12/01/2012 - 15:32

$2m Forge package sets new disclosure standard

12/01/2012 - 15:32

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$2m Forge package sets new disclosure standard

Getting a clear understanding of CEO remuneraton packages has been a challenge in Australia, despite increased disclosure over the years, but that looks set to change if the high standards set by Forge Group are any guide.

Forge today released the full employment agreement for its new managing director, former UGL Resources chief executive David Simpson, and in the process it has set a new benchmark that other listed companies will be challenged to meet.

Most notable was Forge's disclosure of the precise performance targets that Mr Simpson has to achieve to qualify for his incentive payments - that has not been disclosed by listed companies in the past. At best, companies have talked about the metrics they employ - such as earnings per share, total shareholder return, production levels and safety standards - but not the actual targets.

Mr Simpson's package was also notable because he will one of the highest paid chief executves in the State, based on data compiled in WA Business News' annual CEO Salary Survey.

His base salary will be $1 million, and he will be paid a commencement fee of $750,000.

In addition, he will be entitled to earn short-term and long-term incentives worth up to $500,000 each per year. The incentives are tied to diluted earnings per share (EPS).

For Mr Simpson to qualify for a short-term bonus in his first year, Forge will need to lift its EPS by more than 10 per cent, and to get the maximum incentive, Forge must lift EPS by 20 per cent.

In order to qualify for the maximum long-term incentive, which will be paid in the form of unvested performance rights, Forge has to achieve compound EPS growth of 14.87 per cent. If Mr Simpson achieves that goal every year, Forge will double its EPS over five years.

"It's a $2 million package if he seriously delivers," Forge chairman Peter Hutchinson told WA Business News. "They are real stretch targets."

"If he can double diluted earnings per share over five years, then he deserves that kind of reward."  

WA Business News' CEO Salary Survey identified just 12 WA chief executives with a base salary of $1 million or more last financial year.

The survey also found four newly appointed chief executives, including Woodside's Peter Coleman, Fortescue Metals' Nev Power and Clough's Kevin Gallagher with base salaries of $1 million or more.

In regards to total remuneration, which in many cases includes the value of share options, a total of 26 WA CEOs earned more than $2 million last year.

Another interesting aspect of Mr Simpson's package is that he will not be entitled to dividends on his performance rights. This has become a contentious issue at several other companies, where executives have been paid dividends on their performance rights.

"These are not performance shares, they are rights to a share," Mr Hutchinson said.

"We thought it was cleaner to do that, we thought it was better corporarte governance."

 

 

  

 

 

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