Forum Archive Index - October 2000

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi Brian, 

I take issue with your comment that 
>
> Whilst I share your general concern where companies
> seem to 
> reward their directors and executives out of proportion to the
> company's performance and seemingly at the expense of the
> shareholders, in the case of WRI I think it is a little different
> from how it appears on the surface.
> 
> 1. The issue is of 5M options not shares.
>
Options vs shares is not an issue IMHO.   What is important is the 
performance hurdles that must be overcome in order for these options 
or shares to be exercised.
>
> 2. The exercise price is $0.57 (set by Price Waterhouse) for an
> option issued in 2000
>
There is a fine line to tread with the excise price.  It should not 
be so high as to make it unattainable, but should not be so low as to 
reward mediocre performance.

The general rule of thumb in New Zealand seems to be to set the price 
in relation to where the current share price is at the time the 
strike price was set.

This IMHO is wrong.

A bad tenant burns down your 4 bedroom rental property, but , 
being a builder, he offers to rebuild it for you on the understanding 
than when he has rebuilt 2 out of the four bedrooms you will give him 
a 'bonus'.   Does this sound like a good deal?

Last time the primary producers had an 'up time', the price of WRI 
was up around $1.20.   Slashing the number of high paid executives to 
more reasonable levels would see WRI trading at 90c based on today's 
P/E ratio.   And from that point $1.20 would be in reach.  This being 
the case I would have no objection to the issue of shares/options 
at that level to executives exercisable with very few strings 
attached.
> 
>.3. The issue of options will form part of  a
> senior executives remuneration. 
> 4.  The basic idea is to encourage
> executives to create shareholder wealth 
>
Sounds good, but will this executive reward scheme do it?   Rhetoric 
does not equate to effective policy.
> 
> IMHO this does not seem to be an unreasonable proposal and in
> looking at the remuneration levels paid by WRI they do not seem to
> be excessive by comparison to other sizeable public companies.  The
> top rate is $400k with some other 59 executives earning over $100k,
> half of whom are under $130k.
> 
I am interested in how you came to your opinion Brian.  I posted the 
text below in early October but in light of your comment I think it 
bears repeating.

"I count 60 people on $NZ100,000+ salary packages on total 
company revenue of $NZ600million in the WRI annual report.

If you compare that with Ridley Corporation an Australian 
agricultural product retailer with sales of $A986.5million they have 
only 28 staff in that $A100,000+ pay band.

If Wrightson's reduced the number of high paid staff to more 
realistic numbers, the net profit of the company, and return to 
shareholders would go up by over 40%!"

SNOOPY




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