Ryanair's chief executive Michael O'Leary is confronting a potential shareholder revolt over a proposed bonus package that could be worth over £130 million (approximately $140 million USD based on current exchange rates).
Bonus Proposal and Shareholder Concerns
In June, Ryanair announced that O'Leary, who has led the budget airline since 1994, had agreed to extend his tenure until 2032. Under the terms of this agreement, O'Leary stands to receive a significant share payout if he remains with the company for the next six years and specific performance targets are met. These targets include Ryanair's annual profit exceeding €4 billion or its share price surpassing €42 for 28 consecutive days. Currently, Ryanair's stock is trading at €23.30.
While Ryanair asserts that these targets will generate substantial value for investors, the advisory firm ISS has recommended that shareholders vote against the proposed package at the airline's upcoming annual meeting. ISS acknowledged positive aspects of the scheme but expressed significant concerns regarding the "potentially very large" payout. The firm highlighted that if the target share price were achieved, O'Leary could acquire shares worth €420 million for €267 million. ISS also noted that using the share price as a benchmark could lead to the payout being triggered by macroeconomic factors beyond O'Leary's direct control. Furthermore, meeting the profit target for only one year does not penalize the CEO if performance declines in subsequent years.
Another advisory firm, PIRC, has also recommended rejecting the proposals, citing "material" concerns about the pay plan.
Airline Industry Headwinds
The brewing opposition to O'Leary's bonus comes at a challenging time for the airline industry. The sector is grappling with the repercussions of geopolitical events, including the Iran war, which has caused fuel prices to surge and disrupted travel across Europe. Last week, Ryanair issued a warning that airfares in Europe might increase if high global oil prices persist into the summer, potentially leading to the collapse of some rival airlines.
These concerns about rising fuel costs have led carriers to maintain or reduce capacity ahead of the slower winter season. Ryanair itself has revised its traffic forecast for the current financial year, lowering it to 214 million passengers from 216 million to mitigate exposure to unhedged oil prices during the winter months. Profits are also anticipated to fall below last year's record levels.
The current market conditions present a greater challenge for O'Leary in meeting the targets for his bonus. Ryanair's share price has declined by 22% year-to-date, following a record high of nearly €30 on the Dublin stock exchange in early January.