 

Thomas W. Horton, President of AMR Corporation and American Airlines

 

Daniel P. Garton, President and Chief Executive Officer of AMR Eagle Holdings Corporation (“AMR Eagle”), a wholly-owned subsidiary of the Company, and Executive Vice President of AMR Corporation and American Airlines

 

Robert W. Reding, Executive Vice President – Operations of AMR Corporation and American Airlines

 

Gary F. Kennedy, Senior Vice President, General Counsel and Chief Compliance Officer of AMR Corporation and American Airlines

 

Please read this section with the “Executive Compensation” section that follows.

Executive Summary

 

Our executive compensation program is designed to support our business strategy, link pay with performance, promote long-term growth, and align our executives’ decisions with the long-term interests of our stockholders. Below are some of the highlights of our named executive officer compensation program in 2010:

 

 

Our Compensation Objectives and Philosophy

 

The principal objectives of our executive compensation program are to:

 

 

Consistent with these objectives, an average of 70% of the total potential pay we awarded our named executive officers in 2010 was in the form of long-term stock-based compensation. These awards are considered at risk because the compensation that they ultimately receive depends on our stock price or achieving financial and operating measures. While we believe this aligns the interests of our named executive officers and our stockholders, it can also lead to actual realized compensation below market when our stock price declines as has been the case the past few years.

 

The discussion in the sections below describes the efforts of the Compensation Committee to meet our objectives.

 

The Process We Use to Determine Compensation

 

Each year, the Compensation Committee conducts a comprehensive review of our executive compensation program. In 2010, the Compensation Committee concluded its annual review in May, before our organizational changes discussed below. As part of this review, the committee used several tools to structure our compensation programs to meet our objectives. These tools included benchmarking, peer group analysis, internal equity data, tally sheets, and input from Mr. Arpey, each of which is discussed further below. Please also see “Board Committees – Processes and Procedures” for further details regarding the administration of our executive compensation program.

 

Peer Group Analysis and Benchmarking

 

The Compensation Committee believes that it is important that our executive compensation is both in line with other airlines and sufficiently competitive to retain our named executive officers and

attract talent from other industries when needed. The committee reviewed the following reports for our named executive officers at the time:

 

Peer Group Analysis.  The peer group analysis was prepared by our Human Resources department. This analysis compared the compensation of each of our named executive officers to compensation paid to their peers at AirTran Airways, Alaska Air Group, Continental Airlines, Delta Air Lines, JetBlue Airways, Southwest Airlines, United Airlines and US Airways (the “Peer Group”).

 

Executive pay in the airline industry has been highly variable during the past decade due to bankruptcy proceedings, mergers and volatile economic and industry conditions. Executives at several airlines in the Peer Group did not receive equity grants for several years or received substantial equity awards following mergers with other carriers or the emergence from bankruptcy. To help smooth this variability and provide more meaningful comparisons, the Peer Group analysis in 2010 included both granted and realized pay and averages of both over the last three years. The Compensation Committee did not target a specific pay level or rank among the Peer Group. Instead, the committee’s objective was to ensure that our named executive officers’ realized compensation was generally in line with the Peer Group. The analysis showed and the committee determined that the realized pay for our named executive officers was in line with the Peer Group for the period 2007 through 2009.

 

Benchmarking Report.  Hewitt, the committee’s compensation consultant at the time, prepared a competitive market analysis that compared the compensation of each of our named executive officers to the compensation paid to their peers at 28 companies in the comparator group shown below (the “Comparator Group”). These companies were selected from Hewitt’s database of participating survey companies because we share one or more of the following characteristics: (a) comparable revenue size (with our revenue being approximately at the median); (b) operations in multiple locations across the United States; (c) similar labor requirements; (d) headquarters in the Dallas-Fort Worth area; and (e) comparable management structures so that job comparisons are meaningful. The companies in the Comparator Group for 2010 were:

 

 

The Comparator Group analysis focused on both annual total compensation and each pay element – base, short-term incentive and long-term incentive pay. For each of our named executive officers, the Compensation Committee generally targeted the median total compensation for similar positions at companies in the Comparator Group. However, for Mr. Arpey, the committee benchmarked his pay to the average of the median chief executive officer pay in the Comparator Group and the Peer Group. His compensation remains significantly below the median of the CEOs in the Comparator Group. Also, the committee benchmarked Mr. Garton’s pay to the head of marketing and chief financial officers in the Comparator Group analysis because of his (a) contributions and broad skill set; (b) oversight of a large operating group, our flight attendants, in addition to his marketing responsibilities at that time; and (c) prior experience as a chief financial officer of a company in the airline industry.

Internal Equity

 

The committee also considered internal pay equity among the named executive officers. The committee did not target specific pay ratios among the named executive officers or between them and other officers, but instead tried to keep their total compensation and each pay element in line with the others.

 

Tally Sheets

 

To better understand the impact of its decisions on our named executive officers’ total compensation, the Compensation Committee also analyzed tally sheets during its 2010 review. The tally sheets quantified all material components of their compensation during the preceding five years. The components analyzed included: (a) annual base salary and bonuses; (b) outstanding equity awards and their value; (c) compensation actually realized; (d) retirement benefits; (e) potential termination of employment benefits (or payments); and (f) change in control payments under different scenarios. Based on its review of the tally sheets, the Compensation Committee concluded that the total compensation amounts for 2009 and prior years were both reasonable and consistent with our overall compensation objectives and company performance.

 

Role of the Chief Executive Officer in Setting Compensation

 

Mr. Arpey regularly attends Compensation Committee meetings. At those meetings, he provides his perspective on the performance of the other named executive officers. He also provides other subjective considerations that may influence the committee’s compensation decisions for them, such as retention, succession planning, and critical personnel and business needs. Because Mr. Arpey has direct knowledge of each officer’s performance and contributions, the committee gives considerable weight to his evaluations. Mr. Arpey is not present during the committee’s deliberations or decisions regarding his compensation.

 

Other Considerations

 

The Compensation Committee also considered the following factors in setting the 2010 compensation for our named executive officers:

 

 

Organizational Changes

 

In June and July 2010, the Board approved a reorganization of our senior leadership team. The reorganization and related promotions and responsibility changes occurred after the Compensation Committee’s May 2010 annual compensation review and compensation awards. The additional compensation actions taken by the committee are described below.

 

On June 10, 2010, the Company and American entered into an American Eagle Assignment Agreement (the “Assignment Agreement”) with Mr. Garton to encourage him to lead AMR Eagle. The

Company also reiterated its intent to evaluate the possible divestiture of AMR Eagle at that time. Under the agreement, Mr. Garton serves as President and Chief Executive Officer of AMR Eagle, and he continues to serve as an executive vice president of the Company and American until the consummation of a divestiture of AMR Eagle or June 10, 2012, whichever occurs first. To better align his interests with the performance of AMR Eagle, effective June 10, 2010 he stopped participating in the Company’s Annual Incentive Plan and started participating in the AMR Eagle Annual Incentive Plan. Mr. Garton did not receive any additional compensation awards for his new role.

 

In July 2010, Mr. Horton was promoted to President of AMR Corporation and American Airlines, reporting directly to Mr. Arpey. He previously served as Executive Vice President – Finance and Planning and Chief Financial Officer of AMR and American. In his new role, Mr. Horton oversees our finance, planning, sales and marketing, customer service and information technology organizations. Ms. Goren was named Senior Vice President and Chief Financial Officer of the Company and American Airlines, succeeding Mr. Horton.

 

At that time, the Compensation Committee reviewed the organizational changes and benchmarking reports for comparable positions in the Comparator Group for Ms. Goren, Mr. Horton and Mr. Kennedy. The committee also considered internal pay equity and the input of Mr. Arpey. Based on the information considered and due to the increase in job responsibilities, the committee awarded Mr. Horton additional long-term equity incentive awards and increased his award opportunity under the Annual Incentive Plan, and awarded Ms. Goren a base salary increase and additional long-term equity incentive awards. The committee also determined to award Mr. Kennedy a base salary increase and additional long-term equity incentive awards for internal pay equity and retention reasons.

 

We describe these awards and agreements further in the “Executive Compensation – Fiscal Year 2008, 2009 and 2010 Summary Compensation Table” and the footnotes and sections that follow that table.

 

How Corporate Performance Impacts Compensation

 

To implement our pay for performance objective described above, the Compensation Committee has linked our named executive officers’ performance-based compensation to these measures:

 

Pre-Tax Profits—The airline business is very cyclical and vulnerable to general economic conditions and external factors, such as fuel prices and the economy. This has been especially true over the last several years. To encourage our named executive officers to strive to generate adequate profit levels, under our Annual Incentive Plan, we must earn at least a 5% pre-tax earnings margin for any bonuses to be paid under that plan.

 

Customer Service—All employees, including our named executive officers, are awarded cash payments under our Annual Incentive Plan if we achieve our target customer satisfaction metrics. We believe that by focusing all employees on customer satisfaction, we are more likely to achieve positive pre-tax earnings and long-term stockholder value.

 

Stock Price Growth—We believe that consistent execution of our strategy should lead to an increase in our stock price over time. We grant stock appreciation rights that vest over a five-year period to provide our named executive officers a stake in this potential increase. The actual compensation realized from the stock appreciation rights is entirely dependent on increases in our stock price after the stock appreciation right grant date. We also grant performance shares and deferred shares that vest after three years. Since the value of these awards is dependent on our stock price over time, we believe they encourage consistent execution of our long-term strategy.

 

Total Shareholder Return—In addition to general growth in our stock price, we believe that it is important for our stock to perform as well as or better than the stock of our competitors.

Distributions under our performance share plans are consequently based on how well our total shareholder return (or “TSR”) compares to the TSR of our competitors over three-year measurement periods. The three-year TSR measure is used because it is an objective, market-based metric that directly measures shareholder value over the long-term. Use of a relative TSR metric also tends to mitigate the effects of general market or sector performance on our stock price.

 

The Primary Components of Our Compensation Program

 

Our executive compensation program principally consists of the following components:

 

 

In addition, as is customary in the airline industry, we provide unlimited personal air travel and other perquisites both during and following employment of our named executive officers. We describe these further in the tables and footnotes following this Compensation Discussion and Analysis.

 

While we do not target a fixed mix of pay, we generally allocate compensation to our named executive officers as follows:

 

General Compensation Allocation

 

 

The mix of pay actually realized by our named executive officers varies from this allocation based on our financial results and stock price performance.

 

Base Salary

 

The Compensation Committee feels it is important to provide to our named executive officers a secure, consistent amount of cash compensation. With this in mind, the committee establishes base salary levels that reflect each officer’s position, qualifications and experience.

 

2010

 

Due to the financial difficulties facing us and the airline industry in general, in 2010 we decided to forego annual pay increases for our employees. Consistent with that approach, none of our named executive officers received an annual salary increase in 2010, other than as described under “Organizational Changes.”

 

Short-Term Incentive Compensation – the Annual Incentive Plan

 

All employees, including the named executive officers, participate in the Annual Incentive Plan. The plan pays cash incentives upon the achievement of customer service and financial goals. The

customer service component of the Annual Incentive Plan provides for payments of up to $100 per month for each employee if we achieve one of its customer service targets. Our employees (including the named executive officers) can also earn awards annually under the financial component of the Annual Incentive Plan. Under this component, awards are paid as a percentage of base salary if American Airlines has at least a 5% pre-tax earnings margin. The Compensation Committee determines the percentage of base salary that each named executive officer is eligible to receive during its annual compensation review. The awards our named executive officers were eligible to receive in 2010 are described in “Executive Compensation – Non-Equity Incentive Plan Awards – Annual Incentive Plan.” As described above, upon his assignment to American Eagle in June 2010, Mr. Garton began participating in the AMR Eagle Incentive Plan, which is described in “Executive Compensation – Non-Equity Incentive Plan Awards – AMR Eagle Annual Incentive Plan.”

 

2010

 

During 2010, each named executive officer earned amounts under the customer service component of the Annual Incentive Plan. We did not make any payments to our named executive officers under the financial component of the Annual Incentive Plan because we did not meet the 5% pre-tax earnings margin required by the plan. Mr. Garton did not receive any payments under the AMR Eagle Annual Incentive Plan because AMR Eagle did not meet its pre-tax earnings targets.

 

Long-Term Incentive Compensation – Performance Shares, Stock Appreciation Rights and Deferred Shares

 

Long-term incentive compensation is a critical component of our executive compensation program. We design our long-term incentive compensation to link executive compensation to the interests of our stockholders by motivating executives to increase total stockholder return over the long term. We also believe that long-term incentive compensation is an important retention tool because awards only vest if the recipient remains with the Company for a period of time. The Compensation Committee uses performance shares, stock appreciation rights and deferred shares in an effort to achieve these goals.

 

We generally grant awards at the time of the Compensation Committee’s annual compensation review. For stock appreciation rights, our practice is to use the date the committee approves the grant as the effective date, or if the grants are approved at the time of our earnings release, the third business day after the earnings release. The exercise price of the stock appreciation rights is the fair market value of our common stock on that date. We use a modified Black-Scholes valuation model to determine the value and number of stock appreciation rights awards.

 

For awards other than stock appreciation rights, we establish the targeted grant values using a standard valuation methodology developed by Hewitt that provides an estimate of the present value of the future amounts likely to be realized from the award. Hewitt’s methodology takes into account the terms of the awards, including their vesting and performance criteria.

 

Below is a summary of each equity-based instrument that the Compensation Committee generally awards to our named executive officers, why the Compensation Committee chooses to pay each type of award, and when and how each type of award vests.

 

Performance Shares

 

Performance shares are contractual rights to receive shares of our common stock at the end of a three-year measurement period. They are designed to reward our named executive officers when our stock performs better than the stock of our primary competitors. The actual number of performance shares ultimately distributed to the named executive officers is based on our TSR compared to that of our primary competitors over that three-year period. Final distribution of the performance share awards for the 2010-2012 measurement period could range from 0% to 175% of the performance shares originally granted depending on our relative TSR performance during the measurement period.

Each year, the Compensation Committee selects the airlines used to determine our relative TSR, based on their market capitalization, revenues and airline seat capacity. For awards under the 2010/2012 Performance Share Plan granted in May 2010, the airlines are AirTran Airways, Alaska Airlines, American Airlines, Continental Airlines, Delta Air Lines, JetBlue Airways, Southwest Airlines, US Airways and United Airlines. The committee also determines the percentages of the original award to be paid based on our relative TSR rank during the measurement period. For awards under the 2010/2012 Performance Share Plan, the committee determined to use the same relative TSR percentages used in our 2009/2011 Performance Share Plan.

 

Under the terms of the performance share awards granted from 2004 to 2007, one-half of the distributions to our named executive officers was based on our TSR, and the other half on the Compensation Committee’s assessment of our achievement of annual corporate objectives for the measurement period. In determining whether we achieved the corporate objectives, the committee was not required to use any formula or other measure or assign any particular weighting to any objective. In addition, the committee had the discretion to consider any other factor it considered important or appropriate. For more information on performance shares, please see the discussion under “Executive Compensation – Equity Incentive Plan Awards – Performance Shares.”

 

Stock Appreciation Rights

 

Stock appreciation rights are contractual rights to receive shares of our common stock over a ten-year exercise period. Since they provide compensation only if the market value of our common stock appreciates from the date of grant, stock appreciation rights reward our executives for our stock price appreciation during that period.

 

Deferred Shares

 

Deferred shares are the contractual right to receive shares of our common stock upon the completion of three years of service following the grant date. Since deferred shares are not subject to the achievement of performance objectives, the value of the deferred shares at the time of vesting depends entirely on the value of our common stock at that time. The Compensation Committee believes that deferred shares are important for the long term retention of our named executive officers because they provide a guaranteed award for their continued service through the three-year service period.

 

2010

 

Other than the additional grants awarded in July 2010 described in “Organizational Changes,” the values the Compensation Committee targeted for the annual long-term incentive grants to our named executive officers were approximately the same as the values targeted in 2009. Differences in the values between the years reported in the Summary Compensation Table are due to variability between our modeling estimates and the actual stock price on the date of grant. In setting their annual compensation in May 2010, the Compensation Committee granted long-term equity awards to the named executive officers in approximately the following proportions:

 

Mix of Long-Term Equity Awards

 

For performance shares awarded in 2007 under the 2007/2009 Performance Share Plan, in April 2010 the Compensation Committee determined that we had a 6th place TSR rank during the 2007-2009 measurement period, resulting in a TSR distribution percentage of 25%. The committee also determined that achievement of our corporate objectives during that period was well in excess of 25%. Because TSR is the only performance measure used to determine performance shares distributed to all of the other participants in that plan, with the consent of the named executives and our other senior officers, the committee based the final distribution of performance shares entirely on TSR. As a result, on April 15, 2010, our named executive officers received 25% of the awards originally granted to them under the 2007/2009 Performance Share Plan.

 

Travel Perquisites and Other Benefits

 

The named executive officers also participate in a variety of health and welfare and other benefits that we provide to our U.S.-based employees. The Compensation Committee believes it is important to provide a limited number of additional perquisites and benefits to our named executive officers to attract and retain them. For example, as is common in the airline industry, we provide unlimited personal air travel on American Airlines and American Eagle Airlines. Instead of providing automobile lease payments, club memberships, financial planning fees and other perquisites other companies often provide to their executives, we provide personal allowances to our named executive officers. We also provide personal security services for Mr. Arpey and his family. We describe these and other perquisites in footnote (5) to the “Executive Compensation – Fiscal Year 2008, 2009 and 2010 Summary Compensation Table.”

 

No changes were made to the perquisites and benefits offered to our named executive officers in 2010.

 

Post-Employment and Change in Control Benefits

 

Following their employment with us, the named executive officers are eligible for the benefits, perquisites and privileges that we generally provide to all of our salaried employees. These include severance, pro-rated incentive compensation and equity distributions, and a limited number of other benefits. We also provide other post-employment perquisites to them, such as unlimited personal air travel on American Airlines and American Eagle. The Compensation Committee has determined that it is important to provide these post-termination benefits, perquisites and privileges to our named executive officers to attract and retain them. We describe these benefits further in the narrative discussion under “Executive Compensation – Post-Employment Compensation.”

 

Our named executive officers are eligible to participate in the Retirement Benefit Plan of American Airlines, Inc. for Agents, Management, Specialists, Support Personnel and Officers (the “Retirement Benefit Plan”). This is a defined benefit plan that provides compensation to all of our eligible employees during their retirement. Our named executive officers are also eligible to participate in the Supplemental Executive Retirement Plan (the “Non-Qualified Plan”). The Non-Qualified Plan is designed to address limits on benefits we can pay under the Retirement Benefit Plan pursuant to the Employee Retirement Income Security Act of 1974 (“ERISA”). No changes were made to our retirement plans in 2010. See “Executive Compensation – 2010 Pension Benefits Table” and the accompanying narrative discussion and footnotes that follow the table and “Executive Compensation – Post-Employment Compensation” for further details regarding our retirement plans.

 

The named executive officers are also entitled to immediate vesting of equity incentive awards and payment under the Non-Qualified Plan upon a change in control of the Company. The Compensation Committee believes it would be appropriate to provide our named executive officers the benefit of the awards that were awarded to them before the change in control because the change could significantly alter our policies, objectives and management. Also, this practice is common in awards and plans like ours, and is therefore appropriate to retain our named executive officers and attract new leaders when needed.

We have also entered into executive termination benefit agreements with our named executive officers for terminations associated with a change in control. We describe these benefits and agreements further in the narrative discussion under “Executive Compensation – Change In Control.” The Compensation Committee believes it is important to provide these agreements for several reasons. The airline industry may undergo further consolidation and economic challenges, and these agreements are common in the industry. The agreements encourage the executives to work for the best interests of the stockholders during a potential change in control by guaranteeing some financial security if the executive’s employment is terminated after a change in control. Finally, they help us attract senior leaders to the Company. The executive termination agreements also include a “double trigger.” This means that for the benefits to be paid, the change in control must be followed by a termination of the executive’s employment. The double trigger is intended to encourage the executive to remain with the Company for a period of time following a change in control to help smooth the transition to new management.

 

No changes were made to the post-termination and change in control benefits offered to our named executive officers in 2010. However, as described in “Executive Compensation – Post-Employment Compensation,” in January 2011 we discontinued a policy under which we would reimburse some of them for taxes and fees related to their post-employment personal air travel. Also, under a policy we adopted in 2006, we have reduced the change in control benefits provided in executive termination benefits agreements entered into after that date. Under this policy, following a change in control and subsequent termination of employment, the executive is entitled to two years of salary and benefits (rather than three years). Also, he or she would not receive a tax gross up for any excise taxes paid under Sections 280G and 4999 of the Internal Revenue Code. Finally, the benefits would not be paid if the executive terminates his or her employment (other than for good reason). Since Ms. Goren’s executive termination benefits agreement was entered into after that date, her agreement reflects these new terms. We describe these agreements and benefits further under “Executive Compensation – Change in Control.”

 

Recoupment Policy

 

In March 2010, we adopted a recoupment policy that allows us to recoup compensation paid to our Chief Executive Officer and each of his direct reports if we restate our financial statements due to that officer’s intentional misconduct. The recoupment policy applies to annual incentive or equity compensation awards to the extent the awards were paid due to metrics impacted by the misstated financial information.

 

Stock Ownership Guidelines

 

Effective March 2011, the Compensation Committee adopted stock ownership guidelines for our Chief Executive Officer, our President, and our executive and senior vice presidents. The guidelines were adopted in lieu of stock retention requirements. Subject to transition periods and other provisions, the guidelines generally require that each officer beneficially hold shares of our stock (including deferred shares) with a value at least equal to the multiples of his or her base salary identified below:

 

 

All named executive officers were in compliance with the guidelines as of April 21, 2011. We also adopted stock ownership guidelines for our Directors, as further described in “Director Compensation.”

Consideration of Tax Consequences in Determining Compensation

 

Section 162(m) of the Code limits the deductibility of compensation paid to our named executive officers to $1 million in some circumstances. While the Compensation Committee believes that it is important for the compensation paid to our named executive officers to be tax deductible under Section 162(m), it does not think this should be the determining factor in establishing compensation. The committee believes that we must balance the emphasis on maximizing deductibility against both the need to retain executive talent and our long-term strategies and goals.

 

Compensation Committee Report

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

 

Compensation Committee of AMR Corporation:

 

Michael A. Miles, Chairman
David L. Boren
Philip J. Purcell
Judith Rodin
Matthew K. Rose

EXECUTIVE COMPENSATION

 

Fiscal Year 2008, 2009 and 2010 Summary Compensation Table

 

The following table contains information regarding compensation paid to the persons who served as our Chief Executive Officer, our Chief Financial Officer, and our three other most highly compensated executive officers in 2010. As described in more detail below, in July 2010 Mr. Horton was promoted from Chief Financial Officer to President and Ms. Goren was appointed our Chief Financial Officer. The table does not reflect compensation for Ms. Goren in 2008 and 2009 since she was not a named executive officer in those years.

 

 

 

Fiscal Year 2010 Grants of Plan-Based Awards Table

 

The table below lists each grant or award made in 2010 to our named executive officers under our equity and non-equity incentive plans.

 

 

 

Discussion Regarding Fiscal Year 2008, 2009 and 2010 Summary Compensation Table and Fiscal Year 2010 Grants of Plan-Based Awards Table

 

 

General

 

As described in “Compensation Discussion and Analysis — The Primary Components of Our Compensation Program,” the base salary we pay to our named executive officers is generally designed to be 15% of their targeted annual compensation. The short-term incentive compensation they are awarded is generally designed to be 15% of their targeted annual compensation. However, we have not paid any annual bonuses to our named executive officers since 2001 as we have not met the required pre-tax earnings margins. The long-term incentive compensation awarded to them is generally designed to be 70% of their targeted annual compensation.

 

Non-Equity Incentive Plan Awards

 

Annual Incentive Plan.  All of our employees, including the named executive officers, participate in the Annual Incentive Plan. The Annual Incentive Plan provides cash incentive payments if we meet monthly customer service and annual financial goals. Under the customer service component, awards of up to $100 per month are earned if we meet our customer satisfaction and dependability targets. The financial component of the Annual Incentive Plan provides for payments if American Airlines meets threshold, target or maximum pre-tax earnings margins described in the following table:

 

The actual dollar amount paid under the financial component of the Annual Incentive Plan is determined as a percentage of base salary. The percentage increases with higher levels of responsibility and higher pre-tax earnings margins. The percentages of base salary that each of our named executive officers was eligible to receive in 2010 (based upon our achievement of the threshold, target or maximum performance levels) are described in the following table:

 

 

Mr. Horton’s threshold and target amounts were increased from 54% to 75% and 108% to 120%, respectively, when he was promoted to President in July 2010. Mr. Garton participated in our Annual Incentive Plan until June 10, 2010 when he was named President of AMR Eagle.

 

We did not meet any of the Annual Incentive Plan’s pre-tax earnings margin thresholds in 2010 or in any year since 2000. We therefore have not paid any short-term incentive compensation under the plan’s financial component since March 2001.

 

AMR Eagle Annual Incentive Plan.  Mr. Garton participated in the AMR Eagle Annual Incentive Plan from June 11, 2010 until December 31, 2010. No other named executive officer participated in the AMR Eagle Annual Incentive Plan in 2010. The AMR Eagle Annual Incentive Plan provides cash incentive payments upon the achievement of pre-tax earnings targets at AMR Eagle. For Mr. Garton, the actual dollar amount paid under the AMR Eagle Annual Incentive Plan is capped at a maximum of 3% of base salary. AMR Eagle did not meet the pre-tax earnings targets, so no amounts were paid to him under the plan in 2010.

 

Equity Incentive Plan Awards

 

During its annual compensation review in May 2010, the Compensation Committee awarded performance shares, deferred shares and stock appreciation rights to our named executive officers as described below.

 

Performance Shares.  The performance shares awarded in 2010 under the 2010/2012 Performance Share Plan vest after a three-year measurement period. Vesting of the performance shares is also generally subject to the named executive officer’s continued employment with us through April 17, 2013. They may vest early in the events described in “Post-Employment Compensation” and “Change In Control.” Payment is subject to achievement of the performance criteria in the plan. The potential payment ranges from 0% to 175% of the shares originally granted based on our TSR as shown in the chart below. In the chart, “Rank” is our TSR ranking among the following airlines: AirTran Airways, Alaska Airlines, American Airlines, Continental Airlines, Delta Air Lines, JetBlue Airways, Southwest Airlines, United Airlines and US Airways. Under the heading “Percentage of Original Award” is the percentage of the performance shares initially granted to our named executive officers that will be paid to them based on our TSR ranking. In the event an airline ceases to trade on a national securities exchange at any point during the three year measurement period, under the plan that airline is excluded from the calculation of TSR rank, which is reflected in the chart below under the heading, “Number of Carriers in Comparator Group.”

 

 

Career Performance Shares.  In 2005, we entered into a career performance share agreement with Mr. Arpey. As required by that agreement, we granted Mr. Arpey 58,000 career performance shares in each of 2005, 2006, 2007, 2008 and 2009. We did not award him any career performance shares in 2010. Those shares vest and become payable in 2015, but they vest early in the events described in “Post-Employment Compensation” and “Change In Control.” At the time of vesting, the committee will determine whether to pay Mr. Arpey 0% to 175% of the shares originally granted to him based on the committee’s subjective evaluation of our performance during 2005 to 2015 in the following areas: (a) overall cash flow; (b) earnings; (c) the per share price of our common stock; (d) operating performance (including safety and other issues concerning regulatory compliance); (e) the rate of return achieved on our investments and/or equity; (f) measures of employee engagement and/or satisfaction; (g) the overall state of relations with our organized labor groups; (h) our balance sheet; (i) our overall relationships with our largest stockholders; and (j) revenues. The committee is not required to use any formula or other measure or assign any particular weighting to any objective. The committee can also consider any other factor that it considers important or appropriate.

 

Deferred Shares.  The deferred shares granted in 2010 to our named executive officers vest on May 19, 2013, generally subject to the named executive officer’s continued employment with us through that date. They may vest early in the events described in “Post-Employment Compensation” and “Change In Control.”

 

Stock Appreciation Rights.  The stock appreciation rights awarded in 2010 are exercisable for ten years from the date of grant and vest in 20% increments over five years. They may be exercisable earlier in the events described in “Post-Employment Compensation” and “Change In Control.” The exercise price of the stock appreciation rights is the fair market value of our common stock on the effective date of the grant. Upon the exercise of a stock appreciation right, we subtract the exercise price from the fair market value of one share of our common stock on the day the stock appreciation right is exercised. We multiply this amount by the number of stock appreciation rights exercised and issue to the employee the number of shares equal to that value.

 

Employment Agreement with Mr. Horton

 

To attract Mr. Horton to return to work for us, we entered into an employment agreement with him in March 2006. Under the agreement, Mr. Horton is entitled to an annual base salary of $600,000 (which is reviewed annually and may not be reduced after any increase), and an annual personal allowance of at least $27,000 per year. His annual target bonus is at least 108% of his salary. He is also eligible to participate in our benefit programs, including the Retirement Benefit Plan and the Non-Qualified Plan. The agreement grants Mr. Horton additional years of credited service under the Non-Qualified Plan described in “2010 Pension Benefits Table” below. It also provides post-employment and change in control benefits described in “Post-Employment Compensation” and “Change In Control.” The agreement expires in March 2012.

Assignment Agreement with Mr. Garton

 

On June 10, 2010, we entered into the Assignment Agreement with Mr. Garton to encourage him to serve as the President and Chief Executive Officer of AMR Eagle and lead efforts for its possible divestiture. Unless the Assignment Agreement is terminated, under the agreement he is entitled to total annual compensation substantially similar to his compensation prior to accepting his new position. If we divest AMR Eagle and Mr. Garton remains in his current or a comparable position with AMR Eagle, we will pay his pro-rated target bonus under the Annual Incentive Plan (if we meet the applicable performance criteria). If he is not 55 at the time of a divestiture, we will either place him on leave until he reaches age 55 (facilitating his retirement from American), or provide the economic equivalent of the retirement and welfare benefits that he would have received had his employment by American continued until he turned age 55. We will also provide the same rights in his outstanding equity awards as though he had remained employed by American. If we divest AMR Eagle by June 10, 2012 and Mr. Garton declines to remain with AMR Eagle, we will pay his annual base salary until he reaches age 55. Any outstanding equity awards would be pro-rated. If we have not divested AMR Eagle by June 10, 2012, or if it is divested and either (i) he is not offered a comparable position with AMR Eagle or (ii) he does not continue to work for American, Mr. Garton is also entitled to receive severance equal to two times his base salary and target annual bonus under the Annual Incentive Plan and COBRA coverage for 18 months.

 

Mr. Horton’s Promotion

 

In connection with Mr. Horton’s promotion to President in July 2010, the Compensation Committee approved an increase in his short-term incentive compensation threshold and target levels under the Annual Incentive Plan to 75% and 120% of base salary, respectively. The committee additionally awarded him 42,900 shares from the 2010/2012 Performance Share Plan, 34,950 deferred shares, and 50,100 stock appreciation rights.

 

Ms. Goren’s Promotion

 

In connection with Ms. Goren’s promotion to Chief Financial Officer in July 2010, the Compensation Committee approved a 10% increase in her annual base salary to $446,600. The committee additionally awarded her 14,500 shares from the 2010/2012 Performance Share Plan, 11,850 deferred shares and 17,000 stock appreciation rights.

 

Mr. Kennedy

 

In July 2010, the Compensation Committee approved a 7% increase in Mr. Kennedy’s base salary to $522,000. The committee additionally awarded him 14,500 shares from the 2010/2012 Performance Share Plan, 11,850 deferred shares and 17,000 stock appreciation rights.

 

2010 Outstanding Equity Awards At Fiscal Year-End Table

 

The following table lists all of the outstanding stock and stock option/stock appreciation right awards held on December 31, 2010 by each of our named executive officers. The table also includes, where applicable, the value of these awards based on the closing price of our common stock on December 31, 2010, which was $7.79. Each award listed in the “Number of Securities Underlying Unexercised Options Unexercisable” column with an expiration date prior to July 24, 2016 is a stock option with a tandem stock appreciation right. The other awards listed in this column are stock appreciation rights.