Wizz Air’s plans to extend the time period for the chief executive to unlock the £100mn bonus by two years has triggered backlash, as the airline struggles with a depressed stock price and the aftermath of a regulatory warning over its handling of customer claims.
Institutional Shareholder Services (ISS) and Pirc, proxy advisers, have advised investors to vote against the resolution proposed by the low-cost carrier to grant Jozsef Varradi until 2028 in order to receive the one-off prize if WizzAir shares reach £120. The shares were at £24 just before the AGM on Wednesday.
In a report, Pirc described the plans in question as “highly excess”. ISS also recommends that shareholders reject the reelection of Barry Eccleston to the position of chair of the board remunerations committee, citing “material concern” over Wizz’s practice.
When Varadi first announced the scheme two years ago at a time when its shares were worth more than £40, the company gave Varadi until 2026 for them to reach their target. Since then, the price has fallen due to Wizz’s exposure unhedged to oil prices in response Russia’s invasion and Ukraine.
Wizz Air is following other companies, including some US listed companies, in adjusting incentive plans for inflation and energy disruptions. These adjustments were made despite some poor stock performance.
Varadi is currently dealing with a crisis of reputation due to its handling of compensation for customers following last year’s travel disruption.
Last week, the UK’s aviation regulator reprimanded British Airways for its “unacceptable” handling of compensation claims from customers in the aftermath of delayed or cancelled flights. The airline has apologized and agreed to overhaul its processes.
ISS and Pirc not only advised their shareholders to vote against any proposed changes to the award but also against the overall report and pay policy of the company.
The airline stated that the changes were made to the bonus system as a result of “external events” which had an impact on Wizz Air’s growth plans in the last two years, including the conflict in Ukraine and backlogs within the supply chain. The airline said it had taken action in recognition of the “need to retain and motivate the CEO in a way that is appropriate”.
Indigo Partners is the largest shareholder in Wizz Air. The US-based private equity firm focuses on aviation and owns 24 percent of the company. William Franke, the founder of Indigo Partners, has served as Wizz Air’s chairman for nearly two decades.
A little under two thirds of votes were cast at Wizz’s AGM of 2021 in favor of the bonus program, while about a quarter voted against it, despite criticisms from shareholder advisory groups.
Only a small number of investors were eligible to vote, as the airline had to reduce the voting rights for investors outside of the European Economic Area in order to comply to EU rules regarding airline ownership after Brexit.
The £100mn will be distributed in shares over four years. The pay scheme contains also environmental, social, and governance targets that have not been extended and need to be met by 2026.
Wizz said that the environmental targets had been “adjusted”, to take into account delays in delivering newer, more efficient aircraft.
A low-cost business model has allowed the carrier to grow rapidly in the last five years and become one of the largest companies in European aviation.
Investors backed the airline’s aggressive expansion plans, and the airline became one of the first airlines in the world in late 2020 to recover its pre-pandemic stock price. The airline’s share price has halved in the years since Russia invaded Ukraine on a large scale.