1. Carty, an Angel?

Once again, we at the Five Dumbest Things Research Lab are marvelling over what we call a Flying Nun -- a decision so Dumb that it's impossible for us to imagine how a group of responsible humans could have made it.

Yes, just as we still can't figure out how a person could have green-lighted a television show about the aerodynamic Sister Bertrille, we're puzzled at how anyone, anywhere at American Airlines parent

AMR

(AMR)

could have concocted an executive compensation scheme as Dumb as the one that surfaced this month.

As you may recall, AMR last week persuaded employees to make a total of $1.6 billion in annual salary concessions, as part of American's last-ditch effort to avoid bankruptcy. The sacrifice was great, but times are desperate for AMR: The company lost $5.3 billion over the past two years, while cutting 27,000 employees.

So what kind of thank-you note did the rank-and-file get in return? Why, the news of how well the company is taking care of its executives. As the company disclosed for the first time last Tuesday evening, AMR decided more than a year ago to award cash bonuses to seven top executives if they stay on through 2005. And last October, the company contributed $41 million to a pension plan for 45 top executives -- a plan that protects those executives' retirement money should AMR declare bankruptcy.


AMR Chairman and CEO Donald Carty tried to do damage control this week (perhaps unsuccessfully, as his resignation Thursday night might indicate), but we at the Research Lab can't say we were impressed. Yes, he rescinded the bonus plan. But the pension plan -- the one that's protected in the increasingly likely event of a bankruptcy -- remains untouched.

Nor was his cause helped by comments he made at his apologetic Monday news conference, the one where he suggested people would love AMR's executive compensation measures because they weren't as egregious as the ones proposed by Dumber executives at other struggling air carriers. "I really believed that we were going to look very good by comparison," said Carty, according to the

Associated Press

.

What caught our eye at the lab was how Carty kept insisting the problem wasn't the special treatment of executives approved by AMR's board, but the timing of the compensation disclosures. "The board's actions were proper," Carty told reporters Monday. "Because I failed to fully communicate the details in advance, I inadvertently created a perception that there was something improper."

We suspect Carty was missing the point. The problem wasn't that poor timing created "a perception that there was something improper." The executive compensation revelations would have made a stink no matter what day they were revealed. The real problem was the perception that AMR executives don't give a flying Fokker about employees' welfare.

As Carty said himself on Monday, to regain trust he'll need to persuade employees that "the sacrifices they were asked for and agreed to make are indeed shared, and that we are all in this together."

Yes, timing is immaterial. When you're dining with the captain aboard the Titanic, is there any good time to be told that he's got a lifeboat and you don't? To us, it doesn't make a difference if the news comes before he sticks you with the check, or after.

2. Nasdaq It in Your Ear

This being Wall Street, we don't hold our breath waiting for people to be noble.

And, of course, our expectations are rarely disappointed.

Today's case in point: This week's news about investigations of front-running at the

New York Stock Exchange

-- if you believe the early reports out of

The Wall Street Journal

-- or possible violations of specialists' "negative obligation," if you defer to the NYSE's Tuesday criticism of the press coverage.

Whatever. What fascinated us were on-air comments on Wednesday by

CNBC

reporter Leslie Laroche -- statements she characterized as "talking points" from the

Nasdaq

.

These talking points amounted to unveiled criticism of the NYSE's trading system, which -- unlike the Nasdaq's -- employs specialists, or human beings, who match buyers and sellers or buy and sell stock out of their own accounts to ensure market liquidity.

"They say the scandal at the NYSE should come as no surprise," said Laroche in one of her live reports about the Nasdaq's talking points. "The Nasdaq goes on to talk about how this scandal, if it grows, will call for stricter regulation of specialists. But the NYSE needs to be more forthcoming about deficiencies."

Catty stuff. Especially coming from folks who paid $1 billion a few years back to settle allegations that their own market makers had ripped off investors.

So we called the Nasdaq to find out why the pot was calling the kettle black. But a Nasdaq spokeswoman said she didn't know where Laroche had gotten her information. "We won't comment on the NYSE's investigations," she said.

Laroche, meanwhile, wouldn't say where she got these "talking points."

Hmm. We suspect that Laroche didn't get these out of thin air. We also suspect folks at the Nasdaq would love to enjoy the benefits of bad-mouthing the NYSE -- without the attendant risks of that public relations strategy blowing up in their face.

3. Sherron Share Alike

Those of you who hope that a new generation of accounting professionals has learned something from

Enron

and other scandals -- you better just skip this item.

The University of Wisconsin-Madison is investigating a case of widespread cheating on an accounting exam earlier this month.

As the

Wisconsin State Journal

first reported Thursday, as many as 60 students cheated on their midterm accounting exam by completing the take-home test in groups rather than working on it individually, as per their instructor's assignment. There was "overwhelming evidence of collusive behavior," the accounting department chairman told the

Journal

.

OK, OK. We know what you're thinking: This is not a shock that students occasionally cheat. It's not a comment on the accounting industry.

Or maybe it is. The fascinating part of the story for us is why the instructor administered the take-home test in the first place. See, originally, it was going to be administered in class. But, apparently, the instructor made it a take-home so students could attend a special event on campus.

And what was that event? Why, it was a speech by Sherron Watkins, the whistle-blower inside Enron who called attention to the company's suspect accounting practices.

So you get the picture. Take a take-home test so you can listen to an inspirational talk about fighting accounting fraud. Then commit fraud on your accounting exam.

Michael Knetter, dean of the University of Wisconsin-Madison's school of business, wasn't interested in discussing the irony angle of the cheating scandal. "What's important to me is how we're handling it," he said. "And we're handling it well."

4. Flame and Fortune at Outback Steakhouse

This being earnings season, we're on the lookout for strange disclosures in companies' financial reports. Like the one in

Outback Steakhouse's

( OSI) first-quarter earnings release.

Happily enough, the chain restaurant reported better-than-expected results Tuesday. But it did complain about a spike in natural gas prices, one that increased first-quarter operating expenses $1.1 million.

Hmm. Sounds like a lot. Until you compare it to the company's overall first-quarter costs and expenses, which totaled $568.5 million.

In other words, Outback felt compelled to tell us that its operations were hurt by a temporary jump in energy costs -- an increase amounting to 0.2% of expenses?

We're trying to sympathize with Outback, but we just can't.

5. Results Were Also Hurt by the War. In Viet Nam.

Yet another puzzler came Tuesday during

PeopleSoft's

(PSFT)

conference call with analysts.

PeopleSoft,

which met its guidance only after first cutting it about 40%, came up with a novel reason why its performance lagged in the first quarter: the dot-com meltdown.

"Certainly, the continued effects of the dot-com bust continued to be felt with lower tax revenues causing budget deficits in all 50 states and the federal government," said CEO Craig Conway on the call.

Ah, the dot-com meltdown that started in early 2000. As in three years ago. It's a terrible thing to be caught by surprise like that.