EasyJet war of words takes off as Stelios fires bonuses broadside

Published on Saturday 21 January 2012 01:53

BUDGET airline EasyJet was yesterday drawn into another war of words with founder and majority shareholder Sir Stelios Haji-Ioannou who claimed that its directors manipulated performance targets to trigger a multi-million-pound windfall for executives.

In a letter to the Prime Minister earlier this week, Sir Stelios said the definition of “capital employed” used by the EasyJet board had been distorted to ease the release of a £7 million pay-out for executives. Responding yesterday, EasyJet described the accusation as “inaccurate, inappropriate and misleading”.

Stelios told David Cameron he was “shocked” that EasyJet directors plan to pay themselves bonus shares by achieving a Return on Capital Employed (ROCE) of 12 per cent, “when in fact the true number is closer to 4 per cent”.

“The revised calculation encourages risking more of shareholders’ money as the assets and the debt somehow cancel each other out,” Stelios argued. “So buying Airbuses with 100 per cent finance does not increase the capital employed.”

EasyJet – headed by chairman Sir Mike Rake and chief executive Carolyn McCall – says it adopted ROCE as a performance measure at the encouragement of Stelios.

“His attack on EasyJet is at odds with the clear success of Britain’s biggest airline,” the company said.

“2011 was a record year for EasyJet – it achieved its best ever operational performance, highest ever passenger numbers, high levels of customer satisfaction, highest ever profits and shared this success with shareholders when it announced a total dividend of just under £200m.”

The claims and counter-claims are the latest in a clash over strategy that has rumbled on for more than three years, with Stelios insistent that EasyJet is recklessly expanding its fleet in a depressed market.

Though he has not had outright control of EasyJet since the company’s London listing in 2000, the Greek Cypriot and his family still speak for some 38 per cent of EasyJet’s shares, allowing him to take directors to task over what he sees as mismanagement, even after his departure from the board in 2010.

News of his missive to the Prime Minister emerged in the wake of a speech by Cameron in which he acknowledged the public’s loss of faith in free market capitalism. Cameron is seeking to increase shareholder power over directors’ remuneration, with Business Secretary Vince Cable due to unveil measures next week aimed at taming executive pay.

EasyJet said it welcomed the government’s desire to link directors’ returns and shareholder awards to successful performance.

“We have made every attempt to meet Stelios to discuss this and other matters and he has consistently refused to do so,” the company said. “We continue to seek to engage with Stelios in a constructive, private basis as we do with all our other major shareholders.”

Responding last night to an e-mail from The Scotsman, Stelios emphasised that he was not attacking EasyJet: “I am attacking the Mike Rake regime and the other City fat cats.

“The Mike Rake definition of ROCE is not widely accepted. It is the only one that makes capital employed a lower sum than equity so directors can get more cash, more easily and as a reward for mediocre performance.”

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BigglesFliesUndone

Monday, January 30, 2012 at 02:10 AM

I am a senior easyJet pilot who has worked there for many years. In common with nearly every easyJet pilot I know, I am grateful for Stelios's past contributions to easyJet's success. It is, however, the almost universal view of pilots at easyJet that Stelios's insistence on a constant series of public attacks on our Chairman, Board Members and CEO are extremely ill-advised and unnecessarily damaging to the business. Carolyn McCall is highly thought-of by the pilot community, who appreciate her very positive contribution to easyJet's success. That is not to say there are no issues to resolve, but she is recognised as being someone who both looks after the business and her employees. What Stelios neglects to mention is that he and his family are about to receive a huge dividend worth around £60m (depending on whose figures you believe). In addition he receives every year a 0.25% of profit fee for the easyJet name - last year worth seveal million pounds. It is the widespread view of easyJet pilots that Stelios is increasingly irational in his attacks on his own Company and has become the single biggest threat to our future success. There is simply nothing anyone can do to appease him, and therefore we should not try. It is our genuine desire that he will keep his concerns out of the public domain and just move on with his life.

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mahatmacoat

Saturday, January 21, 2012 at 08:36 AM

Bosses bonuses should be shared like for like by the workforce. £7M split equally would temper the bosses greed.

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