Between 2001 and his retirement in 2009, Geoff Dixon was, in cash terms, the highest paid airline executive in the world. In 2008, shortly before his retirement, Dixon was paid $12.1 million. This included a “retention payment” of $4.5 million. Clearly, the retention payment did not have the desired effect with Dixon’s services retained for less than one year. In 2009, even though Dixon only worked for three months, he received “base pay” of $1.9 million and total remuneration of $10.7 million.
That seems like an awful lot of money for four months’ work — especially since Dixon’s successor, Alan Joyce, received a fixed salary of $1.7 million and total remuneration of a miserly $3.7 million (a drop of 28%). Somewhat unusually, Qantas felt the need to pay Dixon more than $3 million to compensate him for changes to superannuation laws as well as a $657,000 termination payment. The termination payment was especially generous given that Dixon wasn’t terminated, but rather, he left in a huff when his potential private equity riches evaporated. (Dixon wasn’t the only very well remunerated Qantas executive — the affable Kevin Brown, Qantas head of Human Resources, was paid more than $7 million for 18 months’ work until February 2009. His role primarily consisted of sacking workers and ensuring that Dixon was very well paid).
Despite the largesse handed to Dixon, Qantas’ performance in recent times has hardly been outstanding. Last year, Qantas’ profit slumped 88% to $117 million. Had it not been for its frequent-flyer scheme (which Dixon wanted to sell), the business would have recorded a loss last year (Qantas still delivered a second-half pre-tax loss of $107 million). Qantas share price has fallen from a peak of more than $6 in early 2007 to a low of $1.38 in March — Qantas has since recovered to $2.78. When Dixon became CEO in 2001, Qantas’ share price was more than $3.
In 2006, Dixon entered into a secretive deal with a private consortium consisting of Macquarie, Texas Pacific, Onex, Allco and Allco Equity Partners to undertake a controversial leveraged buyout of the airline at the height of the private equity boom. When the buyout was unveiled, Dixon sought to ease public anger by very publicly proclaimed that he would “donate” $60 million of his long-term incentives (which were far from guaranteed and had the buyout proceeded never would have eventuated in any event) to charity.
Dixon neglected to mention that had the takeover completed he would have immediately reaped $8 million for incentives that would otherwise never have vested. (Fortunately, the private equity bid failed due to lack of shareholder support, had it succeeded, the dramatic drop in Qantas’ cash-flow combined with what would have been more than $10 billion debt would have crushed the airline).
Perhaps part of the reason for Dixon’s remuneration windfall was due to the perpetuation by lazy analysts and commentators of one of the great myths of Australian business: that Geoff Dixon was an elite business executive. The theory was even promoted by the APA consortium, which effusively praised the management of Qantas when launching its ill-fated leveraged buyout.
The reality is that Dixon’s performance as CEO of Qantas was ordinary. Between 2002 and 2008, with Dixon at the helm, Qantas underperformed the MSCI World Airline Index (see except below from Qantas’ own 2008 Annual Report) — the MSCI index is made up of global airlines hardly known for providing outstanding shareholder returns. Further, Dixon and Qantas had advantages not enjoyed by many competitor airlines, including as monopoly or duopoly rights to most destinations (especially the profitable Pacific route) as well as the collapse of its main rival, Ansett, in 2001.
Source: Qantas 2008 Annual Report
While Dixon is lauded for the creation of Jetstar, this was hardly a ground-breaking achievement: Southwest Airlines (based in Texas) utilised a low-cost model and since its creation in 1971 has been the most profitable airline globally. The model was later fine-tuned by Ryanair and EasyJet in Europe. It was only in 2003 that Qantas finally created a budget subsidiary to compete with Virgin Blue in Australia.
While Dixon’s performance was mediocre, his pay has been world beating. What’s more, had the private equity bid not been thwarted by a US-based hedge fund manager failing to submit his acceptance in time, the Dixon led-Qantas would have almost certainly collapsed last year under a mountain of debt amid collapsing cash-flow.
The irony of Dixon’s millions has certainly not been lost on Qantas’ ordinary workforce (currently battling with management for a 10% pay rise), forced to endure years of sackings and meagre pay increases while its overrated executives collected millions looking on from the first-class lounge.
Meanwhile, Glenn Dyer writes:
No wonder Qantas is holding its annual meeting in Perth on the 21st of next month. It’s a case of out of sight and out of mind after slipping former CEO Geoff Dixon a cool $10 million-plus to ease the pain of retirement.
It’s a destination that most eastern states shareholders won’t be able to afford, even if they fly Jetstar.
And why would they want to go West? Well, to give the board a touch up for again paying over the odds to a man who did a lot to damage the brand, as the latest Qantas annual report subtly tells us.
At the last AGM there was a 40% vote against Dixon’s $12 million pay package for the previous year.
But now that he’s gone and can’t the abused at an AGM or criticised, that leaves the board and chairman Leigh Clifford. The board have gone all shy about the former CEO, preferring to look forward, rather than back.
The notice of meeting contains nothing controversial, except the remuneration report, which needs to be ticked off by shareholders. It has new interest following news in the annual report that Dixon picked up $10.7 million all up for his last five months of labour at the helm.
Dixon’s total salary was down 12% on the previous year, which is a small mercy for shareholders who missed out on a final dividend.
It included a base salary of $1.86 million and $657,500 in termination benefits. He was replaced as CEO last November by Alan Joyce, but remained a consultant to Qantas until 31 March this year.
Joyce, who was previously CEO of Jetstar, earned $3.7 million for the year to June, compared with $5.1 million in 2007-08.
The news of Dixon’s payout again will spark debate and criticism about executive salaries (which included a $3 million payment to fix up a super problem from a couple of years ago).
Some people moaned about the pay rise to more than $12 million for BHP’s Marius Kloppers for the June year (and BHP did a lot better than Qantas, even if earnings fell, its cash flow hit record levels of $US19 billion). On that basis they should get really vocal about Dixon and Qantas.
The board can defend dropping the final dividend and the fall in pay to Joyce seems justified, so why the $10 million-plus for Dixon ($2 million or more a month). If paying so much money to Dixon can be justified, why not a bit more to shareholders?