QAN
Qantas Airways Limited
ASX
Update on FY23 Executive Remuneration
Sentiment:
Update on Executive Remuneration
7 August 2024 6:38 PM
Qantas Board reduces executive remuneration for FY23, including a significant cut to former CEO Alan Joyce's compensation, following customer service and reputational issues.
Worse than expected
The document details significant reductions in executive compensation and penalties due to reputational damage and customer service failures, indicating worse than expected outcomes for the company.
Summary
- The Qantas Board has finalized decisions regarding executive remuneration for FY23.
- In September of the previous year, a 20% reduction in short-term incentives for the Group Management Committee was announced due to challenges facing Qantas.
- The Board withheld the balance of FY23 short-term incentives for senior executives due to ACCC proceedings and Fair Work Act breaches related to outsourced ground handling work.
- Qantas admitted to misleading customers regarding flight cancellations and will pay a $100 million penalty, subject to Federal Court approval.
- A $20 million customer remediation program has also been agreed upon.
- Former CEO Alan Joyce's FY23 remuneration will be reduced by $9.26 million.
- This includes forfeiting $8.36 million in shares related to the 2021-2023 Long Term Incentive Plan (LTIP) and a $900,000 reduction in his short-term incentive.
- Short-term incentives for other affected current and former senior executives will also be reduced by 33%, resulting in an overall reduction of approximately $4.1 million.
- Current Non-Executive Directors who were on the Board at the time will take a 33 per cent reduction to their Directors base fees this year.
Sentiment
Score: 3
Explanation: The document highlights negative events such as customer mistreatment, regulatory penalties, and executive pay cuts, leading to a low sentiment score.
Positives
- The Board is taking accountability for the issues that have impacted Qantas's reputation.
- The company is implementing a customer remediation program to address past issues.
- The Board has taken steps to reduce executive remuneration in response to the company's challenges.
Negatives
- Qantas faced significant reputational and customer service issues.
- The company admitted to misleading customers regarding flight cancellations.
- The company is facing penalties and compensation related to breaches of the Fair Work Act.
- Mistakes were made by the Board and management which contributed to the Groups significant reputational and customer service issues.
Risks
- The Federal Court must approve the $100 million penalty to the ACCC.
- The penalties and compensation arising from breaches of the Fair Work Act are still to be determined.
- Further reputational damage could occur if the customer remediation program is not effectively implemented.
Future Outlook
Further details will be included in the Remuneration Report in the 2024 Annual Report.
Management Comments
- The events that damaged Qantas and its reputation and caused considerable harm to relationships with customers, employees and other stakeholders were due to a number of factors.
- While there were no findings of deliberate wrongdoing, the review found that mistakes were made by the Board and management which contributed to the Groups significant reputational and customer service issues.
- Mr Joyce was the Chief Executive Officer of the Qantas Group.
- In this role he had overall accountability and responsibility for the outcomes of the business and this is reflected in the forfeiting of his 2021-2023 LTIP shares that vested in August 2023.
Industry Context
This announcement reflects a growing trend of increased scrutiny on executive compensation and corporate governance, particularly in industries facing customer service challenges and regulatory oversight. Airlines globally are under pressure to improve customer satisfaction and ethical practices.
Comparison to Industry Standards
- Other airlines, such as British Airways and United Airlines, have faced similar scrutiny regarding customer service and operational issues, leading to changes in management and compensation structures.
- The size of the ACCC penalty ($100 million) is significant compared to other regulatory fines in the airline industry, indicating the severity of the alleged misconduct.
- The forfeiture of long-term incentives is a strong signal of accountability, aligning with best practices in corporate governance observed in companies like BHP and Rio Tinto following major incidents.
Stakeholder Impact
- Shareholders will be impacted by the financial penalties and potential reputational damage.
- Employees may experience morale issues due to the negative publicity and executive pay cuts.
- Customers will benefit from the remediation program, but may have lingering concerns about the airline's reliability.
- Suppliers and creditors may face increased scrutiny due to the company's reputational challenges.
Next Steps
- Federal Court approval of the $100 million penalty to the ACCC.
- Determination of penalties and compensation arising from breaches of the Fair Work Act.
- Implementation of the $20 million customer remediation program.
- Inclusion of further details in the Remuneration Report in the 2024 Annual Report.
Key Dates
- September last year: Announcement of 20% reduction in short term incentives for FY23 for members of the Group Management Committee.
- 30 June 2023: Date used to calculate the share price of $6.20 for the forfeiture of the 2021-2023 LTI shares.
- August 2023: 2021-2023 LTIP shares vested.
- 7 August 2024: Qantas share price was $5.97 at the close of trading.
- 8 August 2024: Date of the ASX/Media Release regarding the update on FY23 executive remuneration.
Keywords
executive remuneration, Qantas, short term incentives, long term incentives, ACCC, Fair Work Act, customer remediation, Alan Joyce, governance review
QAN
Qantas Airways Limited
ASX
Sector: Transportation
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