CEO pay moves can mislead

OH dear. So Qantas CEO Alan Joyce’s pay packet was more than halved in the latest year – from nearly $25 million in 2017 to “just” $11 million.

Did this indicate he – and the airline – had performed badly? That he was being penalised for some misdemeanour? That the board realised it had paid him too much last year? Well, actually, none of the above. It’s just how the disclosure of executive pay packets works out – works out, potentially and in this case actually, so misleadingly.

In fact, it was “business as usual” for both Joyce as CEO and for Qantas. That’s to say, success as usual.

The airline actually had a better year in 2018, building on 2017’s spectacular success. Joyce was simply a victim of that success; if you can call someone who walks away with a pay cheque that runs at over $200,000 a week a “victim”. It’s all down to the rise and rise in the Qantas share price. As I noted last year, Joyce got $25 million but Qantas shareholders got $7 billion.

The biggest component in last year’s pay cheque was rights to some 3.25 million shares that were given to Joyce in 2014 but would only actually deliver shares to him in 2017 – it’s called “vesting” – if he and Qantas succeeded. Otherwise they would evaporate.

When the rights were issued in 2014 they were over shares worth just $4.1 million. When he got the shares in 2017 they were worth $18.6 million. That was easily the biggest part of the $25 million. Precisely because of that success, it’s worked “against him”, so to speak, in the latest year. This year he was getting shares – they were vesting because of the airline’s success – that were awarded in 2015.

Back in 2015 the shares had been worth $3 million. But since then they’ve “only” doubled in value to be worth $5.8 million when they vested this year; when Joyce actually got them.

That’s essentially the big drop in his pay packet – the difference between $18.6 million and $5.8 million. The board didn’t intend to pay him less and the airline’s performance certainly didn’t demand he should have been paid less.

In fact, quirkily, shareholders got richer over the last year by around $1 billion in total, as Joyce was getting paid less.