$ 25m man
Alan Joyce takes off as our top to paid executive
Qantas has rushed to defend Alan Joyce’s windfall gains from the airline’s dramatic turnaround, with the chief executive almost doubling his pay last year to $24.6 million while average wage growth across the economy remains weak.
Mr Joyce, who revealed this week he personally had donated $1m to the same-sex marriage Yes campaign, also disclosed yesterday he had reaped $20m from selling 3.5 million Qantas shares on Monday and Tuesday.
He retains 3.6 million shares, which still ranks him among the company’s top 20 shareholders.
Sensitive to the fact Mr Joyce could end the financial year as the nation’s top-paid executive, Qantas chairman Leigh Clifford defended the airline’s pay practices.
He said 97 per cent of shareholders had supported a 2014 proposal to link senior management bonuses to Mr Joyce’s $2 billion turnaround plan.
“For a business that was facing an uncertain future three years ago, and was in no position to pay bonuses to any of its people, the fundamentals that underpin (yesterday’s) pay disclosures show how far we have come,” he said.
While the pay outcome was “high”, it reflected the company’s exceptional performance, including its top ranking for total shareholder return (share-price growth plus reinvested dividends) among global airlines and the top-100 listed companies in Australia.
In 2014, Qantas was a distressed airline, reporting a record $2.8bn loss after a profit-sapping war against local rival Virgin and persistent losses in its international division.
Mr Joyce, whose base pay has been frozen since 2011 and was $2.1m last year, gave up 5 per cent of his base pay for the 18 months to June 2015.
The sharp fall in fuel prices has been a big tailwind for Qantas, boosting its underlying profit by $400m in 2016 and a further $196m last year. However, the airline has shed thousands of jobs, restructured its international division and reinvested heavily.
Last month, it unveiled its second-biggest profit, an underlying pre-tax profit of $1.4bn. All transformation targets were achieved.
Mr Clifford said Qantas was now one of the best-performing airlines in the world.
The share price had risen by 350 per cent since the dark days of 2014 as market value surged from $2.5bn to $10bn. In the same period, about $3.5bn in profit had been generated, he said.
“And the value of executive bonuses, which are mostly paid in Qantas shares, have risen with it.”
This meant shares worth $1.26 when they were awarded in 2014 were being paid out in bonuses today when they’re worth $5.72. In Mr Joyce’s case, share-price growth accounted for $14.5m of his $24.6m pay package.
Mr Clifford said the success of the turnaround had resulted in $220m being paid in bonuses to 25,000 Qantas staff in the past three years. However, the bon- uses were likely to be much lower in future.
One of Qantas’s big shareholders, BT Investment Management, strongly supported Mr Joyce’s remuneration as pay for performance.
“Alan Joyce has navigated the company through a period of corporate distress, has successfully competed through a domestic capacity war and transformed the company’s cost base,” BT investment analyst Sondal Bensan said.
“All of this has resulted in a sustainable and significant windfall for shareholders, and hence he is being paid for performance.”
Ownership Matters principal Dean Paatsch, who advises big institutions how to vote their shares at company meetings, agreed.
“Alan Joyce’s pay is a big number by any stretch,” he said.
“But the Qantas share price has quadrupled and his experience mirrors that of very happy long-term shareholders.”
A champion retires at the top and that’s what Neville Power has done at Fortescue Metals, having helped establish the third force in iron ore with his predecessor and chair Andrew Forrest.
The Mt Isa native will leave in February and no doubt spend some more time on the family cattle property while working out what to do next.
Forrest took a risk with Power seven years ago, but he has repaid that faith in spades, deleveraging the company, cutting costs and boosting production to its present rate of 170 million tonnes a year, up from 55 million in 2011.
Forrest is still talking diversification from iron ore without saying just where to, and his choice for the next boss may tell the story.
Right now the internal choice is between finance boss Elizabeth Gaines and operations director Greg Lilleyman.
Joyce takes home $25m
Qantas boss Alan Joyce last year earned $25 million or the same as 312 staff on average pay of $80,000 a year, but in many respects his pay packet was the poster child of how executive pay should work.
Back in 2014, when the stock was $1.40 and he was running around Canberra looking for debt deals, the board changed his pay to increase the weighting given to long-term equity, so his 3.2 million share rights on yesterday’s close of $5.84 increased in value by 5.8 times. The idea being if his transformation plan worked everyone wins and — apart from the 5000people who lost their jobs — everyone has.
His fixed pay and short-term bonus gave him $5.8m to pay the rent and the big bonus came with everyone else enjoying the ride.
That’s the good news — the bad news is, of the 3.75 million shares he picked up in this year’s allotment he sold 3.5 million for $20.4m.
The rule of thumb says a CEO should have at least two times his or her base pay in stock and with 3.6 million shares left Joyce has $21m worth of Qantas shares or 10 times his base. Granted Joyce regularly sells shares, but it’s not a good look for a CEO to be selling stock because it makes it look like this is the top of the market.
Donhad deal probed
The ACCC is investigating whether US private equity group American Industrial Partners can buy a monopoly in the Australian grinding ball market, with its acquisition of Perth-based Donhad.
American Industrial last year acquired Moly-Cop from KordaMentha (the administrator for the failed Arrium Group) for $1.6 billion. Moly-Cop and Donhad are the two main companies making grinding media for the mining industry. It is used in sectors ranging from gold to iron ore and it is likely big miners like Rio and BHP will have a say in whether this deal can proceed.
Arrium used to have a 40 per cent stake in Donhad but was forced to sell the stake as part of its 2009 acquisition of Smorgon Steel, which came with 100 per cent of Moly-Cop. Its sale to American Industrial helped KordaMentha achieve a successful reorganisation of Arrium, culminating in the July sale of the Whyalla steel works to Britain’s Liberty House for $700m.
Google under watch
As part of its media reform deal the federal government has agreed to get the ACCC to look at just what role Google and Facebook play in the media industry.
This is obviously a key issue and in many respects the outcome will potentially have more impact than whether Kerry Stokes buys Fairfax Media or whatever deals are done now the cross-media rules are changing.
Back in June, European Commission competition tsar Margrethe Vestager won a case against Google for promoting its advertisements over others. Comparison shopping may not be the centre of the universe, but the $3.6bn fine levied against Google was a landmark competition law case and the first to really hit an internet superpower. No surprise to see Google has lodged an appeal.
The reality is Google controls one important internet pipeline and this means it has an obligation not to block the pipeline with its own offshoots.
Likewise, just how it uses this pipeline has extraordinary ramifications for the media industry.
The study adds to the list of market study-type projects before the competition regulator, which shows just how its role is changing.
In the next couple of weeks it will hand to the government its in- terim report on the electricity market, another gas report, by November a dairy industry report, early next year a report on how the banks are handling the bank levy as part of an overall brief on bank competition, another on North Queensland insurance, and then its own reports on the car industry and telecommunications — just for starters.
The ACCC is primarily an enforcement arm of government so if a company is breaching the competition rules then it should have it in court. To be fair, it has just commenced its second case against a big business for allegedly not complying with the fair contracts law which came into effect late last year.
The action is against office manager Servcorp and follows a case earlier this month against rubbish remover JJ Richards. It promises cartel action and was in court on Friday on its Murray Goulburn case, but too many special reports will divert attention from the main game.
Ruling on Ten due
Supreme Court Justice Ashley Black will on Monday hand down his decision in the Ten administration case, settling a few key issues like whether the disclosure in the KordaMentha report was adequate.
This takes on a new meaning now Bruce Gordon and Lachlan Murdoch have increased their bid to $55m, against the $32m from CBS, and a vastly simplified deed of company arrangement with just two classes of creditors against four for CBS. The argument is the creditors should have the ability to see both offers and make up their minds and Korda Mentha should only intervene where the creditors can’t agree.
The issues before Justice Black include whether CBS is entitled to vote on its bid for control, whether it is possible to have four different classes of creditors and what is the role of the administrator in putting deeds to creditors.
Wesfarmers chair Michael Chaney should declare at next week’s board meeting whether to submit his name for re-election to the board along with either Paul Bassat or Diane Smith Gander.
Two of the three must submit to a vote under the company constitution, which says one-third of the board must stand for re-election every year.
Former finance chief Terry Bowen has already stood aside and now his successor Anthony Gianotti will join the board.
This allows just two directors to be forced to stand again given there are eight non-executive directors excluding outgoing boss Richard Goyder (to be replaced on the board by his successor Rob Scott.)
Nineteen-year veteran James Graham has said he will step down next year and another old timer, stalwart Tony Howarth, was reelected for three years last year.
This should be his last term as director given the rule of thumb which says three terms is enough.
Bowen will shortly join the BHP board while also joining Ben Gray and Robin Bishop’s new private equity firm when he returns from a brief sojourn in Harvard, presumably at Wesfarmers’ expense.
ALAN JOYCE, QANTAS $24.6m
$21.6m PETER AND STEVEN LOWY, WESTFIELD CORPORATION
$22.2m CHRIS REX, RAMSAY HEALTH CARE
$18.7m NICHOLAS MOORE, MACQUARIE GROUP
$12.7m LOUIS GRIES, JAMES HARDIE