Shares award to Ryanair's O'Leary could bag him €99m

Little gain for airline's shareholders in gift that requires him to return the stock to a level only slightly higher than where it was in 2017

Michael O'Leary, chief executive officer of Ryanair Holdings Plc, reacts during a news conference in London, U.K., on Wednesday, Sept. 12, 2018. O'Leary told the news conference that he won't "roll ovShow more

By his own admission, the boss of Ryanair hasn’t done a very good job lately.

Over the past 18 months, a scheduling fiasco and labour revolt have forced the budget carrier to cancel thousands of flights, offer better pay and conditions to staff and recognise trade unions.

To his credit, Michael O’Leary volunteered not to take a bonus last year, meaning his pay was €2.3 million (Dh9.5m), pretty unexceptional by executive standards.

However, just days after announcing its first quarterly loss since 2014, Ryanair has decided the time for modesty is over. Late on Friday, it said Mr O’Leary had been awarded 10 million share options that will let him pocket €99m if the company doubles profit over the next five years, or the share price almost doubles to €21.

Ryanair has got one thing right here: Its share option plan is admirably clear, unlike at other large companies where monstrously complicated director incentives seem designed to bamboozle shareholders and keep remuneration consultants in work.

Beyond that, it’s hard to know why Ryanair shareholders would support this.

While Mr O’Leary has done pretty nicely for investors over the decades, the latest incentive plan requires him to return the stock to a level only slightly higher than where it was in 2017 – when it hit a peak of €19.39. The stock is currently 42 per cent below that point, meaning some €10.5 billion of shareholder wealth has gone up in smoke. Ryanair made €1.45bn of net profit in 2018, but that’s expected to drop to as little as €1bn in the fiscal year that ends in March.

Ryanair’s clumsy approach to labour relations has played a part in the profit and share price rout, so it’s reasonable to ask why Mr O’Leary would be so handsomely rewarded partly for fixing his own mistakes.

Of course, there are other reasons why the stock is in a rut, including an industry-wide capacity splurge that’s squeezing fares. That argument cuts both ways, though. There are many factors that might cause Ryanair’s shares to rise over the next five years that have nothing to do Mr O’Leary’s managerial skills, such as lower oil prices, a booming economy or the collapse of rivals.

Investors might also ask why he’s being awarded double the number of share options that were granted under a previous five-year option plan. True, the old plan will probably turn out much less lucrative than it might have been, because of the falling share price, but that’s no reason to offer more now to an under-performing manager.

Arguably, he deserves less. Following a governance overhaul, Mr O’Leary will soon give up day-to-day running of the Ryanair airline and will instead oversee things like M&A, aircraft purchases and capital allocation at group level. There’s plenty to keep him busy, but the new role sounds less demanding. While Ryanair has compared Mr O’Leary’s new role to that of Willy Walsh at IAG, the Irish company is simpler. Ryanair carries more passengers than IAG, but IAG owns a mixture of long and short-haul airlines.

Of course, it’s hard to imagine Ryanair’s board telling him that. The chairman of the remuneration committee is Howard Millar, Ryanair’s former chief financial officer who took orders from Mr O’Leary until 2014. Unusually for a European company, Ryanair will also grant share options to non-executive directors. Proxy advisers say this hampers independence.

After the recent outrage about the £75 million (Dh354.2m) bonus paid to Jeff Fairburn, the ex-boss of British homebuilder Persimmon, one wonders why Ryanair feels the need to offer this. Mr O’Leary already has a 4.1 per cent stake in the company worth a bit more than €500m at current prices. At €21 a share it would be valued at almost €1bn. That should give him more than enough incentive to lift his performance.

But the new plan flies in the face of attempts to tackle excessive boardroom awards.