Ann: Quarterly Activities/Appendix 4C Cash Flow Report, page-21

The reduction in executive pay opens up a lot of doors:

1. Increased institutional interest
2. More funds can be used for R+D
3. Increased trust and credibility of management
4. Reinvestment of excess funds to further expand and develop the business
5 An overall safer and more sustainable business

That said, executive pay is not linked to value of the asset owned by the business. You can have a rolls Royce. That’s your asset. It’s value is 1m. It’s rental return is 1000 a day.

But the value of the asset does not change irrespective how much the person hired trying to loan the car is paid or how well he is able to get customers.

In the case of a Starbucks store. It can be in the best location, and use the best coffee machine to produce the best coffee. The underlying assets building and coffee machine stays constant regardless of who manages the store and compensation structure.

But if management don’t turn up to work, or they pay themselves too much, ie more than the store revenue- the value of the business at least in the short term drops. But ONlY IN THE SHORT TERM.

Because these problems can be easily rectified. If the employees are paid a commission based salary, and/or have ownership of the store. They will work harder and for less money in an attempt to build the business. The underlying value of the asset actually remains the same, but the business is getting better. And instead of blowing a 600k salary on a personal Rolls Royce, the employees may instead choose to use the extra revenue made or the cost savings on another coffee machine.

So the key for potential buyers is not how much money they are making now. Or how much the company is paying its staff. It’s the potential of the product to generate income in the future.