Ryanair offers $112 million for a return flight

By his own admission, the boss of Ryanair Holdings Plc hasn’t done a very good job lately. Over the past 18 months, a scheduling fiasco and labor revolt have forced the budget carrier to cancel thousands of flights, offer better pay and conditions to staff and recognize trade unions.
To his credit, Michael O’Leary volunteered not to take a bonus last year, meaning his pay was 2.3 million euros, 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. It said O’Leary had been awarded 10 million share options that will let him pocket 99 million euros if the company doubles profit over the next five years, or the share price almost doubles to 21 euros.
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.
While 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 euros. The stock is currently 42% below that point, meaning some 10.5 billion euros of shareholder wealth has gone up in smoke. Ryanair made 1.45 billion euros of net profit in 2018, but that’s expected to drop to as little as 1 billion euros 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 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. 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.
While Ryanair has compared O’Leary’s new role to that of Willy Walsh at IAG SA, 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 O’Leary until 2014. Unusually for a European company, Ryanair will also grant share options to non-executive directors. Proxy advisors say this hampers independence.
After the recent outrage about the 75 million pound ($97 million) bonus paid to Jeff Fairburn, the ex-boss of British homebuilder Persimmon Plc, one wonders why Ryanair feels the need to offer this. O’Leary already has a 4.1 percent stake in the company worth a bit more than 500 million euros at current prices. At 21 euros a share it would be valued at almost 1 billion euros. That should give him more than enough incentive to lift his performance.
—Bloomberg

Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times