Qantas is docking the payout of former group CEO, Alan Joyce by $9.26 million and reducing short-term incentives for current and former senior executives by one-third after an executive governance review found failings by board and management contributed significantly to the airline’s reputational and customer service issues.

The governance review commenced last October and was focused on matters over the preceding 12 months, scrutinising the decision-making and governance processes of the Board that led to the loss of trust amongst stakeholders. The board appointed experienced business adviser Tom Saar to review these matters and present areas of improvement to the Board.

The review announced today found mistakes were made by the Board and management which contributed to the Group’s significant reputational and customer service issues. However, the Qantas board stressed no findings of deliberate wrongdoing were found.

The Board, led by Chairman Richard Goyder and Chairman Elect John Mullen, and the management team have also said committed to implementing actions to address all 32 recommendations in the report, with many actions already completed or underway. These include:

* Changes implemented to increase more detailed reporting to the Board on customer metrics, employee engagement and key stakeholder relations. * Amendments made to the Group’s remuneration framework. * Tightened protocols for the approval of share trading by the Group CEO and senior management. * Enhanced Board consultation and approval required for involvement in significant stakeholder and community issues.

Organisational changes, meanwhile are already underway, including the appointment of two new Independent Non-Executive Directors and commencement of a transition to Mullen as new chair plus senior management renewal with early commencement of Group Chief Executive Officer, Vanessa Hudson.

Goyder has previously announced he would retire prior to the Annual General Meeting (AGM) in October 2024. His last day with Qantas is now confirmed as Monday 16 September 2024. Mullen said the review provides clear direction for the Board and management to build a better, stronger Qantas and restore pride in the national carrier.

“It’s important that the Board understands what went wrong and learns from the mistakes of the past as it’s clear that we let Australians down,” Mullen said. “As the national carrier it is our duty to make sure we always act in the best interest of stakeholders and hold ourselves to the highest level of accountability.

“Vanessa and her new management team have made positive progress towards delivering better outcomes for customers and employees, but there is still a significant amount of work to be done to rebuild the trust of all stakeholders. “The implementation of the recommendations in the report will result in stronger governance and better decision-making within Qantas and ultimately better outcomes for our stakeholders. I’d like to thank Tom Saar for his work on the review.

“On behalf of the Board, I’d like to recognise the contribution that Richard has made during almost six years as Chairman of the Qantas Board, particularly guiding the airline through the unprecedented challenges faced during the pandemic.”

Saar said the task set by the Qantas Board in bringing together the elements of the Governance Review was instigated with a genuine desire to improve and ensure the mistakes of the past led to lessons learned and improved governance.

“Many of the actions taken by Qantas in response to the recommendations are complete or well underway. While some of the recommendations will take some time to embed across the organisation, if the current momentum is maintained, my expectation is that tangible benefits will occur within a short period,” he said.

Joyce payout cut by $9.26m

One of the other big outcomes from the review is the decision to dock former CEO, Alan Joyce’s payout by $9.26 milllion.

Confirmed today, the board said Joyce’s FY23 remuneration would be reduced by the sum, which includes forfeiture of long-term incentive plan provisions, worth $8.36m; and a 33 per cent reduction in short-term incentive value, worth $900,000.

It’s not quite the massive clawback first intimated, but it’s still a sizeable sum. Joyce was reportedly paid $21.4 million in the last financial year, his last year as group CEO after 15 years at the helm. At the time of his abrupt departure, suggestions were made that up to $14.4 million of Joyce’s total pay could be clawed back by the Qantas board – a mix of payments that included long-term bonuses worth $8.3 million and a $2.2 million short-term bonus.

Qantas also announced it would withhold all senior executive short-term bonuses while the ACCC investigated claims the airline sold tickets for already cancelled flights. Joyce retire last September, earlier than initial expected, and was replaced with Hudon, a longstanding executive who quickly intimated her deliberate shift in leadership style by delivering an apology to customers for Qantas not doing well enough by them.

By late September, Qantas was promising to invest $80 million into customer improvements across FY24 in addition to the $150m previously budgeted. The dollars were in addition to addressing a number of identified pain points such as better contact centre resourcing and training, increasing the number of redeemable rewards seats under the frequent Flyer program, more generous recovery support when operational issues arise, a review of longstanding policies and inflight catering improvements.

Qantas has since settled with ACCC, admitting to misleading customers in relation to flight cancellation processes and as a result of Federal Court approval, will pay a $100 million penalty. Additionally, the airline has agreed to a $20m customer remediation program.

There remains ongoing investigating into alleged breaches of the Fair Work Act at Qantas for its decision to outsource ground handling work.

Joyce isn’t the only one with the hit to the hip pocket. Qantas said all current and former senior executives will see their short-term incentives reduced by one third this year, totalling $4.1m. It’s also a reflection of the ongoing ACCC proceedings around employees, the board said.

“In reaching these decisions, the Board has considered the individual and collective accountability of members of the Group Management Committee. The Board has also taken into account their performance in bringing Qantas through the pandemic and the challenges of standing up the airline through that period,” the company stated.

“The combination of these factors is reflected in the reduction in the short-term incentives. Mr Joyce was the Chief Executive Officer of the Qantas Group. In this role he had overall accountability and responsibility for the outcomes of the business and this is reflected in the forfeiting of his 2021-2023 LTIP shares that vested in August 2023.”

In his report, Saar itemised a number of the key events and root causes for Qantas’ reputational damage and customer issues, including the airline’s poor handling of customer Covid credits and post-Covid pricing, customer service shortcomings, support for frontline employees, ACCC proceedings, loss of an appeal against a High Court decision that determined outsourcing of ground handling services including some 1700 redundancies was unlawful. He also noted the sale of a large parcel of shares in June 2023 by the Qantas CEO as another controversial decision, and the subsequent adverse shareholder reaction to executive remuneration at the 2023 AGM.

Underpinning these issues, according to Saar, were several key problems. The first was culture. “Qantas’ strong safety culture was not representative of the leadership culture of the group as a whole, which contributed at times to a focus on financial performance before stakeholders and non-financial risks [other than safety,” he stated in the recommendations report.

Top-down leadership style with a “dominant and trusted CEO” further led to insufficient listening and “low speak up”, Saar continued, while the board’s mode of engaging with management “did not always achieve the right balance between support and challenge”.

“There was too much deference to a long-tenured CEO who had endured and overcome multiple past operational and financial crises,” he wrote in the report. “The mode of engagement between the Board and Management did not always facilitate robust challenge on some issues. Issues could have been brought to the Board earlier for input and reporting could have included more analysis of options and risks for Board debate.”

Qantas’ actions in managing the Covid crisis was another huge and obvious root cause of the subsequent reputational damage for Saars, who added external communications “were at times combative, which exacerbated issues”.

In the last financial year, Qantas reported $2.47 billion in underlying profits before tax, and $1.74bn in net profits off revenues of $19.8 billion. This was buoyed by a 132 per cent increase in flying compared to FY22.

– With additional reporting by Nadia Cameron