BREAKINGVIEWS-Ryanair boss’s $110 mln payday required big lift

By Oliver Taslic

LONDON, May 30 (Reuters Breakingviews) - The end of the month typically means payday for workers across the world. But Michael O’Leary is going one better: the Ryanair RYA.I CEO on Thursday hit a stock price goal that paves the way to share options potentially worth over 100 million euros. Investors in many ways have O’Leary to thank for the airline’s longtime outperformance. But the decision to extend the scheme part way through – and the use of share buybacks – is a good example of how boards can make sure bulky executive pay reaches its destination.

Like a pilot “going around” to attempt a second landing, the share options plan is in many ways a do-over. Announced in early 2019 as part of O’Leary’s new contract, it had two tracks. It gave him the option to purchase 10 million shares at 11.12 euros apiece if he could get the share price above 21 euros for a 28-day period, or achieve an annual profit after tax of 2 billion euros, before the end of March 2024. But after Covid-19 tanked the airline industry and Ryanair’s share price languished around 13 euros, the board in late 2022 took the decision to extend the plan into 2028, while bumping the after-tax profit target up to 2.2 billion euros.

In its most straightforward sense, the scheme has worked: having now ticked off the 28-day streak, O’Leary is incentivised to get the share price up by as much as possible into 2028, when – on the added condition he remains at the company until the end of July that year – his options vest, giving him the right to pocket shares at the agreed 11.12 euro price. Ryanair investors also get to hang on to their superstar CEO for a few more years, who since taking the helm in 1994 has transformed the company into Europe’s largest listed airline by market capitalisation.

Still, one criticism of incentive packages based on simple share price targets is that they’re often out of a CEO’s direct control. Indeed, vaulting the 21 euro mark has required more than a few tailwinds. Short-haul leisure travel recovered more quickly from the pandemic than long-haul and business flying, for example, while delays in the delivery of new aircraft from Boeing BA.N left Ryanair with more cash than expected, much of which was returned to shareholders. In its latest financial year, the company undertook around 1.5 billion euros of share buybacks, compared with zero buybacks during the previous four years. Most glaringly, the targets would probably not have been achieved had Ryanair’s board not opted to extend the terms, given it delivered 1.9 billion euros of profit after tax – 100 million euros below the original target – in the year to March 2024, while the share price goal has only just been hit now, having averaged around 17 euros during the same 12-month period.

Granted, investors may not bemoan this shifting of the goalposts. Analysts are expecting Ryanair to post almost 2.3 billion euros of profit after tax in the year to March 2027, according to forecasts compiled by Visible Alpha, meaning the new targets would probably have been met through either route anyway. But the extension of the scheme and use of share buybacks mean this particular early arrival comes through a grey cloud.

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CONTEXT NEWS

Ryanair’s share price closed at 23.74 euros on May 29, marking the 28th consecutive calendar day on which the company’s shares were worth more than 21 euros.

Alongside the condition that he remain at Ryanair until the end of July 2028, the hitting of the share price milestone means CEO Michael O’Leary is in line for a share options package potentially worth over 100 million euros.

Assuming the options vest in 2028, O’Leary would be given the option of buying 10 million shares at 11.12 euros per share, according to the company’s annual report.

Using the May 29 closing price of 23.74 euros, that would represent a discount of 126 million euros, Reuters reported.