Contrary to all corporate governance theories, the highest-paid listed company chief executive usually comes from a poorly performing company.
The best-paid CEO last year was Gary Toomey of Air New Zealand. His remuneration included a large redundancy payment when he left the ailing carrier at the beginning of its 2002
financial year.
The highest-paid CEO in the previous year was Michael Andrews of Fletcher Challenge and the best paid in the current year should be either James Boonzaier, who has left Tower, or Terry McFadgen, who is leaving Fletcher Forests. None of these can claim to have created any shareholder value.
Huge redundancy payments to poorly performing chief executives are not consistent with the concept that their remuneration should be aligned with the interests of shareholders.
It seems CEOs win both ways: options allow them to take advantage of share price rises, but if they fail they receive big redundancy payments. Boonzaier has 674,229 worthless Tower options but a $2 million severance payment will help relieve his pain.
New Zealand CEOs are poorly paid compared with their counterparts across the Tasman. The top-paid Australian chief executive, excluding News Corporation because it is effectively US based, was Frank Lowy of Westfield with A$11.9 million ($13.5 million). The top 10 Australian CEOs received an average A$5.55 million from base salaries and incentives whereas, on a same basis, the top 10 in New Zealand were paid an average of $1.19 million.
It would be great to see a top-performing chief executive, like Lowy of Westfield, heading our top-paid list instead of the former CEO of a failed company.
BANK OF NEW ZEALAND
Almost 10 years to the day after we sold the Bank of New Zealand to the Aussies it reported a net profit of $516 million for the September year. The fantastic result demonstrates that small shareholders often have a much better grasp of long-term value than politicians, stockbrokers and institutional investors.
In mid-1992 National Australia Bank made a takeover offer for the country's largest financial institution at 80c a share. The BNZ was 58 per cent owned by the Government, 27 per cent by the Fay and Richwhite-controlled Capital Markets and the remainder by the investing public. An independent appraisal report, prepared by an Australian company, recommended acceptance of the 80c a share offer and stated, "We have assessed the future maintainable earnings of the bank at between $135 million and $180 million after tax".
Small shareholders, supported by Kathy Harris of the Wisconsin Investment Board, vigorously opposed the sale but it was strongly supported by the Bolger Government, Fay Richwhite, institutional investors and stockbrokers. The 80c offer valued the BNZ at $1.3 billion.
The bank's performance has steadily improved since it became a fully owned NAB subsidiary on November 10, 1992, resulting in a huge transfer in value across the Tasman.
Based on NAB's price/earnings ratio BNZ shares would now be worth approximately $4.70, a 490 per cent increase over the offer price. By comparison, the NZSE-40 Capital Index has risen by only 40 per cent over the same period. At $4.70 the bank would be valued at $7.7 billion compared with the sale price of $1.3 billion, a transfer in value from New Zealand to Australian investors of $6.4 billion. This figure does not include huge dividends paid by the BNZ to NAB since 1992.
Australian banks have been the backbone of the country's stock exchange and if the BNZ had remained listed it would be just behind Telecom in second spot and have played a major role in restoring investor confidence.
When controlling parties contemplate the sale of major shareholdings in Air New Zealand, Auckland International Airport, Fletcher Forests, the Central North Island Forest Partnership and other important national assets to foreign interests they should remember the Bank of New Zealand.
These assets have huge strategic value and it would be far better to manage them effectively under New Zealand ownership, and create wealth for local shareholders, instead of selling them to overseas interests.
RUSSELL McVEAGH
The hot shots at Russell McVeagh have egg all over their faces after some shareholders noticed that they failed to give the correct advice to two listed companies. As a result Evergreen Forests had to withdraw a motion to increase directors' fees at Fridays annual meeting and Taylors Group will have to do the same at next week's meeting.
The embarrassments have arisen because the Stock Exchange has a model constitution, that most listed companies have adopted, which has the following provision: "No resolution which increased the amount of the directors' remuneration shall be moved at a meeting of shareholders unless notice of the amount of increase has been given in the notice of meeting."
Motions to increase directors' fees at Evergreen and Taylors are null and void because neither company disclosed the amount of the increase in the notice of meeting. This was the same omission that allowed David Zwartz to stymie a proposed increase in Contact Energy director fees in January 2000.
Corporate lawyers at Russell McVeagh, who advise both Evergreen and Taylors, obviously don't read the financial pages because the Contact Energy fiasco received a huge amount of publicity.
But the story doesn't end there. The Stock Exchange, which approves notices of meetings for listed companies, failed to pick up a breach of its own model constitution and two of the country's most prominent lawyer directors were also clean bowled.
Bill Falconer, an Evergreen Forests director, is chairman of the Stock Exchange Market Surveillance Panel and Geoff Ricketts, who is on Taylors board, has been a Stock Exchange director since the late 1980s.
How could Russell McVeagh, the Stock Exchange, Falconer and Ricketts fail to spot a clear breach of Evergreen Forests and Taylors constitutions?
WALTUS
Time is running out for investors in nine Waltus syndicated property companies to vote on the proposed acquisition of their property assets by Urbus Properties.
Urbus was formed in 2000 following a decision by investors in 27 of 29 Waltus property syndicates to exchange their investments for shares in the new company at $1 each. Urbus profit performance has been slightly ahead of forecasts but its shares have consistently traded on the unlisted market below 85 cents.
According to directors Urbus will list on the Stock Exchange's main board early next year.
Under the proposal, investors in the nine syndicates are being offered Waltus 9.25 per cent convertible notes at 92c each. Investors in only one of the syndicates, Albany Power Centre, are being offered in excess of their original $5000 investment and shareholders in the other eight will receive an average consideration of only $4112.
Waltus argues that its shares and notes will attract attention because it will be included in the NZSE-40 Capital Index and will rank behind only Kiwi Income Property Trust and AMP Office Trust in terms of size.
But Waltus shareholders are not natural holders of listed company shares and its stock exchange performance is more likely to resemble Calan Healthcare Properties Trust, which is trading at a 26 per cent discount to its net asset backing of $1.09 a share.
Investors in the nine Waltus syndicated companies will meet in Wellington next Wednesday to vote on the transactions. It is essential they all vote because individual shareholders will determine the outcome.
* Disclosure of interest: none.
* bgaynor@xtra.co.nz
CEO remuneration: Who gets what
New Zealand-based companies in NZSE40 Index
Chief executive Company Total remuneration
Gary Toomey Air New Zealand $4,205,000
Theresa Gattung Telecom $1,819,561
Ralph Waters Fletcher Building $1,396,640
Jeff Williams TrustPower $1,205,000*
Chris Liddell Carter Holt Harvey $1,173,120**
Michael Beard Tranz Rail $1,157,000
Evan Davies Sky City $1,138,050
Terry McFadgen Fletcher Forests $1,133,830
James Boonzaier Tower $1,009,015
Tom Mockridge INL $941,900
Greg Muir The Warehouse $935,000*
Stephen Barrett Contact Energy $863,790
John Goulter Auckland Airport $815,220
Kim Ellis Waste Management $707,000
John Fellet Sky Network TV $533,672
Michael Daniell F&P Healthcare $517,000**
Geoff Vazey Ports of Auckland $515,000*
Clifford Kinraid Hallenstein $492,000
John Bongard F&P Appliances $488,500**
Alan Davey NZ Refining $455,000*
Luke Moriarty Rubicon $425,000
Jon Mayson Port of Tauranga $405,000*
John Hirst Nuplex $373,000
Eric Barratt Sanford $334,934
Rod Duke Briscoe $296,000
Phil James Natural Gas ***
Dan Warnock UnitedNetworks ****
Infratil and Property for Industry are run by management companies.
* included retirement payment.
** Annualised.
*** Not disclosed.
**** Warnock was on secondment and paid by UtiliCorp.
Contrary to all corporate governance theories, the highest-paid listed company chief executive usually comes from a poorly performing company.
The best-paid CEO last year was Gary Toomey of Air New Zealand. His remuneration included a large redundancy payment when he left the ailing carrier at the beginning of its 2002
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