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A Weak Economy Doesn't Dent Executive Entitlement

As AMR employees swallow pay cuts, top-level executives party like they did in the boom times.

Editor's note: This column originally appeared April 21 on This condensed column reflects action in the stock market on Monday. To sign up for RealMoney, where you can read Bill Fleckenstein's commentary every day, please click here for a free trial.

Serf and Turf:

In the papers, a couple of news items from way back on Friday are worth commenting on. One, which received quite a bit of ink over the weekend, concerns the furor surrounding the recently disclosed sweetheart pay package for executives at American Airlines parent



, in the face of pay cuts swallowed by workers. (Friday's

Wall Street Journal

had an interesting account of the subject in an article titled "AMR Unions Express Fury Over Management Benefits.") Another variation on the same theme has occurred at

Delta Air Lines

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, as well as other companies.

While it can be a thorny issue, and I am all for letting the markets decide what folks should be paid, some of these managements have demonstrated what I find to be the height of arrogance. I can respect a company that says, "Hey, listen, times are tough, we're in a tough business, we have to get our expenses under control, employee givebacks can't be avoided, and we executives will suffer too." One would hope those same employees are rewarded when the good times return. All things being equal, I believe well-managed companies that care about their employees would do just that.

But in the face of times not being good, I think that for some executives to award themselves outrageous pay packages -- via deferred compensation, retention bonuses, etc. -- not only smacks of arrogance but a continued resistance to accepting the reality of a post-mania world. Here we are, in an economy that's somewhere between weak and a mess, depending on the industry you look at, and some of these executives seem to have the idea that no matter what, they're supposed to get filthy stinking rich.

Bull Eats Crow:

To show their need to maintain the status quote, I'd just like to reprise a quote from the


TheStreet Recommends

story that is as outrageous as the executive compensation package itself. The speaker is AMR's Bruce Hicks, who tried to defend the package by stating: "

The unions had been told of the executive compensation deals before ratification voting, as part of information given under confidentiality agreements." To that, John Darrah, the president of American's pilots union, countered, "'Nothing could be further from the truth." Two other unions, including one that represents flight attendants, also hadn't heard anything about the benefits. As its president, John Ward, said, "Any suggestion by the company that we were informed of this during the talks, or had any knowledge of it prior to opening

The Wall Street Journal


that being, I believe, Thursday is simply a lie." In light of this, Mr. Hicks was then forced to retreat from his earlier claim by stating, "I had misunderstood."

I think there's no mistaking one thing: Given all that's happened -- from accounting scandals to layoffs to some of these corporations making very little money -- psychology hasn't changed much in the executive suite. I would just point out that if this behavior continues, we run the risk of Congress trying to force change through legislation. I think none of us would like whatever they might decide to come up with.

NYSE Floor Painted 'Me-First Fuscia'?:

Now for a look at another story that caught my attention, "NYSE 'Front-Running Probe Involves Five Firms," which ran in last Friday's


. I have twice commented about problems at the

New York Stock Exchange

, concerning its board of directors. Now it's become apparent that there may be trouble on the floor of the exchange as well. It's too soon to say what kind of dollars are in question, or how deep the problem runs, but as you can see from a couple of stunning comments by the large firms that do a lot of business, things may potentially not be above-board at the Big Board:

"Everybody who does what I do feels like it's basically a stacked deck." That comes from James Malles, the


of U.S. equity trading at UBS Global Asset Management, which is no small firm. Another not-so-small firm, Fidelity Investments, has, according to the story, "long brought up the issue at industry meetings, because managers believed the problem intensified with the advent of decimalization, according to a person familiar with the matter." There was also a quote from Christopher Barrow, identified simply as an investment adviser from Boston: "We look at it, unfortunately, as the cost of playing."

In the past, I myself have had problems down on the floor. My partner, who does our trading, has experienced problems as well. One of the things we've noticed is what happens at times (certainly, not


of the time) if you put in a market order to sell a stock short: XYZ stock immediately drops, say 50 cents, to pick a number. Next you get an uptick of a penny, so now it's only dropped 49 cents. Then the stock will come screaming back 20 or 30 cents, or some variation on that theme. Seemingly, the stock price has dropped down, the uptick occurs, your sale is executed, and the stock goes right back to trading at a higher price.

'Sorry, Stock Ahead':

On more than a handful of occasions, I have complained to NYSE governors about this, not because the money involved was considerable but because I was so incensed by the behavior itself. Whenever I have objected, the response from the floor has been some sort of plausible excuse that I could almost write the script for, before it happens. After being in this business for 20 years or so, one develops a kind of judgment as to when there is the potential for being taken advantage of.

I obviously could be wrong about all the occasions I think it's happened to me, just as the other gentlemen quoted in the


story could be wrong, but I find that unlikely. (Interestingly enough, I have had few problems when trading over the counter, though other people could have had different experiences.) I think that the NYSE has real credibility problems, both down at the floor and potentially at the board level. In this day and age, given how effective electronic trading seems to have become, it's not clear to me why the NYSE needs to exist. I'm sure thoughtful people could agree to disagree about that statement. In any case, it will be interesting to see how this story goes, and what sort of steps the exchange takes to rectify the problems that seem yet to be addressed, should there actually turn out to be some. However, it occurs to me that the price of a seat is a short sale.

William Fleckenstein is the president of Fleckenstein Capital, which manages a hedge fund based in Seattle. Outside contributing columnists for and RealMoney, including Mr. Fleckenstein, may, from time to time, write about securities in which they have a position. In such cases, appropriate disclosure is made. At time of publication, Fleckenstein Capital was long Newmont Mining and Pan American Silver, although positions can change at any time. Under no circumstances does the information in this column represent a recommendation to buy, sell or hold any security. The views and opinions expressed in Mr. Fleckenstein's columns are his own and not necessarily those of While Mr. Fleckenstein cannot provide personalized investment advice or recommendations, he invites you to send comments on his column to