Gaynor: Pay, performance link loose

By BRIAN GAYNOR

IT Capital's 5000 shareholders must have nearly choked on their coffee when they received the latest annual report. Page 44 reveals that chief executive Jeff Dittus was paid $909,000 and former managing director Keith Phillips $474,000.

How were these figures determined? How could the two brains behind IT Capital be paid nearly $1.4 million when the company share price sank 67 per cent during the year and it reported a loss of $5 million?

The report also reveals large payments to other employees, a consultant and a director of one of the company's investments. IT Capital's remuneration committee, comprising chairman John Robertson, Jay Snider and Mr Dittus, must have an extremely generous attitude towards salaries, bonuses and the other ingredients that make up these payments.

The other issue that will worry shareholders is the disastrous investment in Streamlink. On April 23, the company sank $1.25 million into Streamlink, which the annual report says was the recognised market leader in electronic procurement in Australia.

Just three months later it was placed in voluntary administration.

In his private capacity, Bruce Shepherd, chairman of the New Zealand Shareholders' Association, asked several searching questions at last year's annual meeting. He has far more reason to give IT Capital's directors a big rev-up at this year's meeting, which will be held in Auckland on August 31.

Horizon Energy

Horizon Energy's annual report, which was released at the same time as IT Capital's, reveals a different story.

In the March 2001 year, Horizon's share price rose from $6.70 to $10.30 and its earnings a share also increased following a $101.5 million capital repayment in October 1999.

But the company's remuneration committee is far more frugal than IT Capital's. Horizon's top-paid employee received between $160,000 and $170,000 and no one else was paid more than $100,000.

It goes to show there is often little relationship between performance and reward.

Lion Nathan

Lion Nathan is not having much luck with the regulatory authorities. On Monday it lost a High Court application to extend the date by which it must sell 19 per cent of Montana, from August 17 to at least August 23.

This was the fourth consecutive legal defeat for the group. It came out on the wrong side of two judgments from the standing committee of the Market Surveillance Panel and one from the Takeovers Panel.

The High Court application has been referred to the substantive case, which will be heard on Friday.

Lion Nathan's decision to go to the court seeking judicial review of all previous decisions of the standing committee is a high-risk strategy for the company and its previous brokers, Credit Suisse First Boston.

Both parties have consistently argued that the committee's original decision was incorrect because it was out of line with earlier Stock Exchange decisions and contrary to widely accepted market practice.

A High Court decision against Lion Nathan would make it difficult for directors to argue that the committee's decision was wrong.

Credit Suisse may also be a big loser from a negative decision. Recent articles in Business Week and Bloomberg Markets indicate that its shareholders have become increasingly concerned over the parent company's loose organisational structure and its brushes with regulatory authorities, including in New Zealand.

Rod Metcalfe, a spokesman for Credit Suisse Australia, is quoted as saying the New Zealand arm complied with the listing rules and Credit Suisse does not agree with the latest ruling of the Takeovers Panel.

These claims will lose their credibility if the court rules against Lion Nathan.

Credit Suisse has installed a new chief executive in New York, who has a reputation for running an extremely tight ship.

The New Zealand arm has always been fairly autonomous, but the Montana debacle and the appointment of an international chief executive could bring that favourable situation to an end.

While on the topic of Lion Nathan, the appointment of Geoff Ricketts as chairman to replace Doug Myers is a bizarre decision.

Mr Ricketts is a consulting partner of Russell McVeagh, the main legal adviser to Lion throughout the Montana debacle, and has no direct industry experience in Australia.

Why has Lion appointed a New Zealand lawyer as chairman when it is domiciled, and has its main activities, in Australia?

Why has it appointed Mr Ricketts when he sold 5.9 million shares to Kirin in 1998 at $5.40 a share and, according to last year's annual report, has only 25,000 shares left?

Shareholders would feel a lot more comfortable if the new chairman had direct experience of the Australian business scene and had a greater financial exposure to the group in terms of share ownership.

New Capital Market

The NZ Stock Exchange and some of its broker members have only themselves to blame for the extremely disappointing performance of New Capital Market (NCM).

The NCM annual report, dated April 20, stated: "We are currently working on the website's storage, revision and presentation facilities to make it easier for us to ensure that all information is current, relevant and included."

More than three months later, the website (www.ncm.co.nz) still does not contain important documents, including recent annual reports and notices of annual meetings.

Several key transactions, including the purchase of sharebrokers Reuhman & Co by NZIJ, also appear to be overpriced.

Last December, NZIJ shareholders approved the buying of Reuhman for $1.48 million through the issue of 2.4 million NZIJ shares at 50c each and a cash payment of $277,500.

In its first three months, Reuhman contributed consulting fees and commissions of just $112,000 yet NZIJ's four directors - chairman Trevor Janes, John Reuhman, Christine Reuhman and Liam McBride - were paid $62,000 for their services as employees over the same period.

If brokers are going to use the NCM as a vehicle to list their organisations they should also be prepared to take big pay cuts when they fail to deliver.

* bgaynor@xtra.co.nz