Whizzing to a potential disaster?

The Wizz Air CEO’s proposed bonus payment has raised a few significant eyebrows.

What is happening at Wizz Air is a compelling account of poor governance and how CEO pay and remuneration can spook the markets.

Wizz Air is a Hungarian low-cost airline listed on the London Stock Exchange.

In documents that were sent to shareholders in advance of its AGM, the company recommended that its CEO Jozsef Varadi get paid £100 Million bonus (via shares over four years) if he manages to get the company’s share price to £120 by 2028, (the initial target was by 2026).

Wizz Air’s share price, which stood close to £24 at the time of the announcement, took a hit.

And what spooked investors wasn’t just the suggested massive increase in the CEO’s pay.

The airline had failed to limit the impact of rising fuel prices due to the Russia – Ukraine war. The UK aviation regulator also reprimanded it for how it handled refunds to passengers during the pandemic.

So, with all this in mind, this is what such a suggested CEO bonus payment signals to me; and why it spooked investors:

1. The board’s overreliance on the CEO to help the organisation get to their share price of £120. Can one man really turn such a ship around?

2. I’d love to observe at a Wizz Air board meeting to see the dynamics. Is this another case of a dominant founder/CEO exerting undue influence on the board?

3. After some digging, I realised that the board chair had held the seat for 20 years. At that stage, a chair is so entrenched in the organisation’s DNA that they could fail to see damaging patterns emerge within the executive and the board. For context, the ideal length term for the board chair is between three to six years.

4. Institutional Shareholder Services (ISS), one of Europe’s largest shareholder consultancies, opposed the re-election of the chair of the remuneration committee – Barry Eccleston (ex-CEO of Airbus and on the Wizz Air board since 2018), over “material concerns” of this bonus package. It makes sense to many.

5. In addition, the controversial bonus package was approved in 2021 when the voting process was accessible to a limited portion of investors due to the airline’s need to reduce the voting rights of investors residing outside the European economic area in line with EU policy after Brexit.

Would you vote for the bonus?

The time has come for the shareholders to approve the extension of the bonus payout from 2026 to 2028. Shareholders are expected to oppose this, but we will know the outcome once the AGM is over.

What are your thoughts on the Wizz Air case? If you were a shareholder, would you vote for or against it?

By the way, Michael O’Leary, the CEO of rival Ryanair, has also faced compensation disputes. His five-year compensation plan, potentially up to 100 million euros if share price and profitability targets are met, received 50.5% support in a shareholder vote in 2019.