Ryanair's Michael O’Leary back on flight path for potential near-€100m payout
Ryanair chief executive Michael O'Leary has long-held 44m shares in the company, which are worth around €730m.
Near record profits and a share price up by more than a third since the start of the year have put Ryanair chief Michael O’Leary firmly back in the cockpit at the airline — for more reasons than one.
At well over €1.4bn, Ryanair’s after-tax profits for its latest financial year — as unveiled earlier this week — didn’t quite reach the heights before the onset of the pandemic, but were nonetheless close enough to suggest that sales and profits would soon be flying even higher.
Hot summer demand, more flights, and higher airfares look likely to offset handsomely an anticipated €1bn uplift in the airline’s fuel bill in this current 2024 financial year. And Ryanair has predicted that passenger numbers will likely increase 10% to 185m, likely also delivering a double-digit percentage increase in profits.
That’s an impressive performance for an airline whose fleet was all but grounded for the best part of two years, and comes despite its European customers facing their worst financial squeeze for over a decade, amid the worst inflation crisis since the 1970s.
And with bookings and ticket sales booming for the hugely profitable peak summer months, Ryanair is also tipped — all going well — to go on and break through the €2bn annual profits barrier some time over the next few years.
That €2bn figure has taken on huge significance. In 2019, Mr O’Leary and his employer struck a first version of an eye-catching contract. The rebound in Ryanair’s fortunes means Mr O'Leary is back on course to secure a potential bonus of almost €100m in the coming years, under the options plan, should he deliver on profits and share-price targets.
As tracked by the during the covid years, Mr O’Leary may never have been too much off course from hitting the targets even as the pandemic flared.
The terms of the original 2019 contract had caused a bit of turbulence at the time. That’s because so-called proxy advisors to institutional shareholders — the people who invest billions in stock market companies on behalf of huge pension pots — are vigilant should the pay and shares-based incentives of CEOs and other executives of listed companies, as the jargon goes, become "misaligned".
Back in 2019, Ryanair shareholders approved, by a big majority, the incentive plan that could, in time, pay out almost €100m to the CEO, but not before some institutional shareholders were advised to vote it down. In December, Ryanair and Mr O’Leary agreed on revised terms.
Under the original 2019 accord, which was due to lapse in 2024, Mr O'Leary was due to be granted the option of buying 10m shares at €11.12 each, if annual profit rises to €2bn or if the share price rises to €21 for 28 days.
Under the new agreement, the profits target was increased to €2.2bn, while Mr O’Leary committed to stay longer, until the summer of 2028.
Mr O’Leary has been a director at the airline for 35 years. He has held the top job since 1994, and subsequently led the company to a stock market debut. The new contract means the 62-year-old is now due to be at the airline beyond the age he qualifies for the State's free bus and train pass.
Stan McCarthy, the Ryanair chairman, had said in December that the latest iteration of the contract involved “extensive engagement with large shareholders and proxy advisors”, possibly a hint that the voices of some shareholders in 2019 had been taken on board.
“If these targets are not achieved, then these share options will lapse and MOL [Michael O’Leary] will receive nothing other than his basic salary,” the company said in the December statement.
It also confirmed that the contract and the share-options plan would be put to a vote of shareholders at the next annual gathering in September.
Regarding the annual pay packet, Mr O’Leary is famously not among the best-paid of his stock market peers. He was paid €500,000 last year which, with a €480,000 bonus, brought his total cash pay to €980,000. That's up from the €250,000 he got in 2021 when no bonus was paid during the covid crisis.
The company had said last year that “for fiscal year 2021, as part of the group’s response to the covid-19 crisis, the group CEO volunteered a further 50% cut to his base pay to €250,000 [from €500,000] and also volunteered that zero bonus would be paid in relation to fiscal year 2021”.
Ryanair shares were trading this week at €16.60. The airline’s rebound is in no little way marked by the 3% uptick in the shares in the past week, the 12% gain in the past month, and their 36% ascent since the start of the year, which brings the airline close to an €18.9bn valuation on stock markets.
The financial results have also whetted investors’ anticipation for the resumption of dividend payments by the airline.
Mr O’Leary has long-held 44m shares in the company, which are worth around €730m. The stake marks the CEO as among the top 10 single largest shareholders in the company, along with large institutional investors.
The airline’s recovery has almost erased memories of the late 2017 fiasco when Mr O’Leary faced a huge crisis over its pilots. The crisis forced the airline to cancel flights, but did little to dent its profits.
Fast forward and the airline is now in the tailwind of aviation’s recovery. This week’s results also marked another milestone: Ryanair revealed it held €560m in cash, albeit because of delivery delays to existing plane orders.
That showed the airline had made a good start to meet the enormous bill it faces for the 300 fuel-efficient Boeing Max-10 planes, including firm orders and options. It wants to take delivery of the planes starting in early 2027 through to 2033.
Investors will be watching closely. Share prices tend to move in anticipation of ground-breaking corporate events, and the size of the order for the Boeing Max-10 planes is, by any measure, a significant corporate event. And Mr O’Leary could well be on the flight path to collect his near-€100m shares bonus well before 2028.
Meanwhile, the prices of all sorts of goods and services charged by big companies, and in particular by the oil and gas giants, are being put in the spotlight by shareholders and their proxy advisors.
One such proxy advisor is London-based Pensions and Investment Research Consultants (PIRC). It uses a variety of metrics, including calculating the ratio of CEO pay to average company pay, to assess whether firms are meeting their obligations to shareholders, including climate change targets.
At the Ryanair shareholders' meeting in 2019, PIRC recommended its shareholder clients reject the shares incentive plan for Mr O'Leary. Ryanair won the 2019 resolution, and PIRC said it was too early to say what its advice will be when the revised contract comes up for discussion in September.
On climate change, the role of proxy advisory firms such as PIRC has accelerated since the clinching of the Paris climate accord in late 2015.
PIRC was involved on behalf of clients ahead of Shell’s shareholder meeting earlier this week. Paul Hunter, head of policy at PIRC, and a specialist in ESG (environmental, social, and governance issues) said that PIRC had advised Shell shareholders, among other recommendations, to oppose the appointment of the Shell chairman because of concerns over oil giant's climate targets. Shell says that its targets are fully aligned with the Paris Accord.
PIRC had adopted much of the same policy recommendations at the BP shareholders meeting last month.
On pay, the spotlight has fallen on companies since the onset of the inflation crisis because of the windfall revenues and profits some energy firms were generating through no discernible efforts of their own. Factors outside executives’ control can decide their pay awards, Mr Hunter said, adding that opaque emission targets set by some companies to justify pay for top bosses were causing concern.
The next big shareholder meeting for a big energy firm is when Centrica, the owner of British Gas and Bord Gáis, hosts its gathering in mid-June.
Centrica chief Chris O’Shea was last year paid a total of £4.5m (€5.2m), including a long-term incentive plan of £2.2m.
Other energy giants under scrutiny include BP and Shell.
BP chief Brendan Looney was last year paid a total of £10m, with the bulk accounted for performance shares and an annual bonus. The shares of BP have risen by 13% from a year ago, to give it a market value of £85.5bn.
Shell boss Ben van Beurden, who has stepped down from the energy giant, was paid a total of £9.7m, including almost £2.6m in the form of an annual bonus. Shell has a market value of almost £163bn.
Among the food and grocery giants, Unilever chief executive Alan Jope got an annual pay packet of €5.4m, which includes €3.1m in an annual bonus. However, half of the net annual bonus was deferred into shares.
Unilever is valued at €123bn, with its shares having soared almost 20% from a year ago.
Closer to home, the pay of CRH chief Albert Manifold has rarely been out of the headlines.
Mr Manifold last year was paid a total of €12m, with the bulk being accounted for by a cash bonus, a shares bonus, and a long-term incentive plan. The shares have climbed 21% from a year ago, to value the building materials giant at €33bn.
