The Great Protection Racket

Australia's corporate leaders are skimming millions in cash bonuses, protecting share options so they win no matter what.

Australia's business leaders have been cashing in their lavish incentive payments - without telling their shareholders - under loopholes in the stock exchange rule, the Australian newspaper revealed this week A document from leading investment bank UBS Warburg - obtained by The Australian - shows how corporate executives can reap millions of dollars from their shares and option plans, while giving the appearance there have been no changes to their bonus deals. These payment arrangements are achieved through complex financial transactions sometimes called protection schemes. But the Australian Stock Exchange said such schemes were misleading and against the spirit of good corporate governance. Under the schemes, an executive with employee share options awarded by the company will pay an investment bank to structure a mix of "call options", "collars", "forwards" and "equity swaps" over the company stock to lock in the value of the share price at a certain point and protect capital gains, while retaining legal ownership of the stock. The executive maintains voting rights and dividends but defers legal disposal of the shares. The scheme means executives are protected from share price falls and have less incentive to drive the share price up, as they get little reward for a higher share price. In the case of One.Tel, executives could have locked in the value of their options regardless of the performance of the shares and the company itself. (Source: The Australian)

UK Bonuses Paid In 'Worthless' Lira

London investment banks are paying Christmas bonuses to their staff in one of the world's most worthless currencies: the Turkish lira. At least 20 leading institutions are giving bonuses in the form of thousands of billions of lira as an ingenious but legal tax avoidance ruse. As a result, staff are receiving sums that stretch into 13 figures - amounts that would require semi-trailers to cart away if delivered in cash. With one Turkish lira now worth slightly more than 0.00004p, a £1 million ($2.78 million) bonus is now the equivalent of 2388 billion Turkish lira. The banks calculate that paying their staff in one of the world's weakest currencies is profitable because it enables them to escape British tax. Not surprisingly, the Inland Revenue is taking an interest in the practice. (Source: The Australian)

New Bid To Block Shareholder Pests

The Federal Government is attempting to reduce the power of small shareholders by abolishing the rule that enables 100 shareholders of a company to call a meeting. The Government believes only those shareholders who control at least 5 per cent of the voting rights should be able to force directors to call a meeting. It will seek to replace the 100 shareholder rule with the 5 per cent voting rights provision when Parliament resumes in the new year.The Government claims it wants to put an end to abuse of the 100-shareholder rule, such as the recent NRMA farce where 12 extraordinary general meetings to remove directors have been called during the past two years. Each meeting held costs more than $1 million. Environmental groups have used the 100-shareholder rule to force companies such as Rio Tinto to call special general meetings in the past. (source: SMH)

Structural Problems With Exec Pay Remain

Australia's corporate watchdog says structural problems with executive pay packages are out of control and need to be addressed. Australian Securities and Investments Commission chairman David Knott told a parliamentary committee some of the corporate excesses of the United States were apparent locally - but not on the same scale. Knott says Australia has enjoyed a very long and sustained period of profitability which ushered in new levels of executive remuneration. He says Australia learned the lessons of the 1980s corporate excesses and introduced important reforms but it was still necessary for the government to have a response to the current raft of issues that concerned shareholders and the public in the wake of the HIH and One.Tel collapses.

NAB Defends Extra Job Cuts

National Australia Bank has more than tripled the number of jobs to be axed across its British and Irish operations under its major restructuring program. Australia's biggest bank has also increased the number of job cuts to occur under the Positioning for Growth restructure. NAB in April announced 250 cuts from its Clydesdale Bank in Scotland, Yorkshire Bank in England, Northern Bank in Northern Ireland and National Irish Bank in the Republic of Ireland. But buried on page 90 of its annual report this week were figures lifting the total to 910. The total number of jobs to go from NAB's operations worldwide by September 2003 also rose to 2,955 from 2,150. About 1,852 jobs will now be cut in Australia. The bank in April estimated between 1,500 and 1,600 local employees would go. (Source: SMH)

Murray Cashes In $9.4 Million

Never doubt that Commonwealth Bank boss David Murray is a man of his word. In August, he told reporters that the bank would no longer issue executive options, arguing they had led to negative "behavioural consequences" in the US. Yesterday, his popular view at the time also took on a personal touch as he turned 500,000 options into shares and sold 350,000, worth $9.4 million. Under his options agreement, Murray paid $19.58 each for shares currently trading at $27.18. The deal crystallises a pre-tax profit just shy of $2.6 million on top of the $4.65 million long-service bonus he received last year as part of a total 2001-02 salary of almost $7 million. He has also had to come up with about $2.9 million to purchase the balance of 150,000 shares he is holding, albeit they too are showing a tidy profit. (Source SMH)

Deloitte Chief Helps New Tel Boss

Mystery surrounds the role played by Domenic Martino, the head of one of Australia's largest accounting and consulting firms, in trying to save junior telco New Tel from collapse. The Australian has learned that Martino, chief executive of Deloitte Touche Tohmatsu in Australia, has been advising his long-time business associate and friend Peter Malone, chief executive of New Tel, to try to stitch-up deals to save the company and avoid the appointment of an independent administrator. His involvement comes despite Martino himself denying such a role and attempts by Deloitte Touche to distance itself from the controversy. Shareholders are angry that the company raised more than $100 million in equity - while Mr Martino was a director - but now sits on the brink of collapse.While he was a New Tel director, Deloitte earned more than $4 million in fees from New Tel in consulting work over the 2000 and 2001 financial years.

British Give US Boss Bitter Pay Pill

GlaxoSmithKline has shelved a potential $55 million pay deal for its chief executive, Jean-Pierre Garnier, after a furious backlash from London investors. Britain's biggest pharmaceutical company was forced to put the controversial plan on hold to avoid a full-scale battle with its shareholders, who do not believe the French-born executive deserves such a large pay rise. Garnier, who took home $US11 million last year, demanded the increase to put his earnings in line with rivals in the US, where he is based. Some shareholders, however, feared the company would reintroduce the package once the fuss died down. GSK said it remained "committed to aligning its incentive plans with those of its pharmaceutical peer group". (Source: The Guardian)