This just posted to SHM news: http://business.smh.com.au/crunch-time-for-executive-pay-20080715-3fgv.html
Crunch time for executive pay
No one would begrudge Owen Hegarty a good whack of pay for leaving Oxiana on a high note but there are rumblings in the shareholder ranks that his termination payment - at a deluxe seven-times his annual fixed pay - may incite a proxy backlash at Friday's shareholder meeting.
Oxiana is merging with Zinifex and shareholders will gather at the Melbourne Convention Centre on Friday afternoon to approve a name change to an imaginative Oz Minerals.
While all the other resolutions should sail through, Hegarty's $10.7 million termination package is raising a few eyebrows.
The proposal is to cash out options and bonuses which are yet to vest and includes shares which were granted on the grounds that he was to continue as an executive.
Then there's the issue of the heady termination payment, usually a treasure reserved for those who face the axe, not those who retire in favour of a non-executive seat on the board.
To many, especially Hegarty and Oxiana, any reticence to approve this gala golden parachute onto the board of the newly forged resources major will be seen as sour grapes.
Having steered Oxiana from its humble origins as a junior copper explorer with a prospect in Indochina to a leading Australian mining company, Hegarty richly deserves his legion of fans, not to mention a damn fine send-off.
But the fact remains that he is already sitting on more than $60 million worth of stock (27.3 million Oxiana shares and 5 million options which are vested), and the proposal to pay out his maximum bonus for 2009, for being retired, and cash out options that are yet to vest sets a poor precedent in executive remuneration.
The whole point of performance pay is performance, not retirement. Retaining Hegarty's services as a non-exec will no doubt be cited as rationale by Oz Minerals, as will the fact that an "independent'' consultant had been given its imprimatur.
The first point is reasonable, the second not. If anyone can cite an example of a remuneration consultant which had ever advised that an executive was paid too much, please respond to the email address below.
RCs, as they are affectionately known, are lackeys who tell boards what they want to hear. In this case it is Mercers. It is a preposterous notion that someone who is paid a fee to tell someone how much money they are worth will come up with the wrong answer.
It is also preposterous that boards can outsource their responsibility to price labour in a market they know better than anyone - their own.
While Hegarty's remuneration may be the subject over a little discontent by some Oxiana institutional shareholders, he is one of the heroes of the market.
This year, in the first bear market for many years, it is crunch time for executive pay.
Shareholders are losing money. Will executives and directors, the stewards of their savings, also feel the pinch? Or will they still outperform their shareholders on the return front?
Already the "independent'' remuneration consultants will be divining novel pay structures to skirt around the annoying fact of a declining stock price. Already they will be looking at novel ways to justify higher pay despite falling shareholder returns.
The early indications strongly suggest a "de-risking'' of executive pay. That's French for we'll take the performance goodies when things are on the up, but now things are gloomy we'll lock in stable income thank you.
Watch for rising short-term incentives (STIs) and an increase in performance shares rather than options.
