20 September 2017

Stavely Waiver Raises Conflict

Stavely Minerals has pared back its pay for directors to maximise its spending on exploration.  The company has reported a 70/30 split between exploration expenses and administration.   

Non-executive directors have waived their fees but have been awarded relatively short-dated options over company ordinary shares.   Options granted in late 2016 without any attaching conditions are set to expire at the end of 2017.

While one can sympathise with the predicament of companies having to make hard choices in allocating limited financial resources, effective governance is compromised as a consequence of the choices being made by Stavely directors.  

With executive and non-executive directors depending for all or the largest part of their remuneration on the same short-term share price movements, the capacity for board oversight of executive actions is diluted.  

The type of exploration activities in which Stavely is engaged is, by necessity, long-term in nature. Greater thought needs to be given to developing a remuneration structure which more directly takes into account the timing of exploration objectives and the ongoing need for board oversight of executive actions.  

Stavely Minerals remuneration report rating: 32%

15 September 2017

Saracen Shareholders Get What They Need

Saracen Gold Holdings has outlined in its annual remuneration report to shareholders the performance benchmarks applying to its ‘at risk’ executive remuneration in 2017/18.  

Too often, companies avoid accountability by proffering only vague details in their remuneration reports about replacement arrangements after abandoning a scheme from the prior year.   

Shareholders, in these circumstances, are effectively maneuvered into voting for a redundant scheme and endorsing one for which they are offered no detail.   

If shareholders question the old scheme, they are told not to worry because it has been abandoned anyway. If they ask about its replacement, they are told to rest assured it will better align executives’ pay with shareholder interests and that they must wait until the following year’s report for details.  

By reporting on what has happened and including a discussion of changed pay entitlements for the upcoming year, Saracen is giving shareholders a solid foundation on which to make a decision.   Well done, Saracen.  

Saracen Gold Holdings remuneration report rating: 71%

9 September 2017

No Reasons Given

PortfolioDirect has given the Dacian Gold remuneration report a score of 28 out of a possible 100. 

 The company has provided a bare bones report detailing the payments made without any significant rationale for their size.

The directors have said that  "the remuneration committee awards discretionary cash bonuses based on company performance" but  the company's profitability is not taken into account in setting remuneration rates, according to the report. 

The company has a remuneration committee charter which provides for the committee to make recommendations to the full board but the committee membership duplicates the board composition so, presumably, there were few questions asked. 

The report is going through the motions rather than attempting to give shareholders a meaningful basis on which to take a decision. 

The company has given no indication that it intends to change its practices during 2017/18 as a result of it commencing production, as anticipated, in March 2018. 

3 September 2017

Have Shareholders Funded Bigger Bonuses?

Perseus Mining is more than usually coy about the basis for its executives receiving bonuses in 2016/17. 

Shareholders have only been told that payments were "as determined by the remuneration committee with due regard to the performance of the group and the respective individuals ". 

Cash bonuses were generally less than 10% of base salaries when, according to the company remuneration report, they could have been as high as 30%.  Of this amount in the case of the chief executive, 75% is made up of group targets with personal targets making up the balance.

Group targets include those relating to gold production, site costs , net cash flow per share and share price movements. 

Such a small bonus relative to what could be received begs significant questions about the goals which were set and the extent to which individual performance indicators were missed. 

The company has reported improved operational outcomes during the past year partly through an investment program to raise productivity.  Shareholders have not been given any information about how performance indicators relating to remuneration payments might have been varied for 2016/17 to take account of the impact of the additional capital employed in the operations.    .  

1 September 2017

Falling Standards

Gold and base metal miner Independence Group has decided to abandon entirely its already lowly 10% rate of return target which had been part of its long-term remuneration incentive plan in favour of a share price related measure of performance.  

Independence has adopted a 50/50 split between absolute share price performance and relative performance giving executives a benefit if the share price rises or, under some circumstances, even if the share price falls.  

Ordinary shareholders are never financially better off from a lower share price.  Benchmarking share price moves against those of other companies when assessing salaries breaks the link with shareholders.  

Prior losses should be recouped before executive rewards start accruing.  Do that or stop talking about shareholder alignment.

28 August 2017

Cloaked in Mystery

Pilbara Minerals has adopted, in the words of the directors of the company, “a new remuneration policy and formulated a framework which is more appropriate for the Company’s transition from development to a mining operation”.   

Presumably, in advising shareholders of the change, Pilbara directors are telling them not to waste their time scrutinising soon to be superseded remuneration arrangements.  

The new arrangements will “ensure that all executive remuneration is directly and transparently linked with strategy and performance”.  

Unfortunately for Pilbara shareholders, their directors have not detailed the new arrangements to be implemented “early in the 2018 financial year” and which will  be in force by the time they come to vote on the remuneration report.  

Directors are asking shareholders to endorse a report based on a remuneration scheme to which they are no longer attached in favour of one for which they are offering no details.

27 August 2017

Excellence in Reporting

The Fortescue Metals Group remuneration report is a delightful example of statutory reporting.  

The company’s explanations of its goals, measures and outcomes are clear.  

The design of the report contributes to the overall quality of the content.  

Where directors have made changes to prior arrangements, their reasons have been disclosed.  

Shareholders would be hard pushed to ask for more.

26 August 2017

It's Not As Much As You Think

Pilbara Minerals directors appear embarrassed by the generosity of their 2016/17 remuneration packages.  

The total value of the key management and director pay for the year was $8.9 million of which $7.4 million was attributable to options over shares granted to directors and executives.  

Directors have taken up a large chunk of the remuneration report to explain why the statutory disclosures about the value of the employment benefits should be ignored.  

Directors have re-jigged the standard reporting forms to recalculate the benefits arising from the receipt of options so that “where the Company’s share price was below the exercise price, a nil market value was assigned to an option”.  

Different ways to value options - all with strong analytical bases - have been advanced by financial theoreticians but the only way which is unambiguously erroneous is the one proposed by the directors of Pilbara Minerals.  

Pilbara Minerals directors are saying that options are only of value if they confer an immediate profit opportunity on the recipients.  On their reasoning, the time value, generally regarded as an intrinsic benefit of an equity option, is worth nothing.  

The company has conflated half-baked opinion with statutory disclosure.  

Remuneration reports are supposed to be audited.  Unsurprisingly, no auditor has signed off on what is little more than an analytically flawed thought bubble.  

There are forums in which Pilbara Minerals directors can pursue arguments about how best to value options but using a remuneration report to cast doubt on statutory practices undermines the intent of laws designed to have consistent reporting across the universe of listed companies.