Dear Malvernmoe,
I can see your perspective clearly. As I am sure can everyone. I have sympathy for your inability to absorb the information above. This may happen to you regularly when concepts get a little bit complex? I accept that this post is unlikely to change your position.
It is unfortunate that you did not take your own advice and look up the definition of "Free". Because you didn't actually look up the definition, did you?
If you had, you would find that the Oxford definition is: "able to act or be done as one wishes, not under control of any other, without encumbrance, no longer confined or controlled, without cost or payment of any kind and free of all obligation, ..."
The shares received under an Employee Loan Funded Share Plan obviously do not meet the terms of this definition. The shares are received subject to the obligation of a loan, are held under a Holding Lock, and have various encumbrances and obligations attached to them and other terms and conditions (eg continued employment etc) which ensure they are not free. Most obviously these obligations include the requirement to pay 23c for each share as the cost of the shares.
Before you respond in shouty capitals pointing out, again, your committed and firm belief that the shares are in fact "free", let me acknowledge your main point:
The executive has not been required to disburse any cash to acquire the shares. They have been paid for at inception by the share loan. No cash has changed hands in what is a cash neutral transaction for both the executive and the company at no cost to either party. Further, should the company continue to pay healthy dividends into the future, it is possible that the executive will never have to disburse any cash to repay the loan. It is possible, in circumstances where the executive continues to be employed by the company, continues to comply with the various obligations of the loan. and where the company continues to perform well and pay dividends, that the dividend payments will repay the executive's loan completely and in its entirety without the executive ever having to part company with any of his own cash. Am I correct that this is your main point and your contention as to why the shares are, or would be in your mind. "free"? Yes? In this regard we can all agree. I hope we can also all agree this would be a great outcome for all parties. Why does this outcome create such fear and anger in you? This would appear to me to be a very positive outcome for the company and all shareholders including the executive. This is entirely the point of the scheme and if this actually occurs then the incentive and reward intention (and retention) of the scheme has performed as expected to the benefit of the shareholders. The executive is clearly motivated to maintain strong dividend payments and, at the same time, preserve or build shareholder value. I am unclear as to why this outcome causes you so much angst? It would appear shareholders (at least the majority) understood and approved the scheme for this purpose. While not an expert of mining companies, it would also appear to me that since the executive was recruited by the company almost 18 months ago the company performance has improved, costs are significantly reduced, key strategic acquisition has been made, staff morale and incentive is strong, and a high rate of dividend payment has been maintained. Seems to be good outcomes. Costs are always an important metric for executive performance measurement in bulk commodity companies. In the quarter Mr Welborn was appointed C1 Cash costs were A$94/t and rising. Ever since they have reduced (against industry norm?) and are now A$78/t. Down almost 20%! I find this remarkable given the cost pressures I see in other companies wi work with (and Board's and Shareholder's who seem happy to adjust both short and long term incentive metrics to recognize broader industry inflationary pressures).
The executive is very obviously, to me at least, motivated to improve dividend payments and maintain or improve the share price. This incentive is aligned with all the shareholders interests and everybody will benefit from strong performances. I doubt a company like Fenix can run efficiently and effectively without careful management and strong leadership. The contention that the executive is somehow motivated to do nothing and forfeit the shares at some future point has no merit or logic to me bas this would be a poor outcome for the executive (financially and reputationally) as well as for the shareholders. Receipt of a dividend in the hands of the executive will crystalize a tax obligation on 100% of the dividend received. Even accounting for franking credits, the subsequent deduction of the tax paid by the executive on the dividend (presumably at the top marginal rate) and the 50% of the total dividend payment received to reduce the loan will mean that, from a cash received perspective, dividend payments are likely to result in very little real net cash gain to the executive other than the reduction in the loan balance. I assume this was the intention and, as I have not seen this before, one of the reasons I think the Fenix scheme is smart. Regardless, the value of the shares is very important to the eventual outcome of the scheme. Even more importantly, I will be using Fenix as an example of where an Employee Loan Funded Share Scheme has delivered strong executive performance and good outcomes for shareholders.
Bottom line: your definition of "free" is unusual and, at least to me, illogical. And talking of taking your own advioce (to look up and understand teh definition) I note your comments to the very level-headed Rookstar: "If you want to deliberately argue technicalities regarding apparent principles and what not, whilst completely overlooking what “free” is actually referring to, then good luck to you too and you hopefully enjoy your weekend also!"
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