Ok, so I have a bit of an issue with the performance rights to be approved at the AGM and would like to get others' thoughts on this (resolutions 10-14).
We are currently paying SB $284,700 to undertake the role of MD for the company. CXO is currently an exploration company, and therefore, in my view, the near 300K is compensation for the roles and responsibilities of taking the company to production. This includes getting us an approved MMP, FID, construction start and finish, production etc…..this is what the salary is for. Yet, we have a bunch of performance rights that somehow align the director’s interests to that of the company….I thought that was what remuneration was for? I am completely aware of agency theory and the risk that the perspective of management may be different to that of shareholders, and therefore we need things like performance rights to try and align them. So, let’s talk about those performance rights:
Each year we are being asked to approve the assigning of 1,625,000 for SB achieving total shareholder return (TSR), which given our current stage, basically means SP appreciation. This is 1,625,000 for the next three years, and then 3,250,000 in the fourth year. The TSR is based on effectively the industry index, it is basically the average return across all lithium companies ACROSS THE GLOBE over the years in question. So, if CXO performs on average in line with all the other companies our MD gets performance shares (50% of those identified). This means that if the company does nothing more than match the performance of all other companies than he gets this amount….he does not need to do anything company specific. With the increasing news stories lately and the often talked about return of lithium 2.0 (which I believe is coming), the increase in SP is likely to happen anyway as long as the company does not have any significant setbacks, the allocation of 50% is likely to happen….we pay the MD his salary of nearly 300K to make sure we don’t have any setbacks in my view – the salary is his performance rights for doing the average. If CXO manages to achieve top quartile performance (in the top 25%), he will get the full allocation. I’m not sure I have too much of an issue with performance shares if we are in the top 25% of all lithium companies, but is 8,125,000 over four years too much for this?
The other interesting part here is that if SB does manage to achieve company specific outcomes (FID, 80% production offtake, 5yr mine life, construction, commercial production etc) he will get one third lower (541,667) of the performance shares allocated to the general performance of the whole lithium industry (812,500 except for the last year which is double this)……this seems backward to me and does not send the right message in my view. If the company does better than the industry, that should attract significant performance shares, this would be fuelled by company specific things that are different to the industry. Yet, we are being asked to approve average performance at a greater rate than company specific performance.
So, a couple of questions:
1. Should we be allocating average performance compared to the industry over company specific milestones?
2 when do the options of 5,000,000 per executive management person expire?
(20min delay)