Outgoing IAG Chairman Elizabeth Bryan has used her opening address to the Group’s 2021 AGM to defend the payment of executive bonuses despite posting a net loss after tax of $427 million, telling shareholders the bonuses were necessary to boost morale after a challenging two years.
Managing Director and CEO Nick Hawkins was awarded a $265,000 base pay rise to $1.4 million and a short-term bonus of $634,000, while Chief Risk Officer David Watts was paid a short-term cash bonus of $224,000, in addition to his base pay of $875,000.
While there was more money for executives, Bryan apologised to shareholders for the lower returns incurred as a result of a lower dividend last year and the fall in IAG’s share price.
“Both this year and last year have been challenging for IAG, producing results that have been disappointing for our shareholders,” Bryan said. “In my written report to you contained in the FY21 Annual Review, I was candid about what had gone wrong for IAG and how management and the board had responded. I sought to give you comfort that we are on top of the problems, understand their origins and take accountability for fixing the underlying organisational issues.
In his address to the 2021 AGM, Hawkins said the FY21 net loss was due to failures of IAG’s control and management systems. “I am determined that these controls and systems will continue to receive investment and focus to ensure this doesn’t occur again,” he added.
These assurances didn’t convince shareholders, with 57 per cent of them voting against IAG’s remuneration report at the AGM. This resulted in a “first strike”, which occurs when a company’s remuneration report is voted against by 25 per cent or more shareholders at an AGM.
Two consecutive strikes can trigger a motion to spill the board.
Nick Hawkins.
Bryan said three factors weighed on the board’s decision-making process regarding bonuses – accountability, fairness and motivation.
According to Bryan, the starting point in remuneration discussions was to “severely penalise executives who the board held accountable for the serious risk failures in the company.
“We held to the principle that senior executives should be held responsible for failures on their watch and made significant downward adjustments to their remuneration, including to remuneration which was deferred from prior years,” Bryan said.
“One individual’s forfeiture was equal to more than twice their annual base salary. Importantly, no member of the senior leadership team with direct accountability for the operational risk matters is still employed at IAG.”
Bryan said the board wanted to reward the new management team for the “difficult work it had done in remediation” and reassure them that the errors of the past would not continue to affect their futures with IAG. Additionally, she said the decision to withhold bonuses in FY 2020 had negatively affected staff morale.
“In short, we drew a line in the sand and moved to a focus on improving future performance, having dealt with historical failures. Our view, which we hold strongly, is that the choices we made in FY21 were the right decisions for the company and for shareholders,” Bryan said.