A leading City proxy advisor has called for easyJet shareholders to abstain on the re-appointment of Mike Rake as chairman of the budget airline.
In a hard-hitting report PIRC (Pensions & Investments Research Consultants) highlighted two concerns about Sir Michael’s role, namely :

1) His responsibilities to other company boards, which include British Telecom, Barclays and New York-based McGraw Hill.
“There are concerns over his potential time commitments,” the report said.
2) His dominance of the board’s nominations committee, which recently appointed a long serving former KPMG colleague of Sir Michael as a non-executive director.

PIRC said Adele Anderson, who joined the board last July , could NOT be “considered independent …due to her previous roles within KPMG.”

easyJet founder Sir Stelios Haji-Ioannou said:

“ Ms Anderson has no prior PLC board experience and was clearly drafted as an ally to Mike Rake when I forced David Michels off the board last July. This is the first time, we as shareholders can vote on Ms Anderson’s appointment and we must vote against her to prevent a packing of the board.

“I could hardly have guessed that when I stepped aside as chairman in 2002 to avoid dominating the board myself as per City rules, we would be having the same argument ten years on with a City Grandee dominating the same board.”
PIRC also slammed the easyJet board’s remuneration report as “overly complicated”, “inadequate” and “inconsistent”, while emphatically recommending its rejection by shareholders at the forthcoming AGM on February 23.
On Tuesday PIRC was joined by fellow consultants Glass Lewis in backing Sir Stelios’ view that the easyJet package is “self-serving, dishonest and a clear attack on the principle of shareholder sovereignty”. Two other groups, ABI and ISS, recommended backing the management but only after certain as yet, unclear commitments for change had been made by the directors .
In particular PIRC criticised the remuneration report for:
• inadequate disclosure of “either share prices on the grant date and expected value calculations for incentive awards” for share awards to senior management
• the use of return on capital employed (ROCE) as a “sole, absolute performance measure”. PIRC said they firmly believe this should be complemented by other metrics
• lack of business challenge provided by the ROCE targets
The report also noted the impact of executive bonuses on shareholders:
“We note that average executive salary is considered to be high in relative terms. There are also concerns over the excessive nature, in aggregate terms, of both actual awards made during the year and potential awards going forward.
“This compounds concerns raised by controlling shareholder, Sir Stelios and easyGroup, over the potentially dilutive impact of consecutive share awards granted over the past ten years at easyJet.”

Sir Stelios commented:

“Now all four proxy advisors have called for changes to the bonus culture at easyJet. The only difference is the speed at which such changes should be brought in and if they are willing to stand up to the City grandees or not.

“These promises for change are wishy-washy and easyjet shareholders deserve more clarity now, not at some ill-defined point in the future.”.
“The board must take on board the collective views of all four proxy shareholder advisors and ensure their bonus packages are working for shareholders and not against them. I am so pleased that we have been seen to be striking a blow for small investors everywhere.”
“Just to show that I am not against fair pay for creating real shareholder value, I would today approve the same bonuses if the test was a 10% profit margin as when I was in charge -not the pathetic 2-5% these managers have been delivering” Sir Stelios has not confined his criticisms to corporate governance and bonuses. He has also taken issue with the current management’s aircraft procurement policy: “Under Rake’s chairmanship (and that of his predecessor Colin Chandler, of BAE – Al Yamamah fame) US$8 billion of easyJet shareholders money was spent on 264 Airbus aircraft without producing any return for shareholders . This spend with Airbus is more than 3-4 times the market cap of the company.
“I recently noticed that KPMG are auditors to Airbus and EADS, the parent company, he said.
In addition, he has taken issue with what he sees as a City Insiders Club.
“Mike Rake seems to be enjoy the support of a handful of City investment managers but in my view I think these guys are conflicted,” he said
“I recently discovered that Standard Life is managing the EADS/Airbus pension fund of some £4.6 billion. If the fees are circa 2% that gives Standard Life an income stream of around £100 million a year. The stake of Standard Life in easyJet is valued at about the same number. I think their shares should be excluded from any future voting on aircraft orders.”
“We have to put an end to the culture of I scratch your back and you scratch mine in this company. Mike Rake can do these things at Barclays where as a director, he has been voting for the bonuses of Bob Diamond, one of the highest paid employees in the world!