form 8-k for samson oil & gas ltd , page-3

Thanks takeapunt and 101 for posting. 101, I think the way you've calculated the bonuses in the 2nd table is incorrect, and results in poor David Ninke getting a reduction in salary if the bouns is awarded. My reading of it is TB has an annual bonus potential equal to 125% of his base salary, which means the potential bonus could be up to 420 x 1.25 = 525K ON TOP OF his base salary, so total salary payable could be up to 945K for the full year. Calculated that way, poor David would not see a reduction in his base salary...

There are 3 problems with executive salary bonus schemes:

1. There are a million ways to calculate them
2. There are as many opinions on the one that is chosen
3. Nothing will get shareholders upset faster than executive teams who reward themselves too well if the shareholders aren't rewarded.

I have my opinion on whether this 6 month bonus scheme is too soft, just right or too hard, but I'll refrain from sharing because it'll be just one of a million opinions.

What I will do is share a 3 year weekly chart below which will adds some perspective for me on the KEY METRIC the bonus is structured on - the (VWAP calculated) SP in 6 months time.

The chart has 3 trendlines drawn in blue. The lower two are conventional trendlines that are probably the obvious 2 that would be drawn to indicate the SP growth over the last 2 years. Note that Friday's close comes in just above the 2nd trendline. By working out the gradient, the lower 2 trendlines represent annualised rates of return of 65% and 70%. The 3rd and highest trendline starting from yesterdays closing price simply indicates a 100% annualised rate of return starting from yesterdays closing price.

The key question about the bonus package therefore is - would shareholders be happy the executive team get the respective bonus level if the SP was at each of the SPs indicated by the end of June?

The answer of course depends in part on where you've started, and those who bought in low may well be satisfied, but those who bought in near the peak would not (they would probably eventually be satisfied if the SP kept going up in line with an annualised rate of return of somewhere between 65-100%, but it would take up to 2 years for some to start feeling that satisfaction - a long time to wait for most of us these days).

The answer also depends in part on remembering the nature of our investment in SSN (and I'm speaking about investors here, not ST traders) - we are essentially venture capitalists investing in a highly risky business - the ROR has to be proportional to the risk we are taking, and that risk is also high - for example some here are down 50% since April, and if there's no commercial oil at Hawk Springs and Fort Peck it could be much worse than that.

Therefore imo the middle trendline is a minimum to sustain most shareholders' satisfaction, but many would be expecting the upper trendline or higher, and thus my PREDICTION is that shareholder satisfaction of the majority of shareholders at the end of June with the bonus structure will be:

12c - dissatisfaction
15c - marginal satisfaction
18c - satisfaction

Cheers, Sharks.