The Qantas Airways Limited (ASX: QAN) share price is under the spotlight after announcing it’s cutting Alan Joyce’s remuneration.
Qantas is Australia’s largest airline, but the last four and a half years have been difficult for the airline.
Why is Qantas cutting Joyce’s remuneration?
The airline noted that in September last year, the board announced there would be a 20% reduction in short-term incentives for FY23 for members of Qantas’ group management committee given the challenges then facing Qantas and in recognition of the “customer and brand impact of cumulative events.”
Qantas’ board has also withheld the balance of the FY23 short-term incentive for senior executives because of the ACCC starting proceedings and the High Court finding “in relation to breaches of the Fair Work Act when Qantas outsourced ground handling work.”
As part of a settlement with the ACCC, Qantas has admitted to misleading customers regarding flight cancellation processes and subject to Federal Court approval will pay a $100 million penalty. Qantas has also agreed to a $20 million customer remediation program. Penalties and compensation for breaching the Fair Work Act are still to be determined. This led to pain for the Qantas share price.
Significant pay cut
Qantas has done a review, and while there were no findings of “deliberate wrongdoing”, the review found that “mistakes were made by the board and management which contributed to the group’s significant reputational and customer service issues.”
The Qantas board has decided to cut former CEO Alan Joyce’s by $9.26 million. This is largely relating to the long-term incentive plan where the board has decided that 100% of shares related to the 2021 to 2023 long-term incentive plan, valued at $8.36 million, will be forfeited. As CEO, he had “overall accountability and responsibility for the outcomes of the business.”
The board has also decided that the short-term incentives for affected current and former senior executives will also be reduced by 33%.
Current non-executive directors who were on the board at the time will take a 33% reduction too.
Final thoughts on the Qantas share price
The airline has done a lot of work to try to repair its reputation. This is a significant move and one of the relatively rare instances where a leader has been significantly financially punished for failures of the overall business. But, it makes sense – shareholders have seen a significant hit to their business because of what happened.
Qantas is not exactly a growth share or dividend share, but I think the Qantas share price could be undervalued if travel demand remains relatively robust in the next few years.
