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The share price of Qantas Airways Ltd (ASX:QAN) is currently under the spotlight following the airline’s recent announcement regarding a substantial reduction in the remuneration of former CEO Alan Joyce. This move comes amid a challenging period for Australia's largest airline.
Background of the Remuneration Cut
In September of the previous year, Qantas Airways' board had already indicated a 20% reduction in short-term incentives for FY23 for members of the group management committee. This decision was influenced by the significant challenges facing the airline and the impact of several cumulative events on Qantas’ customer service and brand reputation. As an ASX industrial stock, Qantas' adjustments highlight the broader pressures within the sector.
The airline has faced considerable scrutiny due to legal issues and customer complaints. Notably, the Australian Competition and Consumer Commission (ACCC) initiated proceedings against Qantas, which led to the airline admitting to misleading customers about flight cancellation processes. As part of a settlement, Qantas is set to pay a $100 million penalty, with an additional $20 million allocated for customer remediation. Further penalties and compensation related to breaches of the Fair Work Act are still pending.
Details of the Pay Cut
Following a review, Qantas found that while there was no deliberate wrongdoing, mistakes made by the board and management contributed to significant reputational and customer service issues. As a result, the board has decided to reduce Alan Joyce’s remuneration by $9.26 million. This reduction largely pertains to the long-term incentive plan, where Joyce will forfeit 100% of shares valued at $8.36 million, related to the 2021 to 2023 incentive period. This decision reflects his overall accountability and responsibility for the business outcomes during his tenure.
In addition, the board has opted to cut the short-term incentives for affected current and former senior executives by 33%. Current non-executive directors who were on the board at the time will also see a 33% reduction in their remuneration.
Implications for Qantas
This significant pay cut represents a rare instance of a leader being financially penalized for the broader issues affecting a company. Qantas has been working diligently to repair its reputation and address customer concerns. The airline’s decision to implement these reductions highlights its commitment to accountability and its recognition of the impact that recent challenges have had on its shareholders.
While Qantas may not be positioned as a growth or dividend stock at present, the recent actions could indicate a shift toward improved financial management and operational efficiency. If travel demand remains robust in the coming years, there may be potential for the Qantas share price to reflect a more favorable valuation.
Investors and market watchers will be keenly observing how Qantas navigates this period of transition and whether the measures taken will contribute to restoring confidence in the airline's future performance.
