We have seen these employee share schemes over at SKF (Skyfii). Basically the deal seems to be: - we give you a bonus on salary in free shares, - the amount of shares you get depends on the share price (so the lower the share price the larger the number of shares you get!) - to get the entitlement all you need to do is increase revenue (not revenue per share).
What the employees then do is ensure revenue targets are met by making acquisitions (they don't care if they overpay as it helps their revenue targets get hit) Revenue increases but revenue per share does not. They then run out of capital. This means they do a cheap capital raise which reduces the share price - this helps them get even more shares next year at bonus time.
These arrangements demonstrate that the board is either too stupid to design a employee share scheme that aligns shareholder and management interests. Or as is the case with Skyfii the board is in on the act as well by granting themselves expensive options for free.
What this has meant for SKyfii is that the share price and reputation is trashed and their ability to raise capital impaired.
At least SNS doesnt seem to be doing the expensive options that SKF are but the scheme is weak so I would keep an eye on the impact it has on management decisions.
Any view on the quality of this board?
extract from half year report: Employee Share Ownership Plan During the period shareholders approved the Board’s recommendation to operate an Employee Share Ownership Plan (ESOP) for the period 2021 – 2023. The key terms of this arrangement are: 1. The ESOP Shares will be issued for nil consideration in addition to the cash remuneration. 2. Shares will be issued in approximately October 2021, 2022 and 2023 subject employee’s ongoing service with the Company and Company performance. The number of shares will be calculated as follows: a) An agreed percentage of eligible employee’s annual salary at the date of payment. b) Number of shares issued based on the 5 day Volume Weighted Average Price (VWAP) prior to the Company’s Financial Year results announcement. c) A combination of eligible employee’s length of service and the Company meeting internal measure targets in the most recent Financial Year. Internal measure targets include: o Continual service period; o Revenue hurdles; and o EBITDA hurdles. These hurdles are considered non-market vesting conditions and the probability of being met is taken into account when determining the expense to be recognised in each period. The non-cash expense to the income statement is $2,045,405.
