KEY POINTS:
Even in the best of times, some of Contact Energy's extravagant practices raised eyebrows. There was the $6.5 million in salary and bonus payments delivered to chief executive Paul Anthony during two years in which the electricity generator performed lamely. Contact's directors, not to be outdone, have sought
to progressively elevate their fees, sometimes despite opposition from the vast majority of shareholders. Never, however, have they concocted something as ill-timed or unwarranted as the proposal to almost double the directors' fees pool to $1.5 million.
This is far from the best of times. Vector recognised as much last week when it withdrew a plan to boost its directors' pay. The lines company said that, given the local and global economic conditions, "the directors no longer believe asking shareholders to approve fee increases is appropriate". Contact has even more reason than Vector to think that way. The fee proposal is being put in the same week that thousands of its customers are receiving letters telling them of 10 per cent price rises. That, in a period of belt-tightening, creates a blatant them-and-us scenario.
Equally, the proposal comes during an election campaign. Contact's directors seem blissfully unaware of the company's political vulnerability. Many people are annoyed by the failure of electricity industry restructuring to deliver lower prices. The Government is soon to receive reports from the Commerce Commission and the Electricity Commission on the adequacy of competition in that market. It is not difficult to see this leading to further reform during which the status of Contact, the only one of four electricity generators to be privatised, would be a central focus. So far, the Government's threats have been muted. Prime Minister Helen Clark has questioned whether Contact was abusing a position of market dominance, and Energy Minister David Parker has described the directors' fee proposal as "extraordinary". Contact's maladriotness provides ample room for manoeuvre, however.
The company, defending the planned increase, says its directors' fees are well below the market for similar-sized companies. But Contact is not an enterprise the directors have had to build from the ground up. Nor is it particularly complex. Whatever its aspirations, it remains essentially a utility company founded on taxpayer-funded assets. Mr Parker has also observed that directors of its state-owned electricity brothers are paid less than half the amount paid by Contact.
Contact's revenue and assets are, indisputably, much bigger than when it was formed in the mid-1990s. On that basis, it directors should be being paid more. By and large, that has, in fact, happened. But, in any event, the size of a company should not be the ultimate determinant of a hike in directors' fees. Financial performance should be more significant. Market turmoil has made a mockery of share price as a gauge, but it is relevant that Contact predicts flat profits in the coming year. That does not suggest its directors' efforts are under-appreciated.
Tellingly, a report for minority institutional shareholders by RiskMetrics Group urges a vote against the company's recommendation and the reappointment of the deputy chairman, Phil Pryke, and non-executive director John Milne. Contact's Australian majority owner, Origin Energy, can use its voting clout to negate such a verdict. But if it does so, and the directors' fee increase is confirmed, it will have overridden most of Contact's shareholders.
It will also have alienated the company's customer base and done itself no political favours. Before today's vote, it should think again.
