Qantas CEO pay $23.9 million

[dajop]

Yes and no. Yes, in that I agree that investment is what funds things. But there is also an element of "buying stuff" that also allows innovation. For companies (or individuals) to have the time and resources to develop new products, it helps a lot if they can make a good margin at the top end of the range....

As far as innovation goes, I think you’ve got it the wrong way round ... it’s innovation that gives rise to exec pays like this rather than the other way around.

Vast majority of innovation is either around efficiencies and productivity or for the mass market. Yes it needs good margins, but they probably by and large come from the middle class rather than the very small number in the same earning category.

I suspect the biggest exception is in medical care - no doubt those at the wealthiest end of the spectrum are helping to finance the pioneering of new medical treatments - as they are the cutting edge. Also I expect innovations in wines, whiskey , fine dining etc haha but vast majority of product innovation is either targeting middle class consumers or businesses themselves.

 

[juddles]

.......

Vast majority of innovation is either around efficiencies and productivity or for the mass market. ....

I agree with this - that the majority is driven by need for efficiencies, etc. But that still leaves a minority to be funded.

I am not saying that these wealthy people fund all innovation. But they do fund innovation in those specific non-mass areas.

 

[moa999]

I think you also need to look at where this 'pay' came from.

A decent chunk came from long-term options, which were granted when the Qantas share price was closer to $1 and subject to a bunch of conditions.

You can't complain about CEOs remuneration not being linked to share performance, and then complain when a CEO gets well renumerated when a share price goes up 6x

Had the QAN share price performance been the same as VAH over the period, I suspect AJs 'pay' would have been a lot smaller.

 

[juddles]

My posts in this thread were to derail the "usual" responses. Hating high income earners is a truly aussie thing But if I get back to the specific situation of Alan and Qantas, then I have to say he has "earnt" it if you measure things in many ways. Just a few short years ago Qantas was bleeding like a vampire-bat bitten cow. He has taken the company, and despite all the barriers that running an airline has these days, he has driven forward with a force of personal vision that has proven totally correct, and has, IMHO, saved the airline from oblivion. His wage is just a few tiny % points of their turnover. If he had not achieved this change, it could have become another Ansett, with gazillions of QFF points lost to literally millions of average aussie people.

 

[Isochronous]

No, I understand exactly what I am asking you. I am asking you if you really are suggesting that the wealthy spend all (and I'll be fair and walk it back for you a bit, and say even 60%) of what they earn.

For your argument to have any basis whatsoever, you must believe that he spends more than the average worker. That is, the theory that the money would have greater utility if given to the average worker is incorrect because their outgoings are lower than the CEO.

I don't understand how that makes sense? The wealthy tend to amass fortunes, not for the benefit of the people but for the benefit of their dynasties. They also have the means to place their money where the taxman will see very little of it, and they have great resources behind them to ensure that is the case.

This is why trickle-down economic theory fails, because that money does go into a big money pit, in an account in switzerland, earning interest being loaned out to the peasants who can't afford to buy houses with cash.

You seem to think that only consumption benefits society when a stable economy also needs savings and investment in order to prosper. The ability of the average person to obtain a bank loan for a mortgage or a small business or to build infrastructure etc depends on someone investing money in bank shares and depositing their money in banks so it can be lent out.

 

[UP4014]

I'm not sure that trickle-down economics can be argued with a straight face.

More like trickle up economics

 

[TomCC]

I think you also need to look at where this 'pay' came from.

A decent chunk came from long-term options, which were granted when the Qantas share price was closer to $1 and subject to a bunch of conditions.

You can't complain about CEOs remuneration not being linked to share performance, and then complain when a CEO gets well renumerated when a share price goes up 6x

Had the QAN share price performance been the same as VAH over the period, I suspect AJs 'pay' would have been a lot smaller.

A very rational and sensible way of looking at things. Executive remuneration is a highly complex issue that sadly most are incapable of comprehending past a sensationalist headline.

Yes it's a eye-openingly large package but people need to get their heads around the process by which the outcome is achieved and the context of the business, industry and economy before sprouting off.

Has he delivered for shareholders? Absolutely. Has he delivered for customers? Qantas aren't perfect but from my perspective they consistently do an excellent job in getting me A to B very reliably and comfortably. The things that a few get most upset about on here tend to be very peripheral. Are there better airlines out there? I'm sure but then you have to look at the specific context and constraints that he is responsible for dealing with in comparison to say the resources of a state run airline.

 

[jb747]

How is the airline positioned for eventual fleet replacements. From my point of view, it looks like they’re all going to be needed at once. I expect it will be the next CEOs problem.

I'd have thought that a big part of any CEO's job is ensuring a company is well set up for the future. Short term decisions, that may drive up the share price, don't help the company in the long term, but do have the effect of boosting CEO pay when they are paid via share holdings. Basically, I see a conflict of interest. On the other hand, I'd be happy to give a worthy CEO $25 million in cash, but he has to wait 5-10 years for any of it, so that we see the results of his actions. He'll then be paid on hurdles, not from his time, but later, and it would all be based upon his building of the correct foundations.

 

[flyer89]

How is the airline positioned for eventual fleet replacements. From my point of view, it looks like they’re all going to arrive at once. I expect it will be the next CEOs problem.

When he gets around to ordering his FIRST aircraft that is......

 

[juddles]

How is the airline positioned for eventual fleet replacements. From my point of view, it looks like they’re all going to be needed at once. I expect it will be the next CEOs problem.

I'd have thought that a big part of any CEO's job is ensuring a company is well set up for the future. Short term decisions, that may drive up the share price, don't help the company in the long term, but do have the effect of boosting CEO pay when they are paid via share holdings. Basically, I see a conflict of interest. On the other hand, I'd be happy to give a worthy CEO $25 million in cash, but he has to wait 5-10 years for any of it, so that we see the results of his actions. He'll then be paid on hurdles, not from his time, but later, and it would all be based upon his building of the correct foundations.

I understand the feelings behind this, but he has actually been CEO of Qantas now for about 11 years? And the company (as a company) has enjoyed a hugely successful turnaround.

 

[jb747]

I understand the feelings behind this, but he has actually been CEO of Qantas now for about 11 years? And the company (as a company) has enjoyed a hugely successful turnaround.

Has it? Or just the share price?

 

[dajop]

I understand the feelings behind this, but he has actually been CEO of Qantas now for about 11 years? And the company (as a company) has enjoyed a hugely successful turnaround.

That's what the spin doctors would have you believe. I think there's more to it than this.

1) VA/QF "truce" was a big factor in domestic turnaround. Before their capacity war domestic was hugely profitable. After the capacity ware finished, it has been hugely profitable. During, it barely made money. Good luck or good decision? Ultimately QF won this one, proving they were willing to spend more than VA's owners could bear
2) Fuel prices probably a big factor in the turn around of international - along with the much smaller and more fuel efficient (compared to 747's) 787's coming online
3) Major writeoff of international fleet in 2014, making that year look particularly bad ($2.8b loss, including $2.4b write downs)

Yes, he has done well in keeping the ship sailing, and the share price and profitability have recovered exceptionally well - and he has been rewarded for that accordingly. How much of the poor performance, particuarly during 2012-14 were due to "own goals" and recovery due to fuel prices is open for debate.

 

[dajop]

On the other hand, I'd be happy to give a worthy CEO $25 million in cash, but he has to wait 5-10 years for any of it, so that we see the results of his actions. He'll then be paid on hurdles, not from his time, but later, and it would all be based upon his building of the correct foundations.

I'd like to see that for PM's, Premiers + Ministers as well!!! (well not the quantity, but the concept).

 

[juddles]

Has it? Or just the share price?

That is why I wrote "company (as a company)"

In sheer "company" terms it is exactly the share price that is the measure of its success. This is the primary focus and measuring tool for the shareholders who are the people that own the business, and for whom the company exists. Obviously for other people involved in some secondary way with the business, from pilots to baggage handlers to passengers, there are personal desires and perspectives which will often not be aligned with the share-price measure. But they are not the people who pay the CEO.

 

[jb747]

But if the company is smoke and mirrors (and how many are like that), then the share price eventually simply evaporates, and it becomes little more than a Ponzi scheme.

A company’s health is not equal to its share price.

 

[clipped_wings]

But if the company is smoke and mirrors (and how many are like that), then the share price eventually simply evaporates, and it becomes little more than a Ponzi scheme. A company’s health is not equal to its share price.

Totally agree.

I think the biggest hurdle in this discussion, is reconciling the vast divide between an average wage to that of our subject today. 99.99% of us here don't (and never will) earn that kind of dough. So it is impossible to add perspective, except from only one viewpoint. I don't believe we are all tall poppy haters. I don't hate AJ - I quite like him. And I think he is doing a fine job most days.

I am perfectly happy for a CEO to enjoy a realistic remuneration for their efforts. But......when that salary blows so much out of proportion to his actual input - it just loses quantification. Does he really work that much harder than the brain surgeon who holds someone's life in his hands during surgery? Or the farmer who, every single day of his life - gets up at dawn and works his cough off till dark? No.

AJ has an education that's proved a valuable investment. But I will never believe he breaks his back or his mind to justify that level of income.

 

[jgm]

Not bad when you can get it. The CEO of a tin pot little antipodean airline is better paid than any of his US counterparts whose businesses are many times larger.

 

[dajop]

Not bad when you can get it. The CEO of a tin pot little antipodean airline is better paid than any of his US counterparts whose businesses are many times larger.

To be fair, I don't think he is paid better than his US counterparts, but has earnt more than them, with more than half of the reported $23m on the back of options that were granted to him when the share price was less than 1/4 of what it is now ($1.26 vis >$6). 2018/9 his "renumeration outcome" was $10m vs $10.9m the year before. So about $7m USD. By contrast in 2018, Ed Bastian (CEO Delta) made just under $15m USD. if US airlines share prices increased by 4-5x, I am sure their CEO's vesting options would kick them well ahead of AJ.

 

[jb747]

But isn’t that the problem? Has he actually earnt anything? Most of the profit from recent years was used as share buybacks, so effectively putting a portion directly into his pocket.

If he hasn’t set the company up for the future, won’t that share price just evaporate when the market eventually realises. Who knows who will have had the sense to sell out by then. During his tenure all of the company investment has basically been pointed at Jetstar, with QF being allowed to wither on the vine. Jetstar is a good idea, but it shouldn’t be an either/or process. Yes, he’s taken delivery of a few 787s, but they are a small aircraft, and whilst fuel frugal, have only about 60% of the capacity of the aircraft they’re “replacing”. So the upshot is a reduction in capacity, whilst at the same time the non operational part of the company has grown hugely.

How will the share price fare when the market eventually realises that the A330s, 737s, and 380s all need replacement within the same relatively short time frame. I guess I’m not a CEO, and never will be, but I’ve always thought that a constant trickle of replacement aircraft would be much easier to absorb and fund. Pretty much the same with pilot recruitment. Turn the tap off for decade....then a short period flood, and then off again. How does this allow sensible staffing and management of training?

 

[trippin_the_rift]

.....

How will the share price fare when the market eventually realises that the A330s, 737s, and 380s all need replacement within the same relatively short time frame. I guess I’m not a CEO, and never will be, but I’ve always thought that a constant trickle of replacement aircraft would be much easier to absorb and fund. Pretty much the same with pilot recruitment. Turn the tap off for decade....then a short period flood, and then off again. How does this allow sensible staffing and management of training?

Options and bonuses aside - the key point is this:

- Anyone else who is a potential candidate for CEO would demand similar bonus agreements. I can only imagine how lucrative the new Virgin Group CEOs contract is worth!
- CEOs have zero job security. Unlike the rest of QF staff who at least have some.
- The world (markets) we live in (like it or not) values financial performance above all else, and the pay is aligned with those metrics.
- Even folks who agree $23.9M is fair and reasonable won't comment, because they're beaten down by others who have never earned large amounts in their life, have different life goals, and/or suffer from the tall poppy syndrome. Just because you or me or someone else doesn't think $23.9 is fair - does not mean it is not fair. We need to look through other life lenses to fully understand and appreciate varying perspectives. There is no right or wrong.

AJ made an agreement with the board. AJ delivered. Gets paid accordingly. Simple as that. If anything - it's the board who should be questioned.

There are 1000's of other businesses in Australia where CEOs make tens of millions annually. Just that they're not public. Or the owners moved out of Australia to grow the business and get away from the over-regulated bullshit the Government systems put on Australian businesses.

Whatever the case - the only way the 'outrageous' annual salaries will go down is if the market measures listed companies by another metric other than financial success. Perhaps - employee satisfaction? Employee satisfaction of their CEO?