Tranz Rail executives line up $6m payout

By PAM GRAHAM

Tranz Rail's senior managers, regarded as spectacularly unsuccessful by many of their shareholders, are in line for payouts totalling $6 million.

According to documents provided during the takeover saga, a change in control is an event in executive employment contracts that "will potentially give rise to redundancy payments totalling approximately $6 million".

Australia's Toll Holdings is expected to succeed in taking over the company after raising its bid from 95c to $1.10 a share last week, though it still has to jump a self-imposed hurdle of convincing holders of 90 per cent of the shares to accept.

If Toll does succeed, Tranz Rail managing director Michael Beard, who has been with the firm for three years, is entitled to two years' pay and six other executives are entitled to 18 months'. They can trigger the redundancy payments themselves.

Simon Botherway of Brook Asset Management said the situation was unsatisfactory. "They will be rewarded for poor performance."

On any analysis, management had been spectacularly unsuccessful, and the change of control had occurred at a level that had handed many investors huge losses. The shares were trading at $3 about 18 months ago.

Tranz Rail's workers were more charitable. "Our opinion would be if they are contractually entitled then they should get payments," said Wayne Butson, general secretary of the Rail & Maritime Transport Union.

Bruce Sheppard of the New Zealand Shareholders Association said executive pay was a matter of contract and Beard had received a hospital pass when he took over.

The board, however, was a different matter. Under the company's constitution, directors are entitled to a lump sum, or pension. The total cannot exceed three years' pay.

Sheppard said the old guard on the board did not deserve a penny and the new guard had not been there long enough to get a pension. The norm was full payment of benefits after nine years of service.

According to the independent report by Grant Samuel sent to shareholders, Beard is entitled to receive 24 months' base salary and benefits, plus a payment of base salary to next March, a pro rata share of his performance incentive for the relevant year, continued payment of life insurances to next March and outplacement assistance.

He may be required to continue with Tranz Rail for up to six months.

Beard earned $1.157 million last year, according to the annual report. That included $313,702 worth of shares and he had to pay tax on a value of $4.45 each when they were trading below that.

A calculation from information available suggests two years of base pay is worth $1.68 million.

Six of 11 other senior managers are entitled to 18 months' pay, a pro rata share of their performance incentive and outplacement assistance and can be required to continue for up to six months.

Two other managers are entitled to be paid until next March and two are entitled to not less than six months' notice. None of the managers was named and Tranz Rail declined to comment yesterday.

A change of ownership often triggers redundancies but not typically at the behest of the employee.

Kevin McBride of McBride HR said redundancy was traditionally to compensate for the withdrawal of expected earnings by the employer.

If an employee decided to leave, he or she should not get redundancy, particularly if the contract was fixed-term, he said.

Executive payouts are an international issue. There was outrage in Australia when BHP Billiton chief executive Brian Gilbertson got £4.2 million ($11.6 million) and a pension after six months in the job and AMP was reported to have paid former chief Paul Batchelor A$2.1 million ($2.4 million).


Top payout

Managing director Michael Beard's termination package months' salary and benefits - $1.68 million*

Base salary to next March - $420,000*

Pro-rata share of performance incentive

Life insurance premiums to next March

Outplacement assistance

* Estimated from 2002 remuneration