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- Ghost flights spook Qantas shareholders on top pay - 82% against.
Ghost flights spook Qantas shareholders on top pay - 82% against.
Damian Carnell
December 14, 2023
What’s the Story?
On 24 August 2023, Qantas announced its first full-year profit since Covid.
Pleasingly, underlying PBT was A$2.47 Bn (about USD 1.6 Bn). At the same time a share buy back was announced, as was the acquisition of 24 advanced Boeing and Airbus aircraft. All seemed sunny.
On 20 September 2023, the Annual Report and Accounts were published, but the Chairman’s statement referenced the 31 August court action from ACCC over “ghost flight” allegations (tickets sold post flight cancellation). It recognised an “acute loss of trust from the community” and “disappointment from customers”.
On directors’ compensation, the Chairman explained that the STI 20% customer satisfaction metric was judged at zero, even though parts were achieved. The STI result cut by 20%, and withheld pending developments and “if significant misconduct” was found, the malus and clawback powers might apply. In addition, for 2024, customer satisfaction will apply within the LTIP, and its weight increased in the STI.
On 11 October 2023, Qantas announced board renewal plans to “support restoration of trust in the company”.
On 3 November 2023, the AGM Directors Remuneration Report vote was 82.2% against, with only 14.4% in favour.
Between August and December this year, the Qantas share price fell some 20%.
Why Does it Matter?
Qantas is a consumer facing business, its franchise to trade depends upon the quality of goodwill from its customers, employees and business partners. That means keen attention to goodwill management (AKA ESG) is essential.
The announced annual profit was lost in full by the fall in market capitalisation following the announcement of the ghost flight allegations.
Executive incentives did include customer satisfaction. The incentive format followed that of many companies; the metric had minor independent weight and was judged independently too. However, in this case though, discretion was used to downshift the whole STI result and withhold the payment.
The company Chair flagged the company’s malus and clawback powers; and announced strengthened customer satisfaction incentives for 2024.
And still the vote on executive compensation was lost heavily. Which demonstrates both the sensitivity of shareholders to top pay outcomes in the context of the wider scene, and shareholder recognition of the pivotal role of goodwill for the Qantas business model.
The vote is also a “First Strike” for the Australian Corporations Act 2001, the protocol under which all of the board might need to be re-elected in full, sometime known as “spill the board”.
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Running an airline in a pandemic and its aftermath is enormously difficult. Qantas disputes the ghost flight ACCC claim, and as the matter is contested litigation, its current ability to explore and explain the situation is hampered.
That said, this story demonstrates well that it is not just profit, but how profit is made that matters a lot. Activities which are lawful can still be unethical, and that means they are unsustainable both for delivering ongoing shareholder returns, and often for the planet too. This is the “Lawful but Awful” concept.
ESG factors need active management, first to ensure legal and regulatory compliance to avoid lawsuits and fines etc, but also to ensure company standards are met for brand and culture.
The Qantas executive compensation response included use of downward discretion, withheld payment, flagging malus and clawback powers and up shifting customer satisfaction in incentives for 2024. These are good steps, yet still the vote was lost heavily.
What is not public is how Qantas chose to engage with shareholders in consultation. A flash information and views on initial company response consultation would have been appropriate. A deeper review of revised compensation policy adopted and backdated to the start of 2024, following a more detailed shareholder consultation, might have helped too.
What is also unknown, but would be interesting to know, is how Qantas employee shareholders voted their own shares on the compensation resolution. The deep pool of employee knowledge as to how these issues arose, and how best to untangle them, is a valuable resource for Qantas not to go untapped.
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Damian Carnell - [email protected] +44 (0) 7989 337118
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