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By his own admission, the boss of Ryanair Holdings Plc hasn’t done a very good job lately. Over the past 18 months, a scheduling fiasco and labor revolt have forced the budget carrier to cancel thousands of flights, offer better pay and conditions to staff and recognize trade unions.
To his credit, Michael O’Leary volunteered not to take a bonus last year, meaning his pay was 2.3 million euros ($2.6 million), pretty unexceptional by executive standards. However, just days after announcing its first quarterly loss since 2014, Ryanair has decided the time for modesty is over. Late on Friday, it said O’Leary had been awarded 10 million share options that will let him pocket 99 million euros ($112 million) if the company doubles profit over the next five years, or the share price almost doubles to 21 euros.
Ryanair has got one thing right here: Its share option plan is admirably clear, unlike at other large companies where monstrously complicated director incentives seem designed to bamboozle shareholders and keep remuneration consultants in work. Beyond that, it’s hard to know why Ryanair shareholders would support this.
While O’Leary has done pretty nicely for investors over the decades, the latest incentive plan requires him to return the stock to a level only slightly higher than where it was in 2017 – when it hit a peak of 19.39 euros. The stock is currently 42 percent below that point, meaning some 10.5 billion euros of shareholder wealth has gone up in smoke. Ryanair made 1.45 billion euros of net profit in 2018, but that’s expected to drop to as little as 1 billion euros in the fiscal year that ends in March.
Ryanair’s clumsy approach to labor relations has played a part in the profit and share price rout, so it’s reasonable to ask why O’Leary would be so handsomely rewarded partly for fixing his own mistakes.
Of course, there are other reasons why the stock is in a rut, including an industry-wide capacity splurge that’s squeezing fares. That argument cuts both ways, though. There are many factors that might cause Ryanair’s shares to rise over the next five years that have nothing to do O’Leary’s managerial skills, such as lower oil prices, a booming economy or the collapse of rivals.
Investors might also ask why he’s being awarded double the number of share options that were granted under a previous five-year option plan. True, the old plan will probably turn out much less lucrative than it might have been, because of the falling share price, but that’s no reason to offer more now to an under-performing manager.
Arguably, he deserves less. Following a governance overhaul, O’Leary will soon give up day-to-day running of the Ryanair airline and will instead oversee things like M&A, aircraft purchases and capital allocation at group level. There’s plenty to keep him busy, but the new role sounds less demanding. While Ryanair has compared O’Leary’s new role to that of Willy Walsh at IAG SA, the Irish company is simpler. Ryanair carries more passengers than IAG, but IAG owns a mixture of long and short-haul airlines.
Of course, it’s hard to imagine Ryanair’s board telling him that. The chairman of the remuneration committee is Howard Millar, Ryanair’s former chief financial officer who took orders from O’Leary until 2014. Unusually for a European company, Ryanair will also grant share options to non-executive directors. Proxy advisors say this hampers independence.
After the recent outrage about the 75 million pound ($97 million) bonus paid to Jeff Fairburn, the ex-boss of British homebuilder Persimmon Plc, one wonders why Ryanair feels the need to offer this. O’Leary already has a 4.1 percent stake in the company worth a bit more than 500 million euros at current prices. At 21 euros a share it would be valued at almost 1 billion euros. That should give him more than enough incentive to lift his performance.
The new plan flies in the face of attempts to tackle excessive boardroom awards.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.
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