Posted on: 10 February 2011 by Ross McSweeny
easyJet founder and largest shareholder Sir Stelios Haji-Ioannou has strongly criticised the way in which the airline handled issues relating to former chief executive Andy Harrison’s remuneration. In an open letter to chairman Sir Michael Rake, Sir Stelios declares, “We should have found a new CEO faster.”
Sir Stelios highlighted arrangements relating to a fixed term agreement covering 1 April to 30 September 2010 as being of particular concern. Harrison was was £1 million for this six-month period, Sir Stelios noted, “despite the fact that he left the company after only three months on 30 June 2010”.
Sir Stelios added that tension created by Harrison “regarding the brand dispute, and his insistence on litigation rather than early settlement, gave him the upper hand when negotiating the extraction of more cash from the company in the form of this retention bonus. The fact that he knew he would not be around to face the judgement from the trial constituted a true ‘moral hazard’.
“The lesson to be learnt here is that the remuneration of salaried employees should never be de-coupled from the actual financial performance of the company. The decisions on crew numbers made in the winter of 2009/10 by Andrew Harrison in order to optically improve easyJet’s quarterly numbers led to the crew shortages in summer 2010, which in turn caused the reputation of both the company itself and the “easy” brand to sink to an all-time low in July and August 2010. At the same time, Mr Harrison walked away with £2.6 million in his pocket for less than a year’s worth of work plus another 400,000 stock options – which undoubtedly added further significant value to the £2.6 million already pocketed by him.”
Sir Stelios concludes his argument by saying that in insulating Harrison’s from the actual results in the 2009 deal, CEO ended up with “the right to destroy shareholder value in the summer of 2010 with impunity”.