Dear Prime Minister, 

I wanted to publicly welcome your speech of today ( 19th of January) on moral capitalism. 

As you know I am the founder and largest shareholder of easyJet PLC, the UK company I created risking our family’s capital in 1995 and floated partially on the London Stock Exchange in 2000. You might be less familiar with my other four UK corporate entities , namely easyGroup, easyBus, easyHotel and easyCar , all of which I started with my own risk capital and are now profitable and continue to create new UK jobs . So I have both public and private company experience in the UK. 

Your speech has focussed on the investment bankers, which is understandable given the financial crisis the world is facing as a result of the way these bankers have manipulated the financial markets for private gain. These bankers invented a new type of capitalism which I would describe as “heads I win and tails you lose”. The problem is that this horrible habit of gambling with other people’s money with impunity has now spread to non-financial PLCs. 

The mechanisms by which boardroom pay and bonuses are set is suspect or even, dare I say, rotten. Furthermore, because some of the most influential shareholders are listed PLCs themselves, there is nobody in the City that wants the rules changed. All in all the system is designed to rip off the passive investors in listed companies and of course everyone’s pension fund which is invested by the investment managers into these companies. As they say, “turkeys will never vote for Christmas”. 

An interesting ray of hope has just emerged, not surprisingly, from one of the few large investment managers, which is still privately owned. The proposals of Fidelity Worldwide Investment, which you quote, requiring a 75% shareholder agreement prior to awarding the bonuses would certainly go a long way to stopping these immoral “fat cat” pay awards. 

With regards easyJet PLC, the AGM is due next month and our shareholders will be called to vote on the remuneration report for the managers. I was shocked to see that Mike Rake, the current Chairman, and his fellow directors are going to pay themselves c £7 million in bonus shares by claiming they have achieved a Return on Capital Employed (ROCE) of 12% when in fact the true number is closer to 4%. . By manipulating the definition capital employed appears to be lower than equity. I do not have a problem with good pay for real shareholder value creation but when the rules are bent from the start, the moral hazard problem kicks in. The revised calculation encourages risking more of shareholders money as the assets and the debt somehow cancel each other out. So buying Airbuses with 100% finance does not increase the capital employed. 

Mike Rake lost the remuneration vote last year too but nobody gives a damn about it in there. Even if they lose it again this year, they will still pocket the £7m . And when talking about payment for failure, the EPS is estimated to decline this year by c 30%! 

I think it is high time to adopt something along the lines of the Fidelity proposal!