The board of Qantas (QF, Sydney Kingsford Smith) has slashed former CEO Alan Joyce's final pay packet by AUD9.26 Australian dollars (USD6.11 million) following a governance review that blamed, among other things, his leadership style for reputational damage and customer service issues at the carrier during and after the pandemic.
The sanction against Joyce, who departed the airline early in September 2023 amid a backlash to a string of PR disasters, includes both the forfeiture of AUD8.36 million (USD5.51 million) in shares from a long-term incentive plan (LTIP) and a 33% cut in his short-term incentives amounting to AUD900,000 (USD594,000).
Additionally, the board reduced the short-term incentives for other current and former senior executives by 33%, resulting in an overall reduction of management remuneration of about AUD4.1 million (USD2.7 million) for the 2023 Financial Year.
The board's action, announced on August 8, reflects the impact of a series of legal challenges and regulatory issues that the airline faced during Joyce's final year, which resulted in the governance review commissioned in October 2023. It also follows Australian Competition and Consumer Commission (ACCC) proceedings and an Australian High Court finding about breaches of the country's Fair Work Act when Qantas outsourced ground handling work.
The board said that while the governance review did not find any deliberate wrongdoing, it found "that mistakes were made by the board and management which contributed to the group's significant reputational and customer service issues".
The board elaborated: "The events that damaged Qantas and its reputation and caused considerable harm to relationships with customers, employees and other stakeholders were due to several factors. As part of a settlement with the ACCC, Qantas has admitted to misleading customers about flight cancellation processes and, subject to Federal Court approval, will pay an AUD100 million [USD66 million] penalty. Qantas has also agreed to a AUD20 million [USD13 million] customer remediation programme. Penalties and compensation arising from breaches of the Fair Work Act are still to be determined."
Findings of the review
The independent review by business adviser Tom Saar highlighted critical problems at Qantas including delayed flights, lost baggage, and long call centre wait times; issues with managing customer Covid credits and post-Covid pricing; legal challenges such as ACCC proceedings over cancelled flights and a High Court ruling against Qantas for unlawful outsourcing of ground handling; media controversies; senate committee appearances and Qatar Airways' capacity expansion; concerns over support levels for front-line employees; the sale of a large share parcel by the chief executive in June 2023; and negative response to executive remuneration at the 2023 annual general meeting.
Saar pointed to what he considered to be a number of root causes:
- Culture: A discrepancy between Qantas' safety culture and the broader leadership culture, leading to a focus on financial performance over stakeholder and non-financial risks;
- Leadership style: Top-down leadership with a dominant CEO, resulting in insufficient feedback and low staff morale;
- Corporate governance: Imbalance in the board's engagement with management, lacking effective challenge;
- Covid impact: Inadequate appreciation of the cumulative effects of Covid-related decisions on the company and stakeholders; and
- External communications: Combative external communications that worsened issues.
In particular, the governance review flagged that excessive deference to a long-tenured CEO, who had successfully managed previous crises, led to insufficient scrutiny and challenge on certain issues.
"The group held a 'command-and-control' leadership style with centralised decisions and an experienced and dominant CEO. This contributed to a top-down culture, which impacted empowerment and a willingness to challenge or 'speak up' on issues or decisions of concern except in relation to safety matters," it said.
Saar found the board's engagement with management sometimes lacked robust debate, and critical issues could have been raised earlier with the board for more thorough discussion. The review also advised that share sales by non-executive directors, the CEO, and the group leadership team should only occur in exceptional circumstances, and enhanced scrutiny was needed for proposed share transactions by these executives.
The board said Qantas' group-wide code of conduct and ethics policy, market disclosure committee formation, and conflict of interest provisions had been updated to align with leading practices. Amendments to the share trading policy and minimum shareholding guidelines now require approval from the board chair and audit committee chair for any CEO share trading. Whistleblower procedures have been enhanced.
