Bigger is better for new chiefs eyeing more money

LOOKING at the remuneration packages negotiated by newly appointed chief executives in Perth, there is a common pattern -5 size equals money.

The larger companies offer larger base sala-g ries, and their chief executives have greater ^ potential to earn large bonuses, not just in dollar terms, but also in percentage terms.

A survey of new employment contracts for Perth chief executives found that larger companies also offered more generous termination agreements, and in a handful of cases, threw in a handy sign-on bonus to sweeten the deal.

For smaller companies, the big upside rests with share options, which for many years have been used by exploration companies to lure executive talent.

Of all the Perth-based listed companies to appoint a new chief executive in the past year, it was engineering and construction contractors Macmahon Holdings and Forge Group that offered the largest remuneration packages.

The circumstances of their appointments could not have been more different.

Macmahon promoted chief operating officer mining Ross Carroll to the top job after Nick Bowen presided over another botched contract and an earnings downgrade, whereas Forge had a smooth and planned transition after years of profitable growth.

Mr Carroll’s appointment came amid big changes to Macmahon’s remuneration practices.

It also shone a light on Mr Bowen’s remuneration; he consistently ranked as one of Perth’s best-paid chief executives, though the company insisted his remuneration was in line with its industry peers nationally.

Despite that, Macmahon chairman Ken Scott Mackenzie highlighted the fact Mr Carroll’s package was smaller than that of Mr Bowen.

“The previous CEO’s total fixed remuneration was 19.2 per cent higher than the package negotiated with Mr Carroll and the package difference increases significantly when taking into account the changes in short-term incentive and long-term incentive,” Mr Scott Mackenzie said last month.

After the changes, Mr Carroll still ranks as one of the best-paid chief executives in town.

His base salary (including superannuation) is $1.1 million a year. Only a dozen or so serving executives in Perth have a higher base salary.

For the eight months to June 30, his salary has been cut by 10 per cent but that would still put him inside the top 20 chief executives in Perth.

Mr Carroll has the potential to earn an annual bonus up to 125 per cent of his base salary; that gives him a lot more upside than most other newly appointed chief executives, whose bonuses are capped at 50 per cent of base salary.

A new feature is that 30 per cent of the annual bonus can be clawed back up to two years after it has been paid.

The third aspect of Mr Carroll’s package is the long-term incentive, which delivers the potential to earn 950,000 performance rights. Their value is tied to the company’s share price, languishing around 27 cents a share.

One aspect of Mr Carroll’s package that is notably less generous than his peers in Perth is the payment on termination. He is entitled to six months’ notice or payment in lieu, whereas his peers at most other mid-cap companies are entitled to 12 months’ pay.

Apart from Mr Carroll, Forge Group’s new chief, David Simpson, was the only other chief executive to crack a base salary of $ 1 million.

Recruited from UGL, he was also one of just three newly appointed CEOs to get a sign-on bonus; his “commencement fee” was $750,000 in cash.

Reed Resources’ new chief executive Luke Tonkin’s “sign-on award” will be a series of share and performance rights granted over three years; if all goes to plan, he will get 2.5 million shares, currently worth a total of $450,000.

Nido Petroleum chief executive Philip Byrne negotiated a similar type of deal; his “sign-on and retention bonus” will be 10 million shares granted in six equal tranches over three years, currently worth a total of $280,000.

Many companies have highlighted just how difficult it will be for their chief executive to earn the maximum possible bonus.

At Forge, earnings per share will have to increase by at least 10 per cent before Mr Simpson qualifies for any of his annual bonus, and by 20 per cent for him to get his full shortterm incentive of $500,000.

Similarly, earnings per share must increase by 20 per cent every year for five years before he qualifies for the full long-term incentive.

Among mid-cap companies, the most notable difference in their remuneration packages was the long-term incentives.

Atlas Iron’s Ken Brinsden and Western Areas’ Dan Lougher can both earn up to 100 per cent of their base salary under their longterm incentive scheme.

Mr Tonkin can earn up to 83 per cent of his base salary, Mr Simpson up to 50 per cent and Mount Gibson Iron’s Jim Beyer up to 33 per cent.

Among smaller mineral exploration companies, base salaries are normally in a range of $300,000 to $400,000, plus superannuation.

Most of these companies offered share options as their long-term incentive.

The number and terms vary widely.

Venturex Resources’ Michael Mulroney has been granted 10 million options with an exercise price that is 50 per cent above the prevailing market price, at the time the issue is approved by shareholders. Mindax chief executive Stephen Ward has also been granted 10 million options. The first tranche of 4 million options is exercisable at a 30 per cent premium to the prevailing price, while the second tranche of 6 million is exercisable at 25 cents each.

Former Murchison Metals’ executive director Trevor Matthews has also been granted 10 million options, at his new job at MZI Resources. His options are split into two tranches; the first has an exercise price of 4 cents and the second an exercise price of 7.5 cents.

Red Mountain Mining and former Barminco boss Neil Warburton also negotiated a set exercise price for the 4 million share options he was granted.

His options are also split into tranches, exercisable at 25 cents each and 50 cents each.

Papillon Resources, which last month announced the recruitment of former Endeavour Mining chief operating officer Mark Connelly as its new CEO, has taken a different tack.

It has followed the lead of mid-cap companies by offering performance rights for its long-term incentive.

The rights will be granted in four tranches, with each subject to unspecified development milestones at its Fekola gold project in west Africa.

Similarly, Excelsior Gold has tied new chief executive David Hamlyn’s bonuses to three operational targets.