$ 25m man

Alan Joyce takes off as our top to paid ex­ec­u­tive

The Weekend Australian - - FRONT PAGE - RICHARD GLUYAS

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.

Chaney’s call

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.







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